18 August 2005

Is Trade Good for Poor Countries?

Robert Hunter-Wade writes in the Financial Times:

Even the World Bank estimates that removing rich countries’ barriers to developing country exports would generate only very small income gains for the latter... many would actually lose from rich country trade liberalisation in key sectors. The ending of the multi-fibre agreement early this year, for example, has hurt textile exporters across the developing world as super-efficient producers in China gobble up the market.

Wade goes on to suggest other higher priorities (including reform of the WTO's intellectual property rules and the international monetary system).

But why have poor countries sometimes struggled to benefit from trade liberalisation? This paper from Bolaky and Freund provides evidence for an answer that is obvious in retrospect: countries with rigid labor laws or other excessive red tape cannot seize opportunities. Their entrepreneurs have to struggle against bureaucratic obstacles to respond to changes in the price of imports and exports.

Originally posted on PSD Blog by Tim Harford.

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