Open Trade Policies Research Articles

Export Growth and Trade Policy in Ghana in the Twentieth Century

Ghana's exports on a per capita basis failed to grow over the course of the twentieth century. The reasons for this outcome are examined in this paper. It is argued that the success which characterised the period before independence was due to the combination of an open trade policy and flexible factor markets. The reversal of such policies at the time of independence was the source of the subsequent decline. While the terms of trade for Ghana's exports have fluctuated substantially there has been little change in their level over the century. Economic failure since independence has been due to domestic policies limiting export growth. The reforms of the post 1983 period have succeeded in preventing further decline; they have failed to provide a policy environment in which rapid growth of exports can occur. The nature of this policy failure is discussed.

The Economic Sustainability of Post-conflict Kosovo

Kosovo is currently operating as an independent economic state, having severed the majority of economic links with the former Yugoslavia. This article explains why the Yugoslav dinar was replaced by the DM (in turn replaced by the Euro) as the new national currency of post-conflict Kosovo. Use of the DM, coupled with a relatively open trade policy, has resulted in a severe visible trade deficit. The stock of DM is continuously being replenished by the inflow of money both from the various international agencies operating in Kosovo and from remittances from Kosovars working abroad. The article argues that, even with the current low level of export earnings, the economy of Kosovo is economically sustainable, since the international presence in Kosovo is partly responsible for the high demand for imports. However, in the absence of a competitive export sector, the economy is still highly reliant upon the inflow of remittances, without which Kosovo would be unable to meet the costs of vital imports.

FLOWERING GEOPHYTES FROM CHILE

FLOWERING GEOPHYTES FROM CHILE

International Evidence on Convergence and Openness

In this paper we examine for both economic convergence and openness convergence across the global economy and within specific regions. We find that convergence in openness is much more profound than income convergence. Moreover, convergence within regions takes place faster than convergence across the globe. We then examine for the effects of trade openness on income convergence. We use both trade openness indicators based on actual trade volumes as well as indices that rank countries according to trade policy openness. Finally, we consider the effects of such indices on openness convergence. We discuss our results in the context of the regionalism versus globalization debate.

Measuring the Dynamic Gains from Trade

This article investigates the links between trade policy and economic growth in a panel of 57 countries between 1970 and 1989. It develops a new measure of trade policy openness based on the policy component of trade shares, using it in a simultaneous equations system to identify the effect of trade policy on several determinants of growth. The result suggests a positive impact of openness on economic growth, with the accelerated accumulation of physical capital accounting for more than half the total effect; for smaller effects. This decomposition is robust with respect to alternative specifications and time periods. The article also successfully tests whether the model exhaustively captures the effects of trade policy on growth.

Globalisation, Economic Policy and Convergence

A NUMBER of recent contributions to the growth literature have emphasised the positive role played by the forces of globalisation in enabling poor countries to converge on the living standards of rich ones. These include Sachs and Warner (1995), Aziz and Wescott (1997), IMF (1997), World Bank (1997), Dollar and Burnside (1997), Edwards (1998) and Collier and Dollar (1999) and their general message is well captured by Sachs and Warner’s claim (1995, p. 3) that ‘open economies converge, and closed ones do not.’ In other words, if developing countries were to adopt a consistent policy package conducive to the preservation of an open economy, that would, according to all the authors cited above, at least be a necessary condition for convergence. There is some disagreement within the Washington consensus concerning exactly what the ingredients of this consistent policy package are, with Sachs and Warner laying primary emphasis on measures of trade policy openness, Collier and Dollar (1999) examining a broader range of policy instruments including social policy measures, and Aziz and Wescott (1997, p. 18) arguing that what matters is complementarity, with three separate elements needed in combination: ‘trade openness, macro stability, and a relatively low degree of government involvement in economic activity’. The IMF’s World Economic Outlook for May 1997 seeks to summarise the state of play by arguing that:

