1. Introduction
During the recent decades the world economy has seen rapid growth which was mainly due to the increasing international trade. The rising international trade results from the technological development but also from the reduction of trade barriers, or liberalization. Indeed, liberalization is a very powerful tool to promote economic growth and development and what is also very important to reduce poverty. The evidence on this is clear. No country in the recent decades managed it to increase the standards of living for its people without being open to the rest of the world. So, outward-oriented countries grow much faster than countries that are inward-oriented. There is also one finding that the benefits of trade liberalization can exceed the costs by more than a factor of 10.
The U.S. Treasury Secretary John Snow told the members of the Development Committee, a forum of the World Band and the IMF, that removing trade barriers under the Doha Round negotiations is the greatest step the U.S. government can take to generate increased growth and poverty reduction. He also noted that the U.S. has already one of the least restrictive trade regimes in the world and this is not only beneficial to the U.S. consumers but also to the exporting countries and the individuals and families whose living standards increase with new and better paying jobs.
2. Liberalization
2.1 The general effect
To understand how a removal of trade barriers can result in an increase in growth and therefore in living standards one should analyze the general effects that liberalization usually has on an economy. Therefore one should imagine that all import restraints are eliminated. This of course will lead ...