What is trade liberalization?

The evolution of trade between nations has been a colorful and long one, which was punctuated by wars and a vast number of changes in beliefs about the trade. Because of the economic impact that trade has often had on governments, civilizations often become involved in trade with the goal to produce a specific economic outcome for the countries (McCulloch N, 2001).

Trade liberalization refers to the removal of government restrictions and incentives from trade between the nations. It is a subject of much political debate and much scholarly gives the impact that the trade is on the livelihood of many people in developed countries. Trade liberalization is considered as the major part of mainstream policy advice for at least twenty years and it is one of the most noticeable characteristics of present globalization. Though the process of globalization encompass much more than the trade liberalization, by decreasing the barriers to the international trade in services and goods will remain one of the major globalization drivers says Michaely M (2004).

There has been a vast growth in worldwide in the last 50 years as successive rounds of multilateral negotiations have progressively reduced the trade barriers. Since the Second World War this has made the international trade as one of the most necessary growth engines in the world economy, by underpinning the exceptional increase in the living standards in many countries.

According to Whalley J (1985), Trade liberalization increases consumer choice promotes the development of competitive industries facilities technology transfer and encourages optimal resource allocation. Trade policies that are open and transparent also improve governance by reducing rent seeking opportunities and administrative discretion. When preceded or accompanied by a coherent and mutually reinforcing set of macroeconomic policies and structural reforms, the liberalization of trade enhances prospects for sustainable and high quality growth and improves the prospect of poverty reduction.

Thus, trade liberalization refers to the process of removing the barriers that disrupt the flow of goods and services across nations. With the advent of the concept global economy, the restrictions on trade practices have been eliminated to a great extent. GATT and WTO are two great enablers of trade liberalization.

References:

  • McCulloch N (2001), Trade Liberalization and poverty handbook, Centre for Economic Policy Research, UK.
  • Michaely M (2004), Trade liberalization and Trade preferences, Ashgate Publishing, Ltd., London.
  • Whalley J (1985), Trade Liberalization among major world trading areas, Library of Congress, USA.
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