EFFECT OF TRADE LIBERALIZATION ON DEVELOPING COUNTRIES

Abstract

This paper argues that the policies promoted by the World Bank and IMF to developing countries in terms of liberalizing their economies have completely failed. The gap between the rich and the poor has never been so wide. A general analysis of these trade policies is conducted to better assess their impact on developing countries. Economists argue that trade liberalization has the potential power to lead developing countries to economic growth; hence poverty reduction. A brief overview of four economic theories is explained in order to understand where the economists are coming from when arguing in favor of trade liberalization. These theories are as follow: The Ricardian model, the Heckscher-Ohlin model, the Economies of scale, and Competitive advantage However, the way these trade policies have been implemented failed to take into account the contextual framework of these poor countries. Consequently, these policies caused more harm than good. In order to better assess these policies, this paper addresses two important questions: 1) to what extent has trade liberalization helped developing countries through economic growth and poverty reduction? 2) Why economic indicators seem insufficient in supporting evidence of successful implementation of trade liberalization in developing countries, taking into consideration the optimistic and critical views? It is important to highlight that these trade policies emerge from a solution package known as structural adjustment programs lending policy that the international institutions put in place to address the Third World debt crisis. The paper does an analysis of the policies related to the adjustment program to uncover to the extent by which they failed to help poor countries move from poverty to economic development.