Trade Liberalisation and The Poverty of Nations

Trade Liberalisation and The Poverty of Nations

A. P. Thirlwall and Penélope Pacheco-López

This book argues that orthodox theory is based on many unreal assumptions, and that there are sound economic arguments for selective protection of industrial activities in the early stages of economic development. The historical evidence of the now-developed countries also illustrates this fact.

Chapter 2: Trade Liberalisation, Trade Performance and Economic Growth

A. P. Thirlwall and Penélope Pacheco-López

Subjects: development studies, development economics, economics and finance, development economics, international economics


[T]rade policy provides an enabling environment for development. It does not guarantee the enterprises will take advantage of this environment, nor that private investment will be stimulated. As the recent literature on trade and growth underscores, it certainly does not guarantee adequate levels of economic growth in the long run. Therefore, claims on behalf of liberalisation should be modest lest policy-makers become disillusioned once again. (Rodrik, 1992) Introduction In this chapter we shall examine the empirical evidence on the impact of trade liberalisation on export performance, import growth, the balance of payments and then on the economic growth of countries that have liberalised, but first it is important to understand why exports are so crucial for economic development. The first is the neoclassical supply-side argument which focuses on the static and dynamic gains from trade and particularly on the externalities that the export sector can confer on the non-export sector and the rest of the economy. The second is the balance of payments argument that development requires imports that 62 Liberalisation, trade performance and economic growth 63 can only be paid for by exports, otherwise growth and development runs up against a balance of payments constraint on demand and growth. The third argument is the virtuous circle model of export-led growth whereby growth caused by exports has positive feedback effects on exports themselves arising from induced productivity growth – summed up by the aphorism ‘success breeds success’ (but failure breeds failure). Centre–periphery models of growth and development employ the...

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