Benefits Of Liberalization Research Articles

Developing Countries in the WTO Services Negotiations

The aim of this paper is to analyse developing countries' participation so far in the current round of services negotiations under the Doha Development Agenda. The paper analyses developing countries' negotiating positions, as evidenced by their multilateral negotiating proposals; their initial offers; and, to the extent allowed by the incomplete and sketchy information available, their participation in bilateral market access negotiations. A number of basic themes are raised: the essential role of services for economic development; the high costs imposed by trade protection; the benefits of liberalization; the need to make use of the WTO forum to enhance credibility and sustain domestic regulatory reform programmes; the challenges of regulatory reform and the importance of appropriate sequencing; and the benefits arising from seeking further market access overseas in those areas where developing countries have a comparative advantage.

The Division and Size of Gains from Liberalization in Service Networks*

AbstractIf two disjoint country service networks involving a small and large country are connected as part of international liberalization in the presence of network externalities, the per capita gain for the small country from access to a large network will be large, and the per capita gain for the large country will be small. In contrast to goods, the benefits of liberalization in network‐related services are more likely to be approximately equally divided between large and small countries than is true of trade in goods, where benefits accrue disproportionately to the small country. We also argue that non‐cooperation in network‐related services trade may involve more extreme retaliation than suggested for trade in goods by the optimal tariff literature, so that relative to a non‐cooperative outcome, gains from liberalization in network‐related services become larger than from liberalization in goods. We develop simple models which we use for numerical examples showing these points, along with an empirical implementation for global telecoms liberalization for the US, Europe, Canada, and the rest of the world using the framework developed in the paper. This shows similar proportional gains to regions, consistent with the theme of the paper that goods and services liberalization differ.

Financial Globalization: A Reappraisal

The literature on the benefits and costs of financial globalization for developing countries has exploded in recent years, but along many disparate channels and with a variety of apparently conflicting results. For instance, there is still little robust evidence of the growth benefits of broad capital account liberalization, but a number of recent papers in the finance literature report that equity market liberalizations do significantly boost growth. Similarly, evidence based on microeconomic (firm- or industry-level) data shows some benefits of financial integration and the distortionary effects of capital controls, while the macroeconomic evidence remains inconclusive. We attempt to provide a unified conceptual framework for organizing this vast and growing literature. This framework allows us to provide a fresh synthetic perspective on the macroeconomic effects of financial globalization, in terms of both growth and volatility. Overall, our critical reading of the recent empirical literature is that it lends some qualified support to the view that developing countries can benefit from financial globalization, but with many nuances. On the other hand, there is little systematic evidence to support widely cited claims that financial globalization by itself leads to deeper and more costly developing country growth crises.

Participation of African member states in the World Trade Organisation (WTO) multilateral trading system

The core purpose and goals of the World Trade Organisation (WTO) are to enhance growth by allowing each country to trade freely according to its comparative advantage. The other stated main objectives of the WTO are: raising standards of living; providing full employment; reduction of tariffs and non‐tariff barriers; and the elimination of discriminatory treatment. According to the current orthodox economic view, trade openness is essential for growth: countries that liberalise their imports and orientate production towards exports are assumed to have faster growth than those that do not, and the faster the rate of opening, the greater will the prospect be for development. The emphasis on trade liberalisation and export orientation in the past ten years following the adoption of the Uruguay Round has led to phenomenal growth in world merchandise trade, which has grown consistently faster than output. The orthodox view approach is today expanded and modified with the view that liberalisation measures are not sufficient by themselves and should be accompanied by other factors such as sound macroeconomic policies, good governance and a modern infrastructure. Africa's dependence on primary commodities as a source of export earnings has meant that it is vulnerable to weather conditions, market vagaries, and price volatility, arising mainly from supply shock and the secular decline in real commodity prices. The attendant terms of trade losses have exacted heavy costs in terms of incomes, indebtedness, investment, poverty and development. Therefore, the basic approach that liberalisation has a direct link to economic growth and should be undertaken as fast as possible is being questioned and has been challenged by empirical studies in recent years. The relevant studies have shown that there is a lack of relationship between the degree of trade liberalisation and the rate of growth. The emerging paradigm accepts that there are possible costs, as well as potential benefits of trade liberalisation to a particular developing country, depending on the conditions in that country, and the type of liberalisation undertaken. The other impediments and weaknesses identified as affecting effective, efficient and economical participation of African members in the WTO include rapid liberalisation as potential source of fiscal instability; general absence of peace, security and democracy; globalisation and lack of competitive ability; supply‐side constraints; high export concentration ratio; problems of implementation; exclusion and/or marginalisation from knowledge‐based economy; and lack of capacity. The Doha Development Round was initiated to attend to, and address, these problems, and it is still too early to predict the outcome. African countries need to look for African solutions to their socio‐economic and political problems, adopting transdisciplinary approaches in the context of the African Renaissance paradigm.

