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Lessons of trade liberalization in Latin America for economies in transition

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  • de Melo, Jaime
  • Dhar, Sumana

Abstract

After four decades as prime examples of inward-looking trade policies and import-substituting industrialization, several Latin American countries undertook comprehensive trade liberalization and macroeconomic adjustment in the 1980s. The authors contend that the experiences in those countries are relevant for the economies in Eastern Europe and the former Soviet Union in transition from socialism to market economies. In all of these Latin American countries, the move toward an outward orientation occurred: when the economy was facing a large negative external shock because of falling terms of trade and rising debt payments; after several decades of protectionism; and under severe macroeconomic imbalances. The authors study the reform package of trade liberalization, stabilization, and supporting policies in Argentina, Bolivia, Chile, Mexico, and Uruguay. They conclude that for the economies in transition: Rationalizing the foreign trade regime is crucial for the success of stabilization measures. Rapid, far-reaching reform is possible in sectors that were subject to prolonged periods of heavy protection. Sustained growth requires a comprehensive reform package, with supporting policies for labor, capital, and domestic product markets. Liberalization of the financial sector requires investigating the links between commercial banks and private sector firms. If trade liberalization is to succeed in the long run, it is important to study the evolution of the real exchange rate and measures to stabilize it. In the final section of the paper, the authors study the recent impetus toward trade liberalization through regional arrangements in Latin America. The issue is relevant to countries in Eastern Europe and the former Soviet Union because they belonged to the CMEA, a regional trading arrangement, and because such arrangements are evolving anew among countries in the former Soviet Union.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1040.

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Date of creation: 30 Nov 1992
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Handle: RePEc:wbk:wbrwps:1040

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Keywords: Economic Theory&Research; Environmental Economics&Policies; Economic Stabilization; TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT; Macroeconomic Management;

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References

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  1. de Melo, Jaime & Urata, Shujiro, 1986. "The influence of increased foreign competition on industrial concentration and profitability," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 4(3), pages 287-304, September.
  2. Havrylyshyn, Oli, 1990. "Trade Policy and Productivity Gains in Developing Countries: A Survey of the Literature," World Bank Research Observer, World Bank Group, World Bank Group, vol. 5(1), pages 1-24, January.
  3. Faini, Riccardo & De Melo, Jaime & Senhadji, Abdelhak & Stanton, Julie, 1991. "Growth-oriented adjustment programs: A statistical analysis," World Development, Elsevier, Elsevier, vol. 19(8), pages 957-967, August.
  4. Julio Nogues & Sunil Gulati, 1994. "Economic Policies and Performance Under Alternative Trade Regimes: Latin America During the 1980s," The World Economy, Wiley Blackwell, Wiley Blackwell, vol. 17(4), pages 467-496, 07.
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Cited by:
  1. Rodrik, Dani, 1993. "Trade Liberalization in Disinflation," CEPR Discussion Papers, C.E.P.R. Discussion Papers 832, C.E.P.R. Discussion Papers.
  2. Nigel Nagarajan, 1998. "MERCOSUR and Trade Diversion: What Do The Import Figures Tell Us?," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 129, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.

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