The Dewatering of Economic Growth

SummaryRecent research has found an inverted U relationship between freshwater use and income after controlling for freshwater availability, the structure of the economy, and several policy variables. This suggests that the intensity of freshwater use must be declining with income growth. This hypothesis is tested by developing a simple, informal model of the determinants of freshwater‐use intensities across countries and over time. Results suggest that water‐use intensity declines across the entire range of per capita incomes extant in the world today. They also show that the relationship between intensity of use and income is mediated by an economy's natural water endowment, the structure of the economy, and government policies. Four policies, in particular, affect the water‐use intensity of economies. Open trade policies and tough environmental regulatory policies lower water use intensities, and narrowly defined food self‐sufficiency policies and socialist development policies increase water‐use intensities. These findings suggest that those interested in water, water scarcity, and water policy need to extend beyond simple extrapolations of past consumption patterns and narrowly focused water policies (such as water pricing) if they want to improve water management practices.

Trade and Environment: An Empirical Analysis of the Technology Effect in the Steel Industry

The objective of this paper is to study the impact of free trade on global environmental quality by focusing on the technology effect, that is, the relationship between trade openness and the adoption/diffusion of clean technologies. The paper attempts to empirically verify the existence of the technology effect by looking at the relationship between trade policy regime, or openness, and the speed of clean technology diffusion in the steel industry. Focusing on a cleaner steel technology, the electric arc furnace (EAF), in 30 steel-producing countries over 25 years, the results show that EAF technology is diffused faster in countries that have more open trade policy regimes, thereby supporting the existence of the technology effect for the industry considered.

Who gains from trade reform? Some remaining puzzles

This paper focuses on three unresolved issues with regard to the impact of trade reform. First, many studies linking trade reform to long run growth are surprisingly fragile. To illustrate the problems with this literature, we examine a popular measure of openness recently introduced by Sachs and Warner [Sachs, J., Warner, A., 1995. Economic reform and the process of global integration. Brookings Papers on Economics Activity 1, pp. 1–117]. We show that their measure fails to establish a robust link between more open trade policies and long run growth. The second puzzle we identify is the small impact of trade reform on employment in developing countries. Finally, we analyze evidence on the relationship between trade reform and rising wage inequality, focusing on the 1985 Mexican trade reform. Wage inequality in Mexico rose after the reform, which is puzzling in a Heckscher–Ohlin context if Mexico has a comparative advantage in producing low skill-intensive goods.

Liberalization and small industry – have manufacturing SMEs in the Philippines benefited?

SMEs have been the object of economic and political support from donors and national governments. The Philippines are no exception. This article reveals, however, that import protection measures, such as quotas and tariffs, designed to stimulate home-grown industries, have had the effect of promoting large industries over small. Comparing a number of Asian countries with different levels of open trade policies, as well as the effect of different policies as they were applied over 30 years in the Philippines, the authors argue that import restrictions often prevent the growth and employment generation of the SME sector.

Russian agrarian reform and rural capitalism reconsidered

Since 1990, significant institutional and policy change has occurred in the Russian agrarian sector. A crucial question is whether these changes will facilitate rural capitalism and the emergence of a rural bourgeoisie. This article examines Russian domestic economic policies and international trade policies, arguing that macroeconomic policies are inherently detrimental to the agrarian sector, are undermining the prospects for capitalism and the rise of a rural bourgeoisie, and are hindering economic growth. Since the onset of agrarian reform, financial and material investments into agriculture have been slashed. Russia has also pursued an open trade policy which has witnessed an increase in food imports which pits higher priced domestic food against lower priced, better quality imports. As a consequence the agricultural sector is not fulfilling basic requirements for economic growth. Based on these trends, the article concludes that current prospects for the development of a rural bourgeoisie are not favourable.