Services Negotiations in the Doha Round: Promise and Reality

The paper analyzes the state of play in the negotiations and the challenges facing meaningful services trade liberalization in the Doha Round. In tracing the treatment of services in the WTO, the reasons are examined for the success of the 1997 financial and telecommunications services negotiations and how those negotiations marked the entry of services companies and associations as advocates for services liberalization in the WTO. High expectations for substantial reductions in barriers to services trade emerged from the 1997 negotiations, but thus far remain unfulfilled. In the Doha Round the quality of offers has been poor and little progress has been made primarily because many WTO Members cannot perceive the economic benefits of trade liberalization. It is argued that this Round’s success is contingent upon the ability of the developed countries to respond to the legitimate concerns of the developing countries. However, too much attention has been given to trying to find a formula for services liberalization and not enough on hard bilateral bargaining. After analyzing various proposals put forth to jumpstart the talks, the paper suggests grouping key WTO Members and identifying “incentives that will motivate those groups.” The countries of greatest interest to the United States can be divided into three groups. Offers in agriculture, temporary entry, and emergency safeguards would appeal to each of these and provide a basis for progress. It is concluded that “a Doha Round that does not contain substantial benefits for services is a Round that will have failed” and will not have industry support if it is to be implemented by the US Congress. J. Robert Vastine is the President of US Coalition of Service Industries (CSI) in Washington, DC. Prior to joining the CSI, he served as President of the Congressional Economic Leadership Institute, a bi-partisan, non-profit foundation that helps educate Congress on issues affecting US economic competitiveness. His extensive Capitol Hill experience includes posts as Staff Director of the Senate Republican Conference, Minority Staff Director of the Senate Committee on Government Affairs; Legislative Director for Senator John H. Chafee of Rhode Island; and Legislative Assistant for Congressman Thomas B. Curtis of Missouri. His Executive Branch experience includes service as Deputy Assistant Secretary of the Treasury for International Trade and Raw Materials Policy and Vice President of the Oversight Board of the Resolution Trust Corporation, which was chaired by Secretaries of the Treasury Brady and Bentsen, and he has had extensive private-sector experience. Vastine is Chairman of the official Industry Trade Advisory Committee for International Trade in Services (ITAC 10), which advises the US Trade Representative. He was a fellow of the Institute of Politics of the John F. Kennedy School of Government at Harvard University, and has written a number of articles on US trade policy. Vastine is a graduate of Haverford College and the Johns Hopkins University School for Advanced International Studies.

