Trade Liberalisation and Economic Performance: Theory and Evidence for Developing Countries

The last five decades have witnessed a profound evolution of economic policy in developing countries, particularly in the case of trade strategies. Both internal, as well as external, factors have prompted the need for more outward-oriented (or liberalised) trade policy regimes. The creation of the General Agreement on Tariffs and Trade (GATT) in 1947 and the World Trade Organisation (WTO) in 1995 have been important driving forces for free trade. Since then, the major quantitative barriers to trade, i.e. tariffs and non-tariff barriers (quotas, licences and technical specifications, among other restrictions), have substantially been reduced or dismantled. Also, the progress towards more liberalised trade regimes, mainly in developing countries, has been manifested in the trade and development literature. Major studies suggest that the performance of more outward-oriented economies is superior to that of those countries pursuing more inward-looking trade practices (Greenaway and Nam, 1988; Dollar, 1992; Sachs and Warner, 1995; and Rodriguez and Rodrik, 2000). Recent developments in the international trade literature focus on the potential dynamic effects of trade liberalisation, i.e. simplification of tariff structures and elimination of non-tariff barriers, in reducing the incentives to rent seeking and in accelerating the flow of technical knowledge from the world market. Moreover, there have been important advances regarding the study of trade liberalisation and its impact on exports, imports and the balance of payments, largely neglected in the literature, often driven by supply-side considerations.

[1]  B. Balassa.  The Structure of Protection in Developing Countries , 1971 .

[2]  J. Tybout.  Researching the trade - productivity link : new directions , 1991 .

[3]  T. Oyejide.  Regional Integration and Trade Liberalization in Sub-Saharan Africa , 1999 .

[4]  J. Bhagwati.  Anatomy and Consequences of Exchange Control Regimes , 1978 .

[5]  M. Bleaney.  Trade reform, macroeconomic performance and export growth in ten Latin American countries, 1979–95 , 1999 .

[6]  G. Helleiner.  Outward Orientation, Import Instability and African Economic Growth: an Empirical Investigation , 1986 .

[7]  D. Greenaway,et al.  MODELING GROWTH (AND LIBERALIZATION) USING SMOOTH TRANSITIONS ANALYSIS , 1997 .

[8]  R. Levine,et al.  A Sensitivity Analysis of Cross-Country Growth Regressions , 1991 .

[9]  G. Helleiner.  Trade strategy in medium-term adjustment , 1990 .

[10]  W. Branson,et al.  Trade and Structural Change in Pacific Asia , 1987 .

[11]  X. Sala-i-Martin,et al.  I Just Ran Two Million Regressions , 1997 .

[12]  Rostam M. Kavoussi.  Export expansion and economic growth: Further empirical evidence , 1984 .

[13]  Michael G. Vogt,et al.  Determinants of the demand for imports of Venezuela , 1984 .

[14]  R. Faini,et al.  Import demand in developing countries , 1988 .

[15]  H. Wolf.  Trade orientation measurement and consequences , 1993 .

[16]  David L. Dollar.  Outward-Oriented Developing Economies Really Do Grow More Rapidly: Evidence from 95 LDCs, 1976-1985 , 1992, Economic Development and Cultural Change.

[17]  D. Greenaway,et al.  Exports, growth, and liberalization: An evaluation , 1994 .

[18]  Marco Bianchi,et al.  Is International Openness Associated with Faster Economic Growth? , 1997 .

[19]  D. Greenaway,et al.  Trade liberalisation and growth in developing countries , 2002 .

[20]  M. Michaely.  Exports and growth: An empirical investigation , 1977 .

[21]  R. Solow.  A Contribution to the Theory of Economic Growth , 1956 .

[22]  H. Esfahani.  Reputation and uncertainty Toward an explanation of quality problems in competitive LDC markets , 1991 .

[23]  B. Balassa,et al.  Exports, policy choices, and economic growth in developing countries after the 1973 oil shock , 1985 .

