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Abstract: The empirical study of the impact of trade liberalization has not convinced the skeptics about the economic gains after trade reforms. Some have even argued that trade reforms have led to economic collapse and to deindustrialization. Using a sample that excludes countries that were subject to major exogenous disruptions, the authors note that post-reform economic growth was 1.2 percentage points higher than before the reforms. This is remarkable considering that pre-reform periods were characterized by highly expansionary state policies and large external borrowing, and the crisis years that preceded trade liberalization in the comparisons are eliminated. Through multivariate fixed effects estimations the authors calculate that annual per capita GDP growth rates increased by up to 2.6 percentage points after the trade reforms, compared to a counterfactual that takes into consideration the evolution of several growth determinants. Moreover, trade liberalization has been followed by an acceleration of growth in investment, exports of goods and services, and manufacturing exports, and as opposed to common belief, outward orientation did not lead to significant deindustrialization and actually seems to have increased export diversification. Growth acceleration occurred irrespective of income per capita level and was quite significant in Sub-Saharan Africa. As expected, small countries benefited most from the reforms.
This compelling two-volume collection presents the major literary contributions to the economic analysis of the consequences of trade liberalization on growth, productivity, labor market outcomes and economic inequality. Examining the classical theories that stress gains from trade stemming from comparative advantage, the selection also comprises more recent theories of imperfect competition, where any potential gains from trade can stem from competitive effects or the international transmission of knowledge. Empirical contributions provide evidence regarding the explanatory power of these various theories, including work on the effects of trade openness on economic growth, wages, and income inequality, as well as evidence on the effects of trade on firm productivity, entry and exit. Prefaced by an original introduction from the editor, the collection will to be an invaluable research resource for academics, practitioners and those drawn to this fascinating topic.
The empirical study of the impact of trade liberalization has not convinced the skeptics about the economic gains after trade reforms. Some have even argued that trade reforms have led to economic collapse and to deindustrialization. Using a sample that excludes countries that were subject to major exogenous disruptions, the authors note that post-reform economic growth was 1.2 percentage points higher than before the reforms. This is remarkable considering that pre-reform periods were characterized by highly expansionary state policies and large external borrowing, and the crisis years that preceded trade liberalization in the comparisons are eliminated. Through multivariate fixed effects estimations the authors calculate that annual per capita GDP growth rates increased by up to 2.6 percentage points after the trade reforms, compared to a counterfactual that takes into consideration the evolution of several growth determinants. Moreover, trade liberalization has been followed by an acceleration of growth in investment, exports of goods and services, and manufacturing exports, and as opposed to common belief, outward orientation did not lead to significant deindustrialization and actually seems to have increased export diversification. Growth acceleration occurred irrespective of income per capita level and was quite significant in Sub-Saharan Africa. As expected, small countries benefited most from the reforms.
This is one of few books on the quantitative assessment of trade liberalisation and its impact on micro and macro economics structure in developing countries. Addressing the prospects of economic growth at a macro level, gives a thorough analysis of various issues such as profitability of enterprises after liberalisation, structural change, imports and exports by sectors and regions, and the trade balances of developing countries. The aspects of terms of trade and the trade balances in African, Latin American and Asian economies are studied using econometric techniques.
This is one of few books on the quantitative assessment of trade liberalisation and its impact on micro and macro economics structure in developing countries. Addressing the prospects of economic growth at a macro level, gives a thorough analysis of various issues such as profitability of enterprises after liberalisation, structural change, imports and exports by sectors and regions, and the trade balances of developing countries. The aspects of terms of trade and the trade balances in African, Latin American and Asian economies are studied using econometric techniques.