Multilateral Agricultural Trade Liberalisation: The Contrasting Fortunes of Developing Countries in the Doha Round

An applied general equilibrium model is used to assess the impact of multilateral trade liberalisation in agriculture, with particular emphasis on developing countries. We use original data, and the model includes some specific features such as a dual labour market. Applied tariffs, including those under preferential regimes and regional agreements, are taken into account at the detailed product level, together with the corresponding bound tariffs on which countries negotiate. The various types of farm support are detailed, and several groups of developing countries are distinguished. Simulations give a contrasted picture of the benefits developing countries would draw from the Doha development round. The results suggest that previous studies have neglected preferential agreements and the binding overhang (in tariffs as well as domestic support), and have treated developing countries with a high level of aggregation and been excessively optimistic about the actual benefits of multilateral trade liberalisation. Regions like sub-Saharan Africa are more likely to suffer from the erosion of existing preferences. The main gainers of the Doha Round are likely to be developed countries and Cairns Group members.

Good intentions, poor outcomes: Telecommunications reform in South Africa

As the first decade of democratic rule draws to a close in South Africa, this paper reviews the telecommunications reform process in terms of the performance of the sector against the twin national policy objectives of affordable access to communications services and accelerated development to meet the needs of a modern economy. It critiques the implementation of international reform models which have in practice tended to emphasise privatisation at the expense of other reform mechanisms—including competition and, in particular, regulatory measures. It argues that this has impacted negatively on affordable access and has inhibited market innovation. This paper identifies the root of the problem as the market structure. Designed around the vertically integrated incumbent operator, it induces inherently anti-competitive impertives that demands a resource-intensive regulatory response. The regulator has often not had the statutory powers, and seldom the capacity, to circumscribe the behaviour of the incumbent so that it does not impact negatively on new entrants. Without effective regulation, the assumed benefits of liberalisation—including more affordable access through improved management of the incumbent and more efficient allocation of resources in the market through competition—do not materialise. The paper argues that developing country telecommunications markets demand more from a regulator than simply meeting the threshold requirements of transparency and predictability via so-called international “best practice” models. Such a limited approach will not be sufficient to meet the challenges facing most developing countries. The highly imperfect nature of developing country markets, and the enormous income disparities and inequities that exist, require strategic regulation. This is necessary to enable innovative service provision, especially to under-serviced areas, and to facilitate fair competitive markets that promote the viability of the new entrants needed to build the information infrastructure—the infrastructure necessary for a country's participation in the global network economy. Simply removing all market-entry restrictions, however, is likely to place an even more onerous burden on already-struggling regulators and is unlikely to contribute to universal access and other developmental goals. A new policy approach involving the fundamental restructuring of the market is needed to remove the anti-competitive incentives that exist in the vertically integrated market structure that generally accompanies privatisation in developing countries. While a more horizontally structured market will not remove the incumbent advantage entirely, it is likely to reduce the need for constant adjustment of anti-competitive behaviour on the part of the incumbent, freeing up regulatory resources for more strategic regulation towards achieving national developmental objectives.

Multilateral Agricultural Trade Liberalization: The Contrasting Fortunes of Developing Countries in the Doha Round

An applied general equilibrium model is used to assess the impact of multilateral trade liberalisation in agriculture, with particular emphasis on developing countries. We use original data, and the model includes some specific features such as a dual labour market. Applied tariffs, including those under preferential regimes and regional agreements, are taken into account at the detailed product level, together with the corresponding bound tariffs on which countries negotiate. The various types of farm support are detailed, and several groups of developing countries are distinguished. Simulations give a contrasted picture of the benefits developing countries would draw from the Doha development round. The results suggest that previous studies have neglected preferential agreements and the binding overhang (in tariffs as well as domestic support), and have treated developing countries with a high level of aggregation and been excessively optimistic about the actual benefits of multilateral trade liberalisation. Regions like sub-Saharan Africa are more likely to suffer from the erosion of existing preferences. The main gainers of the Doha Round are likely to be developed countries and Cairns Group members.