[24]  K. M. Matin.  Openness and economic performance in sub-Saharan Africa : evidence from time-series cross-country analysis , 1992 .

[25]  Abdelhak S Senhadji,et al.  Time Series Analysis of Export Demand Equations: A Cross-Country Analysis , 1998, SSRN Electronic Journal.

[26]  A. Krueger.  Foreign Trade Regimes and Economic Development: Liberalization Attempts and Consequences , 1978 .

[27]  Gershon Feder.  On exports and economic growth , 1983 .

[28]  A. Thirlwall.  Trade Agreements, Trade Liberalization and Economic Growth: A Selective Survey , 2000 .

[29]  H. Chenery,et al.  Three decades of industrialization , 1989 .

[30]  M. Bahmani‐Oskooee,et al.  Structural change in import demand behavior, the Korean experience: a reexamination , 1997 .

[31]  L. Taylor.  Economic Openness: Problems to the Century's End , 1988 .

[32]  Vatcharin Sirimaneetham.  What drives liberal policies in developing countries , 2006 .

[33]  Robert Summers,et al.  A NEW SET OF INTERNATIONAL COMPARISONS OF REAL PRODUCT AND PRICE LEVELS ESTIMATES FOR 130 COUNTRIES, 1950–1985 , 1988 .

[34]  Elhanan Helpman,et al.  International R&D spillovers , 1995 .

[35]  A. Rose,et al.  An empirical evaluation of the macroeconomic effects of tarrifs , 1992 .

[36]  B. Balassa.  Export Composition and Export Performance in the Industrial Countries, 1953-71 , 1979 .

[37]  I. Little,et al.  Industry and trade in some developing countries: A comparative study , 1970 .

[38]  Amelia U. Santos‐Paulino.  Trade Liberalization and the Balance of Payments in Selected Developing Countries , 2004 .

[39]  Olugbenga A. Onafowora,et al.  Can Trade Liberalization Stimulate Economic Growth in Africa , 1998 .

[40]  Judith M. Dean,et al.  Trade Policy Reform in Developing Countries since 1985 , 1994 .

[41]  P. Mosley,et al.  Evaluating the Impact of World Bank Structural Adjustment Lending: 1980–87 , 1991, Evaluating Development Assistance.

[42]  D. Greenaway.  Liberalising Foreign Trade through Rose-Tinted Glasses , 1993 .

[43]  S. Edwards.  Structural Adjustment Policies in Highly Indebted Countries , 1988 .

[44]  R. Lucas.  On the Mechanics of Economic Development , 1988 .

[45]  David Sapsford,et al.  Foreign Direct Investment and Growth in EP and IS Countries , 1996 .

[46]  B. Balassa.  Exports and economic growth: Further evidence , 1978 .

[47]  David Greenaway,et al.  Industrialisation and Macroeconomic Performance in Developing Countries under Alternative Trade Strategies , 1988 .

[48]  A. Krueger,et al.  Why Trade Liberalisation is Good for Growth , 1998 .

[49]  John Luke Gallup,et al.  Geography and Economic Development , 1998 .

[50]  W. Easterly.  How much do distortions affect growth , 1993 .

[51]  Edward E. Leamer,et al.  Measures of Openness , 1988 .

[52]  Jan Willem Gunning,et al.  Explaining African Economic Performance , 1999 .

[53]  Sebastian Edwards,et al.  Openness, Trade Liberalization, and Growth in Developing Countries , 1993 .

[54]  J. Tybout.  Linking trade and productivity : new research directions , 1992 .

[55]  Nasiruddin Ahmed,et al.  Export response to trade liberalization in Bangladesh: a cointegration analysis , 2000 .

[56]  Sebastian Edwards,et al.  Trade Orientation, Distortions and Growth in Developing Countries , 1991 .

[57]  Dan Ben-David.  Equalizing Exchange: Trade Liberalization and Income Convergence , 1993 .

[58]  P. Romer,et al.  New Goods, Old Theory, and the Welfare Costs of Trade Restrictions , 1993 .

