TRADE LIBERALIZATION

Trade Liberalization

Introduction2

Discussion3

Liberalisation of Trade in Developing Countries4

The Rationale for Trade Liberalisation5

Consequences of Trade Liberalization5

Empirical Evidence7

The Case of Haiti8

Conclusion8

References9

Trade Liberalization

Introduction

The world economy has experienced rapid growth in recent decades; one of the factors contributing to rapid growth includes a concerted effort to reduce trade barriers for greater acceleration of international trade. Some developing countries have opened their economies for international trade to maximize economic development opportunities offered by trade liberalization. Trade liberalisation is the process of reduction or entire elimination of any government practices and policies that restrict the free flow of services and goods among nations. Trade liberalisation usually requires devaluation of exchange rate to retain competitiveness. Liberalisation of trade is expected to have shock effect in short -run; allocative effect in medium run and dynamic effect in long-run.

There is a significant contribution of trade liberalization policies to increases in international trade; there has been a reduction of average quotas and tariffs on foreign goods from 40% earlier than World War II to below 4% currently. And though global output has risen more than five times on the whole, since the end of World War II, total world exports are almost 15 times higher now in comparison to what they were in 1950. This specifies an incredible growth in international trade in relation to overall economic output. Conversely, the opponents of trade liberalisation claim that economic growth is happening unduly- supporting only nations in the Northern Hemisphere. And that it actually gives rise to precipitous income disparity between the North and the South.

This paper seeks to analyse critically the significance of trade liberalisation for developing countries; whether trade liberalisation has been good for developing countries or not. The possible causes and consequences, expected effects and risks associated with trade liberalization for developing countries will be reviewed in this paper. Empirical evidence, i.e. cross country, national cases will also be briefly discussed.

Discussion

Trade liberalization entails the opening up of markets to foreign imports and implies the reduction or abolishment of trade barriers that restrain trade in services or goods across countries. These trade barriers incorporate tariffs, nontariff barriers (like standards, quotas and other regulations imposed by government), subsidies (on exports and production), and other restrictive trade instruments. Trade can be liberalized by governments unilaterally or on a reciprocal basis in negotiations with other countries and can implement any cuts in a preferential or a non- preferential manner.

Barriers to imports are removed by preferential liberalization only from selected countries and can bring about the formation of customs unions and free trade areas, while non- preferential liberalization refers to all countries that are covered by a clause of most favoured nation. Built around the World Trade Organization, the modern international trading system is rooted in the non- preferential liberalization of trade and therefore bounds discretion of member countries to liberalize trade preferentially. A country that puts all its trade barriers to an end undertakes free trade.

Trade liberalization is expected to increase welfare of a country through efficiency gains ...