Trade Liberalization: The Effects Of Trade Liberalization

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Trade Liberalization is the removal or reduction of restrictions or barriers on the free exchange of goods between nations. This includes the removal or reduction of both tariff (duties and surcharges) and non-tariff obstacles (like licensing rules, quotas and other requirements). Free trade encourages countries to interact with each other and help them benefit from the idea of comparative advantage. In addition, it is efficient in many ways such as lowering costs and transferring technologies. This paper will be discussing the effects of trade liberalization on economic growth. I. Introduction: Today, most of the economic literature believes that trade liberalization leads to an increase in growth which in return leads to an increase in a society’s welfare. So if we think about it, import restrictions of any kind create an anti-export bias by raising the price of imported goods relative to exported ones. Through trade liberalization there will be a shift of resources from the production of import substitutes to the production of export-oriented goods. This, in turn, will “generate growth in the short to medium term as the country adjusts to a new allocation of resources more in keeping with its comparative advantage” (McCulloch, Winters and Cirera, 2001). Overall, it may be fair to say that openness or trade liberalization leads to lower prices, new technologies through trading, and of course better information. We can conclude that trade liberalization has a

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