[59]  Abdelhak S. Senhadji.  Time-Series Estimation of Structural Import Demand Equations: A Cross-Country Analysis , 1997, SSRN Electronic Journal.

[60]  J. Sachs.  Trade and Exchange Rate Policies in Growth-Oriented Adjustment Programs , 1987 .

[61]  D. Rodrik.  The Limits of Trade Policy Reform in Developing Countries , 1992 .

[62]  D. Greenaway,et al.  Structural Adjustment and Liberalisation in Developing Countries: What Lessons Have We Learned? , 1993 .

[63]  Ann E. Harrison,et al.  Openness and Growth: A Time-Series, Cross-Country Analysis for Developing Countries , 1995 .

[64]  Cheng Hsiao,et al.  Panel Data Models , 2007 .

[65]  W. M. Corden.  The Structure of a Tariff System and the Effective Protective Rate , 1966, Journal of Political Economy.

[66]  D. Rodrik,et al.  Trade Policy and Economic Growth: A Skeptic's Guide to the Cross-National Evidence , 1999, NBER Macroeconomics Annual.

[67]  Amelia U. Santos‐Paulino,et al.  The Impact of Trade Liberalisation on Exports, Imports and the Balance of Payments of Developing Countries , 2004 .

[68]  B. Heitger.  Import protection and export performance — Their impact on economic growth , 1987 .

[69]  P. Romer.  Endogenous Technological Change , 1989, Journal of Political Economy.

[70]  J. Sachs,et al.  Economic Reform and the Process of Global Integration , 1995 .

[71]  R. Dornbusch.  The Case for Trade Liberalization in Developing Countries , 1992 .

[72]  Irving B. Kravis,et al.  Trade as a Handmaiden of Growth: Similarities between the Nineteenth and Twentieth Centuries , 1970 .

[73]  L. Winters,et al.  Trade Liberalization and Poverty: The Evidence So Far , 2004 .

[74]  M. McGillivray,et al.  Evaluating Economic Liberalization: Issues, Concepts and Approaches , 1999 .

[75]  Thomas M. Hatcher,et al.  Inward oriented and outward oriented trade strategies , 1991 .

[76]  Jong‐Wha Lee.  International Trade, Distortions, and Long-Run Economic Growth , 1993 .

[77]  L. Pritchett.  Measuring outward orientation in LDCs: Can it be done? , 1996 .

[78]  Nirvikar Singh,et al.  Exports and growth: Critical minimum effort and diminishing returns☆ , 1989 .

[79]  Import demand and non-tariff barriers: The impact of trade liberalization: An application to Morocco , 1990 .

[80]  D. Greenaway,et al.  What does liberalisation do for exports and growth? , 1994 .

[81]  Amelia U. Santos‐Paulino.  The Effects of Trade Liberalization on Imports in Selected Developing Countries , 2002 .

[82]  S. Edwards.  Openness, Productivity and Growth: What Do We Really Know? , 1997 .

[83]  Mohsin S. Khan,et al.  Trade and Financial Liberalization Given External Shocks and Inconsistent Domestic Policies , 1985 .

[84]  Edward E. Leamer,et al.  Sensitivity Analyses Would Help , 1985 .

[85]  S. Edwards.  Exchange Rate Misalignment In Developing Countries , 1988 .

[86]  Mohsin S. Khan,et al.  Income and price effects in foreign trade , 1985 .

[87]  A. Panagariya,et al.  Demand Elasticities in International Trade: Are They Really Low? , 1996 .

[88]  P. Romer.  Increasing Returns and Long-Run Growth , 1986, Journal of Political Economy.

[89]  Amelia U. Santos‐Paulino.  Trade Liberalisation and Export Performance in Selected Developing Countries , 2002 .

[90]  C. Milner,et al.  Measuring Trade Liberalization in Africa , 1999 .

[91]  M. Bahmani‐Oskooee,et al.  Exports, growth and causality in LDCs : A re-examination , 1991 .