Trade Liberalisation Advantages

After the introduction of the trade liberalisation policies in the developing countries across the globe issues of international trade and economic growth have gained much importance. The act of buying and selling goods and services is called trade. Trade exists between countries. Industrialisation, globalisation, increase in growth of multinational companies etc., all lead to need of trade between countries. This is referred to as International trade. The removal of trade restrictions that exist between countries which ultimately leads to free flow of goods and services is called trade liberalisation. Trade liberalisation includes removal of tariff and non tariff barriers such as surcharges, duties, export subsidies, quotas, licensing regulations

The 1980’s witnessed further intensification of liberalisation measures as many countries retreated from socialism, regulation and planning. ISP’s disadvantages, the potential strengths of outward oriented policies and the conditions necessary for successful transition from an inward oriented regime to an outward oriented regime have been extensively researched. This research is very influential since international agencies such as the World Bank and the international monetary fund are making domestic policy and trade reform a major condition for granting

Some economists like Levine and Renelt and Seghezza suggest that trade liberalization promote growth only by promoting investment. That is, when investment rates are controlled, openness has no additional impact on growth. It seems therefore that trade induced productivity-led growth is not empirically important or at least not important enough to show up in cross-country data. This rejects the main prediction of the new growth –new literature namely that trade affects GDP growth by influencing productivity growth. Trade induced investment led growth does show up strongly in cross country data. Although, new trade models do not generally focus on this sort of openness and growth link. A new data set of on openness indicators and trade liberalization dates allows the 1995 Sachs and Warner study on the relationship between trade openness and economic growth to be extended to the 1990s. New evidence on the time paths of economic growth, physical capital investment, and openness around episodes of trade policy liberalization is also presented. Analysis based on the new data set suggests that over the 1950-98 period, countries that liberalized their trade regimes experienced average annual growth rates that were about 1.5 percentage points higher than before liberalization. Post liberalization investment rates rose 1.5-2.0 percentage points, confirming past findings that liberalization foster growth in part through its effect on