Opening up telecommunications to competition and MENA integration in the world economy

This paper investigates the potential impact of opening up telecommunications to competition in MENA on the sector's performance and on the participation of the region in the World economy. The latter is assessed with respect to manufactured exports, participation in production networks and attractiveness to FDI. The paper first introduces a model to assess the benefits of telecommunications liberalization on sector performance. Telecommunication liberalization is evaluated on the basis of: (i) degree of effective competition in fixed and mobile networks ; (ii) openness to foreign investment; and (iii) pro-competitive regulation. The results confirm that liberalization and open markets promote efficiency in telecommunications. Regarding the integration of the region in the world economy, the analysis confirms that, better performance of telecommunications strengthens export performance in manufacturing, including exports of intermediate products. Moreover, by facilitating linkages with transnational production networks and reducing the cost of doing business, better telecommunications performance is found to be a determinant of foreign direct investment inflows.

Structural Analysis of a Developing Economy Using the Conventional and Augmented Input-Output Matrix Methods — A Comparison for Sri Lanka

This paper explains why and how the conventional Input-Output Method should be modified to develop the Augmented Input-Output Matrix Method in order to study the structure of a developing economy using Multiplier and Linkage Analysis. This alternative methodology with an endogenous Household Sector is expected to provide a better picture of the structure of the economy by treating demand as partially endogenous and allowing for induced linkage effects transmitted across various sectors of the economy. In contrast, such induced linkage effects are absent in the conventional methodology which is based on the technical relationships of production alone. Applying the two methods on the economy of Sri Lanka using the Input-Output Tables for 1986 and 1994, we find that the Augmented Input-Output Matrix Method changes the relative importance of the various sectors in terms of their output multipliers and backward linkage strengths, for each of the two years. Overtime, however, the Augmented Input-Output Matrix Method shows less variations in the multipliers, linkages and the resulting key sectors of the economy while rendering the economy more traditional and service-oriented in character. Manufacturing and allied sectors are more often absent than present among the strong or key sectors of the economy. Economic Liberalization was initiated in the 1970’s in Sri Lanka. But the economy has not yet experienced any fundamental change in its structure. The results of the Augmented Matrix Method suggest that the economy should be more diversified and modernized in order to fully reap the benefits of liberalization in terms of economic growth.

Foreign direct investment and trade in health services: A review of the literature

Globalization is a key challenge facing health policy-makers. A significant aspect of this is direct trade in health services, a result of the rise of transnational corporations, challenges in health care financing, porous borders and improved technology creating the scope for increased ‘foreign direct investment’ (FDI) in health care. This has gathered momentum with the General Agreement on Trade in Services (GATS), which aims to further liberalize trade in services, and within which FDI has been noted as perhaps the most critical area for trade negotiation.Given the rapid development of this area, there are little empirical data. This paper therefore seeks to provide the first comprehensive and systematic review of evidence concerning FDI and health services. This process included electronic bibliographic database searches, website searches and correspondence with experts in the area of trade in health services, from which 76 papers, books and reports were reviewed.Perhaps due to the rapid developments in this area, most of the literature is speculative, polarized between those arguing for the benefits of liberalization and those arguing against. However, there seem to be three issues which emerge as of most importance: (i) the extent to which a national health system is commercialized per se is of more significance than whether investment in it is foreign or domestic; (ii) the national regulatory environment and its ‘strength’ will significantly determine the economic and health impact of FDI, the effectiveness of safeguard measures, and the stability of GATS commitments; and (iii) any negotiations will depend upon parties having a common understanding of what is being negotiated, and the interpretation of key definitions is thus critical. Each of these issues is explored in some depth, with the overall conclusion that countries should take a step back and first think through the risks and benefits of commercialization of their health sector, rather than being sidetracked in to considering the level of foreign investment.

A Failure Story: Politics and Financial Liberalization in Turkey, Revisiting the Revolving Door Hypothesis

The risks and benefits of financial liberalization is a highly contentious issue in the current economic debate. This article focuses on Turkey's “lost decades” and tries to reveal the underlying factors behind the economic collapse in the country. Two elements will be analyzed: (a) the role of public sector together with the domestic banking sector in setting the stage for alternating financial crisis, and (b) the effect of close correlation between external debt and capital flight on the economy. This paper argues that there exists a contemporaneous bi-directional causality between external debt and capital flight in the Turkish economy. Exploration of this fact may have some important implications for economic policy modeling in Turkey's crisis-ridden economy.

