INSTITUTE FOR POLICY REFORM
Openness, trade liberalization and growth in developing countries
The sharp contrast in the last decade between the economic growth of East Asian countries, which generally follow open trade, export-oriented policies, and the poor performance of Latin American countries, long devoted to protectionist import substitution strategies, has spurred debate about the relation between trade orientation and economic growth.
Edwards, Sebastian · 1992
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Abstract
This paper reviews recent literature on the subject and is divided into three parts. Part I deals with large multi-country studies, and analyzes the methodology used in these works as well as the results obtained; discussions emphasize the role of exchange rate policy during the transition from protected to liberalized economies. An analysis of the effectiveness of devaluation in Africa finds increasing evidence that the historical "devaluation pessimism" in Africa is unwarranted. Part II concentrates on the relationship between trade orientation, liberalization policies, and employment; it is argued that less distorted trade regimes will generally result in the use of more labor intensive techniques. Also, recent results suggest that the unemployment transitional costs of liberalization are significantly smaller than was traditionally thought. Part III examines econometric studies of the relationship between trade orientation, export expansion, and growth. It is argued that most of this literature has serious shortcomings stemming from a lack of theoretical underpinnings, as well as from measurement problems. Future study should stress the microeconomic channel through which trade policy affects growth. (Author abstract, modified)
