Developing countries should relax restrictions on imports more slowly than
barriers to exports, according to research by Amelia Santos-Paulino and
Professor Tony Thirlwall, published in the February issue of the Economic
Journal. This is because it takes longer for exporters to respond to trade
liberalisation than it does for imports to flood in, potentially causing seriously
disruptive balance of payments difficulties.
This study is the first major attempt to estimate in a rigorous and systematic
way the impact of trade liberalisation not only on export growth but also on
import growth, the trade balance and the balance of payments. Previous
studies have ignored the fact that if liberalisation leads to a flood of imports,
the balance of payments consequences may seriously disrupt economies
because deficits cannot easily be financed.
The researchers analyse a sample of 22 developing countries that have
liberalised in a significant way since the mid-1970s. They find that:
· On average, export growth has increased by about 2 percentage points
post-liberalisation, but import growth has increased by approximately 6
percentage points, leading to an increase in the trade deficit as a
percentage of GDP of 2 percentage points – enough to trigger financial
crisis in some countries.
· The adjustment necessary to rectify the trade deficit has decreased
GDP growth below what it otherwise would have been if a balance
between exports and imports had been maintained.
These results have important policy implications for the sequencing of trade
liberalisation to keep a balance between exports and imports so as to avoid
balance of payments crises. This sequencing is as important as the
sequencing of internal and external financial liberalisation.
The most successful countries are those where import restrictions have been
relaxed more slowly than barriers to exporting. The International Monetary
Fund, World Bank and the World Trade Organisation should pay much more
attention than they do at present to the balance of payments consequences of
trade liberalisation when they design their liberalisation programmes.
ENDS
Notes for Editors: ‘The Impact of Trade Liberalisation on Exports, Imports
and the Balance of Payments of Developing Countries’ by Amelia Santos-
Paulino and Tony Thirlwall is published in the February 2004 issue of the
Economic Journal.
Amelia Santos-Paulino is at the Institute of Development Studies at Sussex
University; Tony Thirlwall is Professor of Applied Economics at the University
of Kent (website: www.kent.ac.uk/economics/staff/at4/)
The paper is part of a symposium on ‘Trade Liberalisation and Economic
Performance in Developing Countries’ organised by these authors.
For Further Information: contact Tony Thirlwall on 01227-827414 (email:
a.p.thirlwall@kent.ac.uk); or RES Media Consultant Romesh Vaitilingam on
0117-983-9770 or 07768-661095 (email: romesh@compuserve.com).