Aid Through Trade: An Effective Option?

I examine the scope for and desirability of the U.S. assistance to the poor countries through three separate trade policy measures: one-way trade preferences as, for example, under the Generalized System of Preferences; bilateral trade preferences as under free trade area arrangements as under the U.S.-Jordan Free Trade Agreement; and multilateral trade liberalization as under the Uruguay Round Agreement. My principal conclusion is that of these three forms of market access, only the last one is both desirable and feasible. I also argue that further opening of developed country markets, no matter what form it takes, can help the poor countries only in a limited way. Despite all the rhetoric and assertions to the contrary, the bitter and sad truth is that even if developed countries were to open their markets fully without asking for reciprocal liberalization and without any side conditions, few poor countries will succeed in achieving significant growth and poverty reduction purely as a consequence of this opening up. The explanation for the poor growth performance of many poor countries is to be found not in the barriers to their exports in the rich countries--though these barriers do impose a burden on them--but in their own domestic policies and political environment that governs the internal investment climate.