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Working Paper 63 - Trade, Trade Liberalisation and Economic Growth: Theory and Evidence

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There can be little doubt that, historically, trade has acted as an important engine ofgrowth for countries at different stages of development, not only by contributing to a moreefficient allocation of resources within countries, but also by transmitting growth from onepart of the world to another. There are static and dynamic gains to be had from tradebetween countries but there is nothing in the theory of trade that says that the gains areequitably distributed. Also, there is nothing in the theory of Customs Unions that says thatthe gains from trade will be equitably distributed between members. Indeed, the CustomsUnion as a whole may be welfare-reducing if trade diversion exceeds trade creation. Recentresearch suggests that regional trade agreements, reduce growth and investment, butgeneralised trade liberalisation in the form of unilateral tariff reductions (or the reduction ofnon-tariff barriers to trade) improves growth performance. Export growth relax the balanceof payments constraint on demand by providing the foreign exchange to pay for the importcontent of higher levels of consumption, investment and government expenditure. Mostdeveloping countries are constrained in their growth performance by a shortage of foreignexchange and could therefore grow faster with more exports.

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  • Anthony Thirlwall, 2002. "Working Paper 63 - Trade, Trade Liberalisation and Economic Growth: Theory and Evidence," Working Paper Series 197, African Development Bank.
  • Handle: RePEc:adb:adbwps:197
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    1. Dixon, R & Thirlwall, A P, 1975. "A Model of Regional Growth-Rate Differences on Kaldorian Lines," Oxford Economic Papers, Oxford University Press, vol. 27(2), pages 201-214, July.
    2. Jaime De Melo & Arvind Panagariya & Dani Rodrik, 2015. "The New Regionalism: A Country Perspective," World Scientific Book Chapters,in: Developing Countries in the World Economy, chapter 14, pages 323-357 World Scientific Publishing Co. Pte. Ltd..
    3. Feder, Gershon, 1983. "On exports and economic growth," Journal of Development Economics, Elsevier, vol. 12(1-2), pages 59-73.
    4. Anthony Philip Thirlwall, 1983. "Foreign trade elasticities in centre-periphery models of growth and development," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 36(146), pages 249-261.
    5. Anthony Thirlwall, 1995. "The Terms of Trade, Debt and Development: with Particular Reference to Africa," African Development Review, African Development Bank, vol. 7(1), pages 1-34.
    6. Esfahani, Hadi Salehi, 1991. "Exports, imports, and economic growth in semi-industrialized countries," Journal of Development Economics, Elsevier, vol. 35(1), pages 93-116, January.
    7. J. S. L. McCombie & A. P. Thirlwall, 1997. "The Dynamic Harrod Foreign Trade Multiplier and the Demand-orientated Approach to Economic Growth: an Evaluation," International Review of Applied Economics, Taylor & Francis Journals, vol. 11(1), pages 5-26.
    8. Edwards, Sebastian, 1992. "Trade orientation, distortions and growth in developing countries," Journal of Development Economics, Elsevier, vol. 39(1), pages 31-57, July.
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