Effects Of Trade Liberalisation

Trade liberalisation is the removal or reduction of restrictions or barriers on the free exchange of goods between nations. This includes the removal or reduction of tariff obstacles, such as duties and surcharges, and nontariff obstacles, such as licensing rules, quotas and other requirements. Most of the economic literature considers that trade liberalisation leads to an increase in welfare derived from an improved allocation of domestic resources.
Many researchers including eminent professor of economic, Paul Krugman supported the view that trade liberalisation is good to producers and consumers in developing countries such as Malaysia . It is said that many developing countries have production patterns that are skewed towards agriculture,

It would encourage greater competition among firms from all over the world. It acts as a spur to the firms to increase the efficiency and shift their resources into new industries to remain competitive in the market. For example, trade liberalisation has been a factor in encouraging the United Kingdom to concentrate less on manufacturing and more on the service sector . Hence, trade liberalisation can boost the economic activity by encouraging competition, investment and productivity among the entrepreneurs from different regions. As a result of that the GDP (Gross Domestic Product) of the member States could be increased and ultimately the welfare of the citizens can be safeguarded.
Although it seems quite clear that gains can be derived from trade liberalization, it is argued that trade liberalization may weaken consumer welfare when protectionistic measures are not in place. Michael R. Reich (1988), has highlighted a few problems associated with trade and consumer welfare prior to trade liberalisation which is used to guide the discussion towards the ultimate conclusion which is the need for the simultaneous implementation of protection and liberalization in

Consumers in Malaysia and other developing countries frequently have inadequate and incorrect information about products in the market. Typically, International trade may create situations which provide little incentives to invest in specific information for local customers, especially when competition is limited. Foreign companies may have less interest in providing information, reflecting a lower level of commitment to the market or different views on corporate social responsibilities. On top of that, a large proportion of consumers in developing countries are illiterate. Hence, much of the information received by them is word-of-mouth and may be more apt to improper dissemination. As a result of that, rather than gaining benefits inappropriate products could cause more harm to the consumers. Thus, the lack of adequate information is a major constraint on consumer choice necessary for a consumer to make an informed