Import Trade Liberalization and Economic Performance

Abstract An important feature of the empirical evidence on trade liberalization experiences is their association with other reforms. And a major shortcoming of most, if not all, studies of the impact of trade liberalization on economic performance has been their inability to disentangle the effects of the many factors involved. This paper assesses the effects of import liberalization on economic performance by controlling for the macroeconomic stabilization factor, and taking account of the extent and content of the trade liberalization. The impact of liberalization is analyzed through a comparison of a number of economic indicators before and after initiation of reform. Regression analysis is also used, based on a GDP growth type equation from the new economic growth literature. Our analysis shows that import liberalization, when not associated with macroeconomic stabilization, may have significant positive effects on economic performance but they depend in important ways on the type of reform in terms of content and extent. The analysis also shows that import liberalization may have significant adjustment costs in terms of reduced growth and/or reduced investment and higher unemployment.