The Great Trade Liberalization Debate.

• Author: Rees, Matthew

A review of

Free Trade and Prosperity: How Openness Helps Developing Countries Grow Richer and Combat Poverty by Arvind Panagariya, Oxford University Press, 2019

The past four decades have marked the biggest and fastest rise in global living standards in human history, with more than one billion people escaping extreme poverty. Some of that progress is now threatened by the economic ripple effects from the coronavirus. The World Bank estimates that the pandemic could thrust up to sixty million people in developing countries into extreme poverty. As policymakers begin searching for solutions to the economic slowdown, it's inevitable that they will face calls to "protect" national markets by restricting imports and investment. And that is going to trigger a new chapter in one of the most contentious public policy issues for decades: Does trade liberalization contribute to higher growth, and lower poverty, in developing nations?

For anyone interested in this question, one book should be a "must read": Free Trade and Prosperity: How Openness Helps Developing Countries Grow Richer and Combat Poverty. It is an indispensable guide through the realities (and many of the myths) around trade, poverty, and economic growth. The author, Columbia University economist Arvind Panagariya, makes a compelling case that trade liberalization is a critical factor (though--importantly--not the only factor) contributing to longterm economic growth in developing nations. And in those nations, growth is the most powerful antidote to poverty. Ergo, liberal trade policies are fundamental to reducing poverty.

Panagariya begins his tour de force by noting the fundamental issue that has always faced free traders: "the benefits of protection concentrate in the sectors that get protected and are therefore easily identified. Costs of protection, on the other hand, are spread throughout the economy and therefore remain hidden."

He says that free traders have set too high a bar for themselves to climb over in support of their position. The real test, he believes, should be to demonstrate that open trade is more likely than protectionist policies to contribute to long-term growth. He presents reams of data in support of this view and deconstructs the studies that claim protectionism is the best path to achieve widespread prosperity. "Deep down, the opponents [of free trade] know that systematic evidence connecting high or increased protection to superior growth and poverty...