ASEAN and Asia‐Pacific economic cooperation

The emergence of the Asia‐Pacific Economic Cooperation (APEC) forum has introduced a new element in the global trading environment. APEC includes several regional arrangements: the ASEAN Free Trade Area (AFTA), the North American Free Trade Agreement (NAFTA) and the Australia‐New Zealand Closer Economic Relations (CER) schemes. Initially a preferential trading arrangement that had very limited practical coverage, ASEAN has forged ahead beyond liberalization of tariff policies, towards greater liberalization of trade in services and of investment policies as well. As ASEAN regional economic integration progresses, it is important to assess how this affects and is affected by the APEC process. ASEAN's liberalization measures influence the development of APEC in several ways. Through its expansion and the unilateral liberalization measures that have followed regional liberalization efforts, ASEAN is helping realize the enlargement of the market where APEC hopes to see freer and more open trade and investment policies. Correspondingly, ASEAN can play a more aggressive role in challenging other APEC economies to more quickly knock down remaining barriers to cross‐border trade and investment flows. The extent to which trade and investment policy reform in ASEAN can affect APEC depends not only on ASEAN's present and future economic weight as a market and exporter of goods, services and capital within APEC. It also depends on the economic importance of such reform to individual APEC member economies. At present, ASEAN is still a relatively small player in intra‐APEC trade. ASEAN's share of the total North American and Northeast Asian trade is similarly low. As economic integration proceeds, the ASEAN governments will have a common interest in coordinating policies and eliminating trade and investment barriers vis‐à‐vis other Asia‐Pacific economies. Probably more important than its economic role is ASEAN's political role in molding an Asia‐Pacific community. Currently, ASEAN occupies a central position in the region's security dialogue within the framework of the ASEAN Regional Forum. However, the extent of ASEAN's economic and political role within APEC will depend on ASEAN's unity and continued political stability and economic growth.

Pollution intensity of GDP and trade policy: Can the World Bank be wrong?

What are the environmental implications of open trade policies in developing countries? Economic theory and environmental critics suggest they worsen environmental quality. This conventional wisdom has been challenged by several studies which suggest that outward-oriented trade policies are likely to be “win-win” (enhance economic growth and environmental quality). This paper challenges revised conventional wisdom (RCW) by demonstrating that developing countries with outward-oriented trade policies have higher pollution intensities of GDP than those following inward-oriented policies. The paper examines why the evidence reported here differs so sharply from RCW studies, considers the policy implications of these results, and identifies reasons why, despite them, it may not make sense to totally discount future potential win-win opportunities

The link between increased trade openness and the terms of trade: An empirical investigation

Despite the fairly widespread move towards more open trade policies in developing countries relatively little attention has been paid to the effect of these policies on the terms of trade. Using a large sample of countries this paper tries to assess empirically the validity of the “small country assumption” which underlies the Washington consensus on development strategies. Our evidence suggests that there is a sizable group of countries (LDCs and non-LDCs) for which the assumption of exogenous traded-goods prices can be rejected. One implication is that terms of trade considerations should be included in the assessment of trade-liberalization policies. These effects might rise considerably when several countries liberalize simultaneously.

TRADE POLICY AND PRODUCTIVITY GAINS IN DEVELOPING COUNTRIES

Despite the widely accepted view that liberal, outward-oriented trade policies are superior to restrictive, inward-oriented policies, doubts about liberalization remain strong in many circles. One reason for such doubt is the dearth of research quantifying the large gains that liberal trade policies are said to generate. The survey of the literature undertaken for this article was a review of the evidence on the link between trade policy and efficiency, or productivity, gains in developing countries. Does the literature support the view that more open trade policies bring greater efficiency? Several inferences are drawn from the literature on sources of growth—particularly with regard to increases in capacity utilization and economies of scale. The article also examines evidence from the few studies that explicitly try to correlate efficiency gains directly with trade policy. These studies fall into three categories: those that evaluate the effect of trade policy on market power or degree of competition; those that measure total factor productivity or technical efficiency gains and correlate these with the degree of protection; and those that estimate the aggregate effects of changes in trade policy on welfare (mainly with computable general equilibrium models, which measure dynamic efficiency gains from trade). In a final section, the article pulls together the findings from the indirect and direct evidence as a basis for suggesting a number of hypotheses on the link between efficiency and trade policy. One conclusion is that country-specific analysis over time appears to be superior to cross-country comparisons.