Regulatory reform and performance in telecommunications: unrealized potential in the MENA countries

Based on international evidence, this study confirms that telecommunications liberalization is conducive to higher efficiency, contributing to Information and Communications Technologies (ICT) growth. Assessment of liberalization benefits on sector performance is based on an indicator encompassing three key factors: (i) competition in fixed and mobile networks; (ii) openness to foreign ownership; and (iii) pro-competitive regulation. Notwithstanding recent progress, Middle East and North Africa (MENA) telecommunications markets remain less open to competition than elsewhere in the developing world: competition is hindered, private participation is scarce and foreign ownership is most severely constrained, while regulatory regimes do not support fair competition.

NAFTA and Mexico's Economic Performance

Mexico, a prominent liberalizer, failed to attain stellar gross domestic product (GDP) growth in the 1990s, and since 2001 its GDP and exports have stagnated. In this paper we argue that the lack of spectacular growth in Mexico cannot be blamed on either the North American Free Trade Agreement (NAFTA) or the other reforms that were implemented, but on the lack of further judicial and structural reform after 1995. In fact, the benefits of liberalization can be seen in the extraordinary growth of exports and foreign domestic investment (FDI). The key to the Mexican puzzle lies in Mexico’s response to crisis: a deterioration in contract enforceability and an increase in nonperforming loans. As a result, the credit crunch in Mexico has been far deeper and far more protracted than in the typical developing country. The credit crunch has hit the nontradables sector especially hard and has generated bottlenecks, which have blocked growth in the tradables sector and have contributed to the recent fall in exports.

Regulation of Foreign Investment in Historical Perspective

Based on a historical survey, the article argues that during their early stages of development, now-developed countries systematically discriminated against foreign investors. They have used a range of instruments to build up national industry, including: limits on ownership; performance requirements on exports, technology transfer or local procurement; insistence on joint ventures with local firms; and barriers to ‘brownfield investments’ through mergers and acquisitions. We argue that, only when domestic industry has reached a certain level of sophistication, complexity, and competitiveness do the benefits of non-discrimination and liberalisation of foreign investment appear to outweigh the costs. On the basis of this, the article argues that the currently proposed multilateral investment agreement at the World Trade Organisation is likely to harm the developing countries’ prospects for development. Cet article base sur une enquete historique argumente que, durant les premieres etapes du developpement, ...

Intégration régionale Sud-Sud et répartition intra-zone des activités

<titre>R&#233;sum&#233;</titre> Dans le cadre d&#8217;un mod&#232;le d&#8217;&#233;conomie g&#233;ographique &#224; trois pays (un pays du Nord et deux pays du Sud), cet article analyse les effets de l&#8217;int&#233;gration r&#233;gionale Sud-Sud sur la r&#233;partition intra-zone des activit&#233;s productives. Une comparaison de diff&#233;rentes configurations de politique commerciale montre qu&#8217;en l&#8217;absence de coop&#233;ration, un pays du Sud favorise son d&#233;veloppement industriel et am&#233;liore son bien-&#234;tre par une lib&#233;ralisation unilat&#233;rale de ses &#233;changes. Toutefois, bien que notre mod&#232;le d&#8217;&#233;conomie g&#233;ographique rejoigne les recommandations habituelles des mod&#232;les de commerce international, il en nuance la port&#233;e car les vertus de la lib&#233;ralisation commerciale semblent tenir uniquement dans un contexte o&#249; l&#8217;autre rival du Sud se prot&#232;ge de fa&#231;on unilat&#233;rale. En cas de coop&#233;ration, l&#8217;union douani&#232;re semble &#234;tre la meilleure solution car le processus d&#8217;int&#233;gration r&#233;gionale avec protection vis-&#224;-vis du Nord permet une am&#233;lioration de la structure industrielle et du niveau de bien-&#234;tre sans asym&#233;trie dans la zone. Cependant, si l&#8217;union douani&#232;re appara&#238;t incontournable selon un objectif de d&#233;veloppement industriel, l&#8217;entente sur un tarif ext&#233;rieur commun ne va pas de soi avec le crit&#232;re de bien-&#234;tre. Ce r&#233;sultat nuanc&#233; illustre, par le ph&#233;nom&#232;ne classique du dilemme du prisonnier, les difficult&#233;s de mise en &#339;uvre de l&#8217;union douani&#232;re. Enfin, notre mod&#232;le d&#8217;&#233;conomie g&#233;ographique rel&#232;ve le caract&#232;re co&#251;teux d&#8217;une non-coop&#233;ration entre pays du Sud&#160;: en se prot&#233;geant d&#233;lib&#233;r&#233;ment les uns des autres, ils y perdraient en termes d&#8217;industrialisation et de bien-&#234;tre, avec une d&#233;pendance &#224; l&#8217;&#233;gard des biens industriels du Nord.

