Synthesis documents

Trade Liberalization: Winners and Losers, Successes and Failures: Implications for SMEs, Nugent/IRIS, 2002

    Despite the long tradition in economics of trade being seen as net welfare-improving, criticisms of trade and hence of trade liberalization policies have been persistent, and perhaps growing over time, especially as far as LDCs are concerned. Modern empirical research has shown some of these concerns to have been overblown and that the import substitution (ISI) policies employed by most LDCs seemed to be leading to a dead end. As a result, many LDCs adopted trade and other reforms beginning in the mid-1980s. By the early 1990s, the sentiment for trade liberalization and other reforms was so widespread and dominant that a "Washington Consensus" was declared. Despite high expectations, even the more recent experience with trade liberalization has had very mixed effects.

    The paper is organized as follows: Section 1 identifies types of trade liberalization policies and provides examples of each. Section 2 summarizes the experience. This turns out to have been much more mixed than was expected both on the basis of theory and that early experience of the East Asian miracle. Trade liberalization goes through three stages. Six different obstacles to trade liberalization are identified:

    (1) obstacles to market access by new and small firms (SMEs)
    (2) inability of the government to commit credibly to program creation and
    (3) obstacles created by the resistance of the owners of asset-specific capital
    (4) inadequate or inappropriate legal, regulatory and juridical institutions
    (5) fears that the government lacks the political, financial, or technical will or ability to limit the likely negative externalities arising from trade liberalization
    (6) transitional rigidities or lack of cooperation between different groups that act as a barrier to efficient responses by the private sector.

    Some of these obstacles are relevant in the pre-reform stage, others in the reform implementation stage and still others in the post reform period. In the latter case, the benefits may be less than expected or "promised" and may be accompanied by unwanted and unexpected costs. These categories and the lessons of experience are drawn upon in subsequent presentations at the Forum.

    Associated Activities and Documents
    Synthesis documents
    »Confronting the institutional obstacles to trade liberalisation and its benefits to SMEs, Zinnes and Azfar/IRIS, 2002