Economic Reform and Trade Liberalization

Trade liberalization has been integral to economic reforms in most countries. Economic reforms around the globe in recent times have been carried out in keeping with the policies of liberalization and globalization. Globalization requires the free and fast movement of capital, goods and services across geographical boundaries.
This cannot be achieved in the presence of international trade restrictions imposed by the individual economies. As such, if economic reforms with an eye to globalization are to bear fruit, then trade liberalization needs to be carried out. Effective and successful economic reforms in different countries have incorporated extensive trade liberalization.

Such trade liberalization must ensure relaxations or removals of government imposed barriers and restrictions to international trade. In most cases such barriers or restrictions are in the form of taxes, tariffs, specific rules or legislations, etc.

Economic reforms pertaining to trade liberalization must ensure the following –
Free and uninterrupted movement of good and services across countries.
Free and uninterrupted movement of capital across countries.
Free and uninterrupted movement of labor across countries.
Free access to markets and market information.
Absence of government imposed monopolies or oligopolies.

Growth in exports, de-industrialization and specialization are some outcomes that have been experienced in many countries as a result of trade liberalization.

In order to facilitate trade liberalization, major changes must be brought into fiscal and regulatory policies as a part of the economic policy reforms. Fiscal policies need to be changed in favor of tax and tariff relaxations for international trade to boost it up. Regulatory reforms need to be reformed to bring down the level of government intervention in the form of rules and regulations than restrict international trade.

In the last two decades, a large number of developing countries have adopted economic reforms and trade liberalization. In the case of most countries such reforms originated in the 1980s and gained momentum during the 1990s.

These countries can broadly be divided into three categories –
The East Asian countries that adopted economic reforms and trade liberalization in the 1960s and 1970s and continued with these through the 1980s and 1990s.
The African countries that adopted these reforms as formulated by the International Financial Institutions.
The Latin American countries that adopted the economic reform and trade liberalization policies at the onset of 1980s due to pressure from the International Financial Institutions. However in the 1990s, even though there was no longer any pressure from the International Financial Institutions, these countries chose to give momentum to their reforms.

A significant role has been played by the World Bank in getting the Third World countries to adopt economic reforms and trade liberalization.
The benefits of economic reforms and trade liberalization are –
Sustained economic growth can be achieved through such reforms. Economies that have remained closed from the rest of the world have not been able to attain and sustain high growth rates.
Many developing countries have gained competitive advantages in the manufacturing sector by implementing economic reforms and trade liberalization.
Growth in employment opportunities.
Decline in income inequalities, especially in developing countries.


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Last Updated on : 26th June 2013

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