Trade liberalization strategies

The broad case for liberalisation holds regardless of whether other countries also liberalise. Still, a group of economies can be better off by liberalising together, that is, via concerted unilateral liberalisation. Liberalisation enhances the efficiency and competitiveness of an economy by creating an environment in which it exploits its comparative advantage. But the degree of protection in other economies also matters. For example, if a country has inherent comparative advantage in agricultural products, the market access provided by other countries for its agricultural exports will affect the degree to which it can specialise and improve its terms of trade, and thus benefit from its liberalisation program. Comparative advantage is dictated by international relative prices; therefore, the protective structure in foreign countries is relevant to the potential for exploiting comparative advantage.

Thus, countries have a strong incentive to cooperate in reducing barriers to economic interchange at many levels, including multilateral and regional/bilateral levels, as well as in concerted fashion. Below, we consider several alternative approaches to further liberalisation, that is, multilateral cooperation; regional co-operation; and means to pursue concerted liberalisation.

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