Economic Liberalization in Developing Countries: Good or Bad?

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As globalization uplifts the world economy, developing countries find themselves standing at the crossroads. Joining the world economy seems to be a great opportunity for a poor country to boost its economic growth rate and eradicate poverty. This idea is strongly promoted by globalist organizations such as the World Bank, the International Monetary Fund, and the World Trade Organization. However, during the past two decades poor nations addressed this issue in different ways. Some of them followed the idea of economic liberalization, and thus opened themselves to foreign capital investments, while others made use of restrictionist policies, in this way hedging their economies from various financial risks and economic downturns. This paper presents the actual reasons for such controversial reactions, and it also evaluates the extent to which the economic liberalization benefits a developing country.
To successfully liberalize, an economy must pass through several stages of economic liberalization. This paper critically evaluates each of the stages promoted by globalist organizations: the liberalization of trade, the liberalization of financial markets, and the liberalization of labour markets. In the final part of the paper a conclusion based on empirical data is drawn.
The liberalization of trade implies that local governments do not influence trade with the use of import quotas, local-content requirements, patent infringements, or export subsidies (Rodrik, 2002). All this actions are meant to help amplify and facilitate trade, but sometimes a contrary effect takes place. The abolishment of the import quotas can negatively affect the domestic industries, due to the severe external competition. In his article, Rodrik highlights the example of South Korea and Taiwan, countries that achieved spectacular economic growth through restricting trade by using import quotas, export subsidies, and local-content requirements, all being prohibited by globalist



References: Rodrik D. (2002). “Forum: Globalization for Whom? Time to change the rules - and focus on poor workers.” Romer P. M. (2007). “Economic Growth” (From “The Concise Encyclopedia of Economics”, David R. Henderson, ed. Liberty Fund, 2007.)

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