REFORM OF TRADE POLICY: Recent Evidence from Theory and Practice

Abstract

In the 1980s many developing countries began to recognize that restrictive trade policies can constrain growth. To facilitate trade and integration into the world economy, many countries have embarked on reform programs. This survey synthesizes the conclusions of the literature on trade policy reform with those of a recent study by the World Bank analyzing reforms in developing countries, particularly those supported by adjustment lending programs. Its objective is to shed light on some of the questions about these programs to guide policymakers in the future. The article reviews conditions in these countries before trade policy reforms were implemented and examines how much reform actually took place. It also examines the effects of the reforms on economic performance and reviews the factors that constrained the reform process. The survey considers the most important issues in designing and implementing trade policy reforms and concludes that although past reforms have had a positive impact, future programs should emphasize three elements: reducing the level of protection, maintaining macroeconomic stability, and accounting for the conflicts and complementarities with other policies.