Can Free Trade Guarantee Gains from Trade?
AbstractStatic and dynamic gains from trade are the reasons why countries embark on the path of free trade, expecting this to promote industrialization and development. There is nothing, however, in the conventional theory of international trade that guarantees that these gains will materialize and even if they do, they may not accelerate industrialization and growth. This is because there are a number of deleterious effects that the same theory omits and/or ignores. They are, inter alia, the monetary effects of trade specialization on the balance of payments, loss of policy autonomy, deindustrialization and jobless growth. When the costs of free trade outweigh its benefits, the slowdown of industrialization and development are the likely results. To avoid this, gradual openness and government intervention are necessary. In this paper, these observations are examined by contrasting the experiences of China and Mexico since these economies introduced trade liberalization. The comparison sheds light on the type of policies that both open and still closed developing economies currently need to implement if they want to reap the static and dynamic gains from trade, and thus make real economic progress.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by World Institute for Development Economic Research (UNU-WIDER) in its series Working Paper Series with number RP2008/97.
Length: 28 pages
Date of creation: 2008
Date of revision:
free trade; trade gains; industrialization; government intervention; China; Mexico;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Peter K. Schott, 2006.
"The Relative Sophistication of Chinese Exports,"
NBER Working Papers
12173, National Bureau of Economic Research, Inc.
- Mauricio Mesquita Moreira, 2004.
"Fear of China: Is There a Future for Manufacturing in Latin America?,"
45778, Inter-American Development Bank.
- Mesquita Moreira, Mauricio, 2007. "Fear of China: Is There a Future for Manufacturing in Latin America?," World Development, Elsevier, vol. 35(3), pages 355-376, March.
- Mauricio Mesquita Moreira, 2006. "Fear of China : is there a future for manufacturing in Latin America ?," INTAL Working Papers 1278, Inter-American Development Bank, INTAL.
- Mauricio Mesquita Moreira, 2004. "Fear of China: Is there a future for manufacturing in Latin America?," Development and Comp Systems 0412008, EconWPA.
- Geske Dijkstra, A., 2000. "Trade Liberalization and Industrial Development in Latin America," World Development, Elsevier, vol. 28(9), pages 1567-1582, September.
- Egger, Peter & Larch, Mario & Pfaffermayr, Michael, 2007. "On the welfare effects of trade and investment liberalization," European Economic Review, Elsevier, vol. 51(3), pages 669-694, April.
- Karacaovali, Baybars, 2006.
"Productivity matters for trade policy : theory and evidence,"
Policy Research Working Paper Series
3925, The World Bank.
- Baybars Karacaovali, 2011. "Productivity Matters For Trade Policy: Theory And Evidence," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(1), pages 33-62, 02.
- Baybars Karacaovali, 2008. "Productivity Matters for Trade Policy: Theory and Evidence," Fordham Economics Discussion Paper Series dp2008-14, Fordham University, Department of Economics.
- José Gabriel Palma, 2005. "The seven main "stylized facts" of the Mexican economy since trade liberalization and NAFTA," Industrial and Corporate Change, Oxford University Press, vol. 14(6), pages 941-991, December.
- Giovanni Maggi & Andrés Rodríguez-Clare, 2007.
"A Political-Economy Theory of Trade Agreements,"
American Economic Review,
American Economic Association, vol. 97(4), pages 1374-1406, September.
- Maggi, Giovanni & Rodriguez-Clare, Andres, 2005. "A Political-Economy Theory of Trade Agreements," CEPR Discussion Papers 5321, C.E.P.R. Discussion Papers.
- Giovanni Maggi & Andres Rodriguez-Clare, 2005. "A Political-Economy Theory of Trade Agreements," NBER Working Papers 11716, National Bureau of Economic Research, Inc.
- Pennelope Pacheco-Lopez & Anthony P. Thirlwall, 2004.
"Trade liberalisation in Mexico: rhetoric and reality,"
BNL Quarterly Review,
Banca Nazionale del Lavoro, vol. 57(229), pages 141-167.
- Pennelope Pacheco-Lopez & Anthony P. Thirlwall, 2004. "Trade liberalisation in Mexico: rhetoric and reality," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 57(229), pages 141-167.
- Penelope Pacheco-López & A.P. Thirlwall, 2004. "Trade Liberalisation in Mexico: Rhetoric and Reality," Studies in Economics 0403, Department of Economics, University of Kent.
- F. Gerard Adams & Byron Gangnes & Yochanan Shachmurove, 2004.
"Why Is China So Competitive? Measuring and Explaining China’s Competitiveness,"
200406, University of Hawaii at Manoa, Department of Economics.
- F. Gerard Adams & Byron Gangnes & Yochanan Shachmurove, 2006. "Why is China so Competitive? Measuring and Explaining China's Competitiveness," The World Economy, Wiley Blackwell, vol. 29(2), pages 95-122, 02.
- F. Gerard Adams & Byron Gangnes & Yochanan Shachmurove, 2004. "Why Is China So Competitive? Measuring and Explaining China’s Competitiveness," Working Papers 07-2004, Singapore Management University, School of Economics.
- Lee Branstetter & Nicholas Lardy, 2006. "China's Embrace of Globalization," NBER Working Papers 12373, National Bureau of Economic Research, Inc.
- Robert Rowthorn & Ramana Ramaswamy, 1999. "Growth, Trade, and Deindustrialization," IMF Staff Papers, Palgrave Macmillan, vol. 46(1), pages 2.
- A. P. Thirl Wall, 2001. "The Relation between the Warranted Growth Rate, the Natural Rate, and the Balance of Payments Equilibrium Growth Rate," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 24(1), pages 81-88, October.
- Giles, John & Park, Albert & Zhang, Juwei, 2005. "What is China's true unemployment rate?," China Economic Review, Elsevier, vol. 16(2), pages 149-170.
- Anthony P. Thirlwall, 2011.
"Balance of payments constrained growth models: history and overview,"
PSL Quarterly Review,
Economia civile, vol. 64(259), pages 307-351.
- A. P. Thirlwall, 2011. "Balance of Payments Constrained Growth Models: History and Overview," Studies in Economics 1111, Department of Economics, University of Kent.
- Dasgupta, Sukti & Singh, Ajit, 2006. "Manufacturing, Services and Premature Deindustrialization in Developing Countries: A Kaldorian Analysis," Working Paper Series RP2006/49, World Institute for Development Economic Research (UNU-WIDER).
- Eswar Prasad, 2004. "China's Growth and Integration into the World Economy," IMF Occasional Papers 232, International Monetary Fund.
- S.M. Shafaeddin, 2005. "Trade Liberalization And Economic Reform In Developing Countries: Structural Change Or De-Industrialization?," UNCTAD Discussion Papers 179, United Nations Conference on Trade and Development.
- Hasan, Arsalan, 2010. "Costs and benefits of trade liberalization," MPRA Paper 25657, University Library of Munich, Germany.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bruck Tadesse).
If references are entirely missing, you can add them using this form.