Privatisation of Network Industries in Germany: A Disaggregated Approach

The purpose of this paper is to analyse the impact of market-oriented institutional reforms in German network industries. A disaggregated approach is chosen, which differentiates between network services, infrastructure management and network infrastructure. The gradual opening of network service provision has already had a positive impact on the performance of all markets for network services. Nevertheless, harmonisation and integration of infrastructure management as well as an adequate regulation of access to the non-competitive infrastructures (monopolistic bottlenecks) is necessary in order to exploit the full benefits of liberalisation and privatisation of network service markets.

Tariff Bindings, Unused Protection and Agricultural Trade Liberalisation

Prior quantitative assessments of the effects of agricultural trade liberalisation have assumed that negotiated reductions in bound tariffs translate into corresponding cuts in applied tariff rates. This approach, however, overestimates the actual reduction in applied tariffs and, hence, the benefits of trade liberalisation, since applied rates are often much lower than the tariffs bound in Uruguay Round schedules. This paper uses data on applied and bound tariffs and the GTAP-CGE model to quantify the magnitude of the resulting bias. The findings suggest that the distortion of estimates is particularly pronounced for modest tariff cuts, as well as for countries where the differences between bound and applied rates are substantial. Hence, quantitative policy analysts who aim to inform decision makers on the likely impacts of negotiated tariff cuts should consider the relationship between bound and applied tariff rates in their assessments in order to avoid mistaken advice...

Stock market liberalizations: Financial and macroeconomic implications

The paper presents new evidence on the effects of stock market liberalization on financial and macroeconomic development. Using a panel of 27 countries, liberalization is associated with a short-term increase in real private investment growth of about 14 percentage points cumulatively in the four years following liberalization and a cumulative 4 percentage point increase in real GDP per capita growth. The benefits of liberalization are higher in countries that have improved their institutional framework prior to liberalization. In contrast to other studies, we find some evidence for a permanent growth effect of about 0.4 percent a year in an extended sample of 72 countries. JEL no. F3, G1, O1

Scenarios for trade integration in the Americas

Résumé Cet article analyse deux scénarios de libéralisation des échanges : une zone de libre-échange des Amériques et un accord entre le MERCOSUR et l’Union européenne. L’article s’appuie sur un modèle mondial d’équilibre général incorporant des éléments macroéconomiques comme les rigidités au niveau des salaires et des taux de change. Les résultats empiriques montrent que les scénarios d’intégration à deux régions correspondent à une création de commerce et un accroissement du bien-être pour les participants (plus forts pour les pays d’Amérique latine que pour les États-Unis ou l’Union européenne), et qu’ils ont peu d’effets sur les non-participants. Atteindre ces objectifs potentiels nécessitera aussi d’adopter des politiques macroéconomiques qui éviteront des variations brutales dans les balances commerciales. Classification JEL : C5 ; E1 ; F1.