Trade Liberalisation and Diversification in Select Developing Countries

Abstract

Macroeconomic stability cannot be the goal of trade liberalisation concerned as it is with the set of microeconomic regulations concerning imports and exports. Trade liberalisation, while determining the openness of an economy, is expected to contribute to trade diversification not only by promoting the growth of internationally-traded output, but also by altering the product composition of existing production towards higher value-added products and by increasing the share in total exports of products characterised by lower price and earnings volatility. The Study shows that there is a strong connection between trade liberalisation and trade diversification. Trade diversification is particularly crucial to the developing countries, although diversification does not necessarily follow liberalisation. Most South Asian countries, including India, have not yet experienced enough bouts of trade diversification. The preliminary result of trade liberalisation in these countries has been limited to high export/manufacturing growth rates.