TRADE LIBERALIZATION AND DEVELOPMENT IN DEVELOPING

COUNTRIES

How Developing Countries Are Contributing:

Increased competition from abroad as a results of trade liberalization creates an

incentive for greater efficiency and cheaper production by domestic firms. This
competition may additionally spur a rustic to shift resources to industries during which
it’s going to have a competitive advantage. In a seminal paper Dr. Sebastian Edwards of
UCLA finds that countries that liberalize their international trade and become more
open within the sense of lower tariff and non tariff barriers to trade will tend to grow
faster, especially within the developing world 1. Developing countries can enjoy trade by
increasing their amount of or access to economic resources. Nation usually have limited
economic resources for trade agreements ensure small nations can obtain the economic
resources needed to supply commodity or services. Over the past 20 years, the
expansion of world trade has averaged 6 percent per annum, twice as fast as world
output. But trade has been an engine of growth for much longer. Since 1947, when the
General Agreement on Tariffs and Trade (GATT) was created, the world trading system
has benefited from eight rounds of multilateral trade liberalization, also from unilateral
and regional liberalization. Indeed, the last of those eight rounds that is “Uruguay
Round” completed in 1994, led to the establishment of the World Trade Organization to
assist administer the growing body of the multilateral trade agreements 2. The resulting
integration of the world economy has raised living standard round the world. Most
developing countries have shared during this prosperity, in some, incomes have risen
dramatically. As a gaggle, developing countries became far more important in world

1
https://www.cipe.org/blog/2013/08/05/the-importance-of-trade-liberalization-for-developing-countries/

2
https://www.imf.org/external/np/exr/ib/2001/110801.htm#i
trade, they now account for one third of world trade, up from a few quarters within the
early 1970s. Many developing countries have substantially increased their exports of
manufactures and services relative to traditional commodity exports, manufactures
have raised to 80 percent of developing countries exports. Moreover, trade between
developing countries has grown rapidly, with 40 percent of their exports now getting to
other developing countries.

However, the progress of integration has been uneven in recent decades. Progress has
been very impressive for variety of developing countries in Asia and, to a lesser extent,
in Latin America3. These countries became successful because they chose to participate
in global trade, helping them to draw in the majority of foreign direct investment in
developing countries. This is often true of China and India since they embraced trade
liberalization and other market oriented reforms, and also of higher income countries in
Asia, like Korea and Singapore, that were they poor up to the 1970s. But progress has
been less rapid for several other countries, particularly in Africa and therefore the
Middle East. The poorest countries have seen their share of world trade decline
substantially, and without lowering their own barriers to trade, they risk further
marginalization. Hence, the liberalization policy certainly improves export of the country
which eventually leads higher economic growth after 1990s. Moreover, developing
countries will gain more from global trade liberalization as a percentage of their GDP
than industrial countries, because their economics are more highly protected and
because they face higher barriers.

3
https://www.cairn.info/revue-economie-internationale-2003-2-page-155.htm