Optimal Globalization and National Welfare

In this paper we look at economic liberalization – both in the context of countries under transition from communism to capitalism, and in the context of developed market economies of North America and Western Europe. By “liberalization” we mean not just opening to external trade and capital, but also the freeing up of domestic trade and prices, as well as labor’s ability to respond to national and international shifts in demand. We begin by reviewing briefly two recent books on the international aspects of liberalization, what has come to be known as “globalization”. We then identify controversial aspects of reform in transition countries, and market economies, and review some of the recent empirical literature. Broadly, controversy surrounds the optimal pace and appropriate sequencing of reform, as well as the extent of liberalization. Finally, we draw out policy implications of our analysis with a view to casting light on the debates over broadening and deepening of integration in the Americas.