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Can Free Trade Guarantee Gains from Trade?

Static and dynamic gains from trade are the reasons why countries embark on the path of free trade, expecting this to promote industrialization and development. There is nothing, however, in the conventional theory of international trade that guarantees that these gains will materialize and even if they do, they may not accelerate industrialization and growth. This is because there are a number of deleterious effects that the same theory omits and/or ignores. They are, inter alia, the monetary effects of trade specialization on the balance of payments, loss of policy autonomy, deindustrialization and jobless growth. When the costs of free trade outweigh its benefits, the slowdown of industrialization and development are the likely results. To avoid this, gradual openness and government intervention are necessary. In this paper, these observations are examined by contrasting the experiences of China and Mexico since these economies introduced trade liberalization. The comparison sheds light on the type of policies that both open and still closed developing economies currently need to implement if they want to reap the static and dynamic gains from trade, and thus make real economic progress.
Publisher:
UNU-WIDER
Series:
WIDER Research Paper
Volume:
2008/97
Title:
Can Free Trade Guarantee Gains from Trade?
Authors:
Moritz Cruz
Publication date:
October 2008
ISSN Web:
1810-2611
ISBN 13 Web:
9789292301514
Copyright holder:
© UNU-WIDER
Copyright year:
2008
Keywords:
free trade, trade gains, industrialization, government intervention, China, Mexico
JEL:
F1, F13, F43
Project:
Southern Engines of Global Growth
Sponsor:
The governments of Denmark (Royal Ministry of Foreign Affairs), Finland (Ministry for Foreign Affairs), Norway (Royal Ministry of Foreign Affairs), Sweden (Swedish International Development Cooperation Agency — Sida) and the United Kingdom (Department for International Development).
Format:
online
 
Part produced within the UNU-WIDER Visiting Scholars Programme.
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