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Have trade policy reforms led to greater openness in developing countries : evidence from readily available trade data

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  • Andriamananjara, Shuby
  • Nash, John
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    Abstract

    Developing countries experienced a revolution in trade policy in the 1980s and 1990s, but it is unclear how much real openness increased. After all, they had started with multiple, often redundant, trade restrictions. And it is unclear how changes in openness should be measured. The most appropriate measure of openness is based on imports of consumer goods, argue the authors, since these imports commonly face the biggest trade barriers. After developing several such measures, including a measure of the change in tariff equivalent protection, they explore the recent evolution of trade policy, using readily available trade data. Openness has developed incrementally rather than overnight. In the early adjustment stages, barriers to imports tended not to be reduced much. At first, the net reduction of incentives to produce import substitutes was minor, especially when currency depreciation is considered. Recently import barriers have been reduced more substantially, and since there has been little currency depreciation, incentives to produce import substitutes have declined. Shock therapy was uncommon. A few countries moved quickly to eliminate nontariff barriers to imports and to adopt low, fairly uniform tariffs. But most countries tended to peel away redundant layers of trade barriers, one at a time. They usually began with the barriers embodied in rationing and exchange controls, proceeded to nontariff measures, and finally reduced tariffs. Each step may have reduced protection a bit but the big reductions apparently came only in later stages. Still, even gradual reform helped open up those economies. The Asian countries tended to be most open both early and late. They were also above-average in reform efforts, by some measures, so their strong growth performance (based on exports) was unsurprising. The African countries, whose trade policies were probably worst to begin with, made relatively modest progress initially. In recent years their progress has been substantial; whether they have improved as much as other countries depends on which measure is used. Countries tied to the French franc (for whom real devaluation was more difficult) showed less progress than nonfranc countries, illustrating the importance of the connection between devaluation and trade reform. There is no evidence that rapid trade reform resulted in Africa's de-industrialization.

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    Bibliographic Info

    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1730.

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    Date of creation: 28 Feb 1997
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    Handle: RePEc:wbk:wbrwps:1730

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    Keywords: Payment Systems&Infrastructure; Environmental Economics&Policies; Economic Theory&Research; Trade Policy; Rules of Origin; TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT; Environmental Economics&Policies; Economic Theory&Research; Trade Policy; Achieving Shared Growth;

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    1. Edward E. Leamer, 1988. "Measures of Openness," NBER Chapters, in: Trade Policy Issues and Empirical Analysis, pages 145-204 National Bureau of Economic Research, Inc.
    2. Dollar, David, 1992. "Outward-Oriented Developing Economies Really Do Grow More Rapidly: Evidence from 95 LDCs, 1976-1985," Economic Development and Cultural Change, University of Chicago Press, vol. 40(3), pages 523-44, April.
    3. Balassa, Bela & Bauwens, Luc, 1987. "Intra-industry Specialisation in a Multi-country and Multi-industry Framework," Economic Journal, Royal Economic Society, vol. 97(388), pages 923-39, December.
    4. Foroutan, Faezeh, 1993. "Trade reform in ten sub-Saharan African countries : achievements and failures," Policy Research Working Paper Series 1222, The World Bank.
    5. Robert E. Baldwin, 1989. "Measuring Nontariff Trade Policies," NBER Working Papers 2978, National Bureau of Economic Research, Inc.
    6. Anderson, James E & Neary, J Peter, 1992. "A New Approach to Evaluating Trade Policy," CEPR Discussion Papers 683, C.E.P.R. Discussion Papers.
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    Cited by:
    1. Esfahani, Hadi Salehi & Squire, Lyn, 2007. "Explaining trade policy in the Middle East and North Africa," The Quarterly Review of Economics and Finance, Elsevier, vol. 46(5), pages 660-684, February.
    2. Xiangming Li, 2003. "Trade Liberalization and Real Exchange Rate Movement," IMF Working Papers 03/124, International Monetary Fund.

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