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The Impact of Trade Liberalization on the Trade Balance in Developing Countries

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  • Mr. Yi Wu
  • Mr. Li Zeng

Abstract

Using two recently constructed measures of trade liberalization dates, this research studies the impact of trade liberalization on imports, exports, and overall trade balance for a large sample of developing countries. We find strong and consistent evidence that trade liberalization leads to higher imports and exports. However, in contrast Santos-Paulino and Thirwall (2004) who find a robustly negative impact of trade liberalization on the overall trade balance, we only find mixed evidence of such a negative impact. In particular, we find little evidence of a statistically significant negative impact using our first measure of liberalization dates which extends Li (2004). Using a second measure of liberalization dates compiled by Wacziarg and Welch (2003), we find some evidence that liberalization worsens the trade balance, but the evidence is not robust across different estimation specifications, and the estimated impact is smaller than that reported by Santos-Paulino and Thirwall (2004).

Suggested Citation

  • Mr. Yi Wu & Mr. Li Zeng, 2008. "The Impact of Trade Liberalization on the Trade Balance in Developing Countries," IMF Working Papers 2008/014, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2008/014
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    References listed on IDEAS

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    Cited by:

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    2. Maria V. Sokolova, 2016. "Exchange Rates, International Trade and Growth: Re-Evaluation of Undervaluation," IHEID Working Papers 05-2016, Economics Section, The Graduate Institute of International Studies.
    3. Natalya Ketenci, 2017. "The Effect of the European Union Customs Union on the Balance of Trade in Turkey," Foreign Trade Review, , vol. 52(4), pages 219-232, November.
    4. Carlos A. Ibarra, 2011. "Capital flows, real exchange rate, and growth constraints in Mexico," International Review of Applied Economics, Taylor & Francis Journals, vol. 25(6), pages 653-668, November.
    5. Adel Shakeeb Mohsen & Soo Y. Chua & Che Normee Che Sab, 2017. "Trade Liberalization, Exports and Imports in Syria," Foreign Trade Review, , vol. 52(2), pages 106-117, May.
    6. Varma, Anil, 2015. "ASEAN- India free trade agreement: an assessment of merchandise exports and imports," MPRA Paper 75035, University Library of Munich, Germany, revised 10 Nov 2016.
    7. Busani Moyo, 2024. "Impact of SADC Free Trade Area on Southern Africa’s Intra-Trade Performance: Implications for the African Continental Free Trade Area," Foreign Trade Review, , vol. 59(1), pages 146-180, February.
    8. Gankou, Jean-Marie Fowagap & Mougnol, A. Ekoula Herve William, 2014. "Commerce intra CEMAC et consommation des ménages au Cameroun : analyse par un MEGC," Conference papers 332540, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    9. Adel Shakeeb MOHSEN, 2020. "Trade Liberalization and International Trade: A Case Study of China," Journal of Economics and Financial Analysis, Tripal Publishing House, vol. 4(1), pages 1-14.

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