This is a meticulously researched and well written book on a subject of immense contemporary academic and policy interest. Prema-chandra Athukorala, Journal of Development Studies The book is a valuable contribution to the analysis of the links between trade liberalisation, poverty and inequality . . . The book is a coherent piece of work offering an abundance of well-researched and argued information, effectively establishing it as a notable contribution to the investigation and understanding of this very important field. Therefore this book is highly recommended as an important publication for everyone interested in this field as it is a powerful guide to the complex questions that emerge when dealing with the issues of trade liberalisation and poverty elimination at international level. Marios Koutsias, International Trade Law and Regulation Thirlwall and Pacheco-López s book makes its contribution by serving as a clearly written synthesis of a diversity of literatures on trade liberalization and its impacts on growth, inequality and wages, and poverty. . . . the book is an excellent one. It should be a required reading companion to any graduate-level trade course. Kevin P. Gallagher, Journal of Human Development and Capabilities This book breaks out of the standard distinction between free trade and protectionism , and shows how to think constructively about trade policy as an instrument of national economic strategy. It is highly recommended for those who wish to think beyond orthodoxy, and especially for those in developing countries who wish to influence negotiations with developed countries and western-based international organisations. Robert Wade, London School of Economics, UK This is a gem of a book. Based on deep understanding of diverse economic theories and empirical evidence, it offers us a succinct but highly informative overview of the controversies surrounding the impact of trade policy on growth, inequality, and macroeconomics. Ha-Joon Chang, University of Cambridge, UK, and author of Kicking Away the Ladder, and Bad Samaritans Free-trade fundamentalism is gradually making way for a more nuanced and historically well-informed understanding of the role that trade policy plays in economic development. Thirlwall and Pacheco-López provide an excellent review of the relevant literature as well as a sophisticated critique of the earlier, simplistic views. As they explain, it is the details the timing, sequencing, and context that determine whether liberalization will succeed. Dani Rodrik, Harvard University, US This book will infuriate the free trade ultras who believe that liberalisation is the answer to every problem and a good thing too. The real world, as Thirlwall and Pacheco-López show clearly and vividly, is different from the world of theoretical models so beloved by today s economic orthodoxy, and they take delight in tweaking the noses of the Washington consensus. History suggests they are right to argue that managed trade is better for developing countries than swallowing large doses of free-trade medicine. Larry Elliott, The Guardian Orthodox trade and growth theory, and the world s multilateral development institutions, extol the virtues of trade liberalisation and free trade for more rapid economic development of poor countries. However, the contemporary reality and history seem to tell a different story. The world economy has experienced an unprecedented period of trade liberalisation in the last thirty years, and yet international and global inequality is widening; domestic poverty (outside of China) is increasing; poor countries exports have grown more slowly than their imports leading to balance of payments crises, and the so-called globalising economies of the world (excluding China and India) have fared no better, and in some cases worse, than those countries that have not liberalised so extensively. This book argues that orthodox theory is based on many unreal assumptions,
Countries that fully liberalize their telecommunications and financial services sectors may be able to expect economic growth rates up to 1.5 percentage point higher than rates in other countries.
The global financial crisis triggered a broad reassessment of economic integration policies in developed and developing countries worldwide. The crisis-induced collapse in trade was the sharpest ever since World War II, affecting all countries and all product categories. A huge shock to the trading system, combined with severe macroeconomic instability, makes it natural for policymakers to call into question the basic underlying assumptions of trade liberalization and openness. In particular, outward-oriented or export-led growth strategies are being reassessed as openness is increasingly associated with greater volatility. However, it is crucial not to lose sight of the dynamic benefits that openness can offer. Examples include technology transfer, increased competitive pressure that reduces markups and improves efficiency, and economies of scale. The real question is how to manage outward-oriented strategies so as to maximize the benefits of openness while minimizing risks. This book aims to contribute to this important and ongoing policy debate, bringing together recent empirical work on the trade collapse, its causes and consequences, and the broader trade policy agenda in the post-crisis environment. It addresses critical policy issues revolving around the topic of outward-oriented growth strategy, including policy instruments that help manage risks associated with outward-orientation, lessons learned from the crisis for particular countries and regions, and how emerging trade policy issues such as climate change, commodities, global production networking, and migration affect the prospects for recovery and outward-oriented growth.