Trade Openness And Economic Growth

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Until recently, it was widely accepted by academics and researchers that foreign trade and trade liberalisation created economic growth. Indeed, this proposition has been the subject of intense scrutiny. The main concepts discussed are trade openness and economic growth. Though academics may have different views of what constitute trade openness, the main elements of the trade liberalisation hypotheses are; • Removal of import quotas and other quantitative restrictions; • Reduction of the level of import tariff rates; • Devaluation of national currency so as to compensate for the elimination of protection • Removal of export taxes • Privatisation of productive firms Economic growth refers to an increase in the capacity of an economy to produce goods and services, and an increase in the market value of the goods and serviced produced. This is generally measured as the percent rate in real Gross Domestic Product per capita (GDPpc). This essay will begin by giving a brief account of the move towards global trade liberalisation. It will then give an account of the theories relating trade openness and growth and finish by critiquing the most well-known literature on this subject. OVERVIEW OF TRENDS AND PATTERNS IN THE MOVE TOWARDS GLOBAL TRADE LIBERALISATION The trend towards global trade liberalisation began in the 19th century, when reductions in transport and communication costs spurred trade. This continued through the Second World War (WWII), when economic agreements, such as Bretton Woods and The General Agreement on Tariffs and Trade (GATT), were formed in its aftermath which included the liberalisation of capital and goods markets and the reduction in tariffs. From 1947 to 1967, GATT negotiations reduced tariffs on all dutiab... ... middle of paper ... ...oned whether comparative advantage is actually relevant today with low transportation and communication costs and barriers. Other studies link growth with geography and institutions, though it is extremely difficult to untangle the causality problem here, as geography is the only endogenous factor. While there is no consensus on the precise relationship between trade openness and growth, it seems that most can agree that trade protection is not good for economic growth. Even liberalisation sceptics state that there is no credible evidence to support the idea that trade protection is beneficial for economic growth. Another conclusion that can be drawn is that trade openness in itself is not sufficient for economic growth. This does not necessarily imply that openness has zero impact on growth, since researchers are yet to establish a sufficient proxy for openness.

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