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Trade Liberalization in Developing Countries: Initial Trade Distortions and Imported Intermediate Inputs

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  • Jonathan D. Ostry

    (International Monetary Fund)

Abstract

Trade liberalization in developing countries is frequently opposed on the grounds that, because it is likely to cause a deterioration in the external balance, it may not be a viable policy option for countries facing foreign exchange constraints. Recent literature suggests, however, an ambiguous relationship between tariff changes and the current account. This paper shows that if liberalization involves reducing tariffs on imported intermediate inputs (a reform that has figured prominently in developing countries), then the current account may improve or deteriorate, depending on the level of initial trade distortions and the structure of the economy.

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Bibliographic Info

Article provided by Palgrave Macmillan in its journal Staff Papers - International Monetary Fund.

Volume (Year): 38 (1991)
Issue (Month): 3 (September)
Pages: 447-479

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Handle: RePEc:pal:imfstp:v:38:y:1991:i:3:p:447-479

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Cited by:
  1. Fischer, Christoph, 2002. "Real currency appreciation in accession countries: Balassa-Samuelson and investment demand," BOFIT Discussion Papers 8/2002, Bank of Finland, Institute for Economies in Transition.
  2. Dean DeRosa, 1992. "Protection and export performance in Sub-Saharan Africa," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 128(1), pages 88-124, March.

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