Trade Liberalization and Developing Countries’ Economic

Latin American countries had different approaches in liberalizing themselves to trade. Chile opted for a fiscal policy that was aimed at encouraging ties with other countries through a reduction in trade tariffs and engaging in trade treaties with the Northern American countries. The effects of such policies led to an increase in total trade by 17% in relation to the country’s GDP over the past decade.

In Venezuela, the manufacturing sector supported the government’s economic reform agendas, unlike the agricultural sector whose corporatists’ nature and political alliance made the sector players oppose the reforms. Part of the reforms was to abolish the exchange rate controls and establish a unified exchange rate. In addition to this, a tariff system based on the degree of product processing replaced the traditional quantitative and discretionary restrictions. This further encouraged foreign ties and subsequent foreign investments. Despite the gains experienced, political instability and lack of good laws ensured that equitable distribution of such gains wasn’t inevitable thus increasing poverty and unemployment rates (Cypher and James, p. 67).

Columbia was the latest in the region to embrace economic reforms that would integrate her into the global economic scene. Columbia’s trade policy reforms have always neglected regional fronts, though her tariff reduction has been steady in the past decade. It is believed that the treaty signed in 2004 with the US helped to improve her export trade revenues. Argentina had a cut in its tariffs and also reduced a percentage of its domestic output to be covered by foreign trade. This caused wage inequality in the country, though it increased the general economic growth. Brazil replaced its import substitution policy whose aim was to shield domestic companies from foreign competition with reduced tariffs that encouraged foreign involvement in its market. This boosted its foreign trade income, though affected its wage equilibrium (Vos, pp. 179-225).

The main aim of policy formulation in economics is to improve productivity and maintain the sustainability of the available resources for the welfare of the citizens or people in a given region. Subsequently, the desired policy changes need to promise and give assurance that the economy will be stable once fully implemented. In as much as this is a goal of every developing economy, the governments implementing such policies should have political goodwill to draft the necessary laws that will cushion its citizens and the local companies from foreign exploitation, otherwise, the desired goal could be a disaster to the economic growth. Nevertheless, every government has the prerogative responsibility to ensure economic stability to its citizens. This paper tries to evaluate the gains made by different countries in Latin America in regard to the policy reforms adopted as a way to liberate the region from the economic challenges the world was facing in the mid-1980s, (Tulchin, p. 245). These reforms were instigated as a requirement for foreign trade engagement. Every new policy has its positive effects, if correctly drafted, and negative effects which may surface as a result of biases in its formulation, regime change, and adaptability of the economic variables to the market disturbances caused by their implementation (Palma, pp. 66-93).

In conclusion, trade liberalization in Latin American countries was meant to improve the competitiveness of the region to the external markets, attract foreign investments, stabilize the economies of the member countries and most importantly improve the welfare of the natives of that region. The countries involved had to harmonize their laws, rules, and regulations and even bend their cultures to accommodate such changes, (Raja, pp. 99-113). As a result, economic development in the member countries was evident, though some countries such as Argentina and Brazil had their unemployment rate increase. It is, therefore, necessary to consider the effects of trade liberalization policies on unemployment when drafting such policies.

Works Cited

  1. Cypher, M. James & Dietz, L. James. “The Process of Economic Development” Second Edition; (2004)
  2. Palma, Jose. “Why has Productivity Growth Stagnated in most Latin American Countries since the Neo-Liberal Reforms?” University of Cambridge (2010).
  3. Raja, Gopal.”Where Did the Trade Liberalization Drive Latin American Economy: A Cross Section Analysis,” (2005).
  4. Tulchin, J. S. Ed. with Bland, G. Venezuela in the Wake of Radical Reform. Boulder: CO, 1993. Lynne Rienner. Print.
  5. Vos, Rob. “Ecuador: Economic Liberalization, Adjustment and Poverty.” Erasmus University of Rotterdam (2000).