Trade liberalization and its economic impact on developing and least developed countries

Author:Shujaat Abbas
Position:Department of Economics, University of Karachi, Karachi, Pakistan
Pages:215-221
SUMMARY

Purpose - This paper aims to investigate the impact of trade liberalization on economic growth of selected developing and least developed economies by augmenting standard production function. Design/methodology/approach - The panel fixed effect model is used to estimate impacts of macroeconomic variables on economic growth. Real GDP... (see full summary)

 
FREE EXCERPT
Trade liberalization and its
economic impact on developing
and least developed countries
Shujaat Abbas
Department of Economics, University of Karachi, Karachi, Pakistan
Abstract
Purpose – This paper aims to investigate the impact of trade liberalization on economic growth of
selected developing and least developed economies by augmenting standard production function.
Design/methodology/approach The panel xed effect model is used to estimate impacts of
macroeconomic variables on economic growth. Real GDP million US$ is taken as proxy for economic
growth. The capital stock series for each cross-section is generated from gross xed capital formation.
The total trade to GDP is taken as proxy for trade liberalization.
Findings – The result shows signicant positive impact of selected macroeconomic variables on
economic growth, except trade liberalization index. The one unit increase in trade liberalization
deteriorates economic growth, of developing countries by 280.86 million US$ and least developing
by 3555.09 million US$.
Research limitations/implications The signicant negative impact indicates the relatively
greater share of import than exports. The developing nations should develop production side and adopt
export promotion policies besides managing imports for the achievement of sustainable growth.
Originality/value – This study uses augmented production function and constructed capital stock
for individual countries. The total trade to GDP is taken as index for trade liberalization and was found
to have signicant negative impact.
Keywords Developing countries, Trade liberalization index, Exports, Investment level,
Economic growth
Paper type Research paper
1. Introduction
The developing and least developing nations are persistently facing unfavorable trade
balance for several decades due to high import demand and lower export growth. The
trade balance has a strong positive impact on national income. The standard trade
theories argue free trade ow and propose market-oriented, competitive strategies for
trade and economic development. The increase in trade decits has deteriorated foreign
debt standings. Developing and least developing nations owe more than billions of US$,
and debt service payments have emerged signicantly in national income accounts.
The idea that foreign trade is engine for economic growth is very old, going back to
the early work of Adam Smith’s The Wealth of Nations in 1776. The world economies
JEL classication – F14, F43, C23
The authors thank Prof Dr Abdul Waheed, Department of Economics, University of Karachi,
for assistance and encouragement, and anonymous referees of Journal for their useful comments
and suggestions.
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1477-0024.htm
Trade
liberalization
and its economic
impact
215
Received 26 June 2013
Revised 16 April 2014
Accepted 13 July 2014
Journal of International Trade Law
and Policy
Vol. 13 No. 3, 2014
pp. 215-221
© Emerald Group Publishing Limited
1477-0024
DOI 10.1108/JITLP-06-2013-0018

To continue reading

REQUEST YOUR TRIAL