Number of Downlaods: 28
Published Date: Jun 1, 1999
Pakistan’s Trade Interests Regarding WTO Negotiations (PB-6)
Adil Najam, SDPI
Trade Liberalization and Growth
LDCs are being given the impression that there is overwhelming evidence that trade liberalization generates growth. This is in fact not the case.
a. The studies that have established such results are methodologically flawed. The cross country models used to establish these result assume a high degree of similarity exists across countries which is clearly not the case. Thus the results are not robust.
b. Using the same method and data, numerous studies have fount the opposite holds true. Thus the results are very sensitive to country sample, time period and specificities of the model chosen i.e. the results are not robust.
c. More careful country studies did seem to show that high rates of protection generated inefficiency and hence adversely affected growth. However, the real issues is an “internal competition policy” and not protection. If countries have a competition policy (deregulation and monopoly control), they do not need trade liberalization to achieve competition i.e. trade liberalization is not the first best policy. Countries like Korea retained protection but ensured internal competition.
Thus when confronted with the virtues of liberalization, LDCs should not be on the defensive.