Reach, Range, Reason
Global Development Network series
Edited by José María Fanelli and Lyn Squire
Chapter 2: Socioeconomic Vulnerability and Trade Liberalization: Cross-Country Evidence in Central and Eastern Europe
Pierluigi Montalbano, Alessandro Federici, Carlo Pietrobelli and Umberto Triulzi According to Amartya Sen, policymakers must evaluate the ‘reach’ of reforms in terms of being person-centered and evenhanded. In particular, he emphasizes that reforms must not overlook the interests and freedoms of any group of people, especially those who are disadvantaged and downtrodden. In practice, however, this is not an easy task. Given our limited knowledge about reform ‘technologies’, some initiatives which seem to meet these ethical criteria ‘ex-ante’ can produce undesired effects ‘ex-post’. Indeed, this has been true regarding trade reforms, that in some cases increased significantly the level of vulnerability of the economic system, producing unpredicted negative effects. This chapter tries to shed light on this issue by analyzing the relationship between trade liberalization and socioeconomic vulnerability in the case of Central and Eastern Europe during the transition from planned economy. Substantive cross-country evidence claims that reforms centered on trade liberalization foster income growth and poverty alleviation among trading partners. As Bhagwati and Srinivasan (2002) clearly state: ‘Trade does seem to create, even sustain, higher growth’. Likewise, Dollar and Kraay (2001a; 2001b) demonstrate that a group of developing countries, the ‘globalizers’, has grown faster than the ‘non-globalizers’ and that trade liberalization benefits the poor, given the positive association between overall growth and income growth among the poor. These results are consistent with trade theory; namely, by eliminating price distortions, trade liberalization improves resource allocation, thereby increasing productivity. Moreover, an open trade regime encourages global integration, modern technology imports and...
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