Liberalization and Globalization

According to Wikipedia encyclopedia liberalization refers to a relaxation of government restrictions and controls that imposed on social or economic policy. In some contexts this r concept is referred as deregulation. The two concepts namely economic liberalization and trade liberalizations are regarded as most important aspects in economic globalization. The former is referred as deregulating government interventions by empowering private sector as the engine of growth while the trade liberalization is known as   providing opportunity for entering international trade through various incentives for exporters and importers more competitive manner. Thus export oriented development programs are promoted under trade liberalization.

Liberal economic thoughts were based on the economic theories preached by classical economist such as Adam Smith (1776) and David Ricardo (1817) and neo-classical thoughts developed by Alfred Marshal, Jacob Winer, Godfriy Haberler, Leontief and Samuwelson in 19^th century. Basically classical theory of liberal trade is based on the principles of absolute advantage and comparative advantage of trade presented by Adam Smith and David Ricardo and neo classical thought of liberal trade were based on increasing opportunity cost, Social indifference curve and offer curves. The views of Heckscher and Ohlin on factor Endowment theory and Paul A. Samuelson’s modification of Heckscher- Ohlin theory is vital in determining international trade and it considered as the modern theory of International Trade.

 Under the liberal thoughts private sector was recognized as the engine of growth and national production was determined on the demand and supply system rather than on  the government decision. Thus it was believed that the liberal economic system is more effective and efficient than the state controlled policies. Market mechanism was determined on the equilibrium position of the demand and supply system. But the liberal system was not taken into consideration of externalities or the public bads to the society.    

Activity 3.1

Explain the basic classical thoughts of liberalization

3.1 Liberal Policies and Strategies

Liberal trade policies introduced by many countries were followed comprehensive policy package as included follows:

1.      Price policy reforms: that  encouraged to avoid subsidies, quotas and other nontariff barriers

2.      Financial policy  that aimed to  liberalize local financial market

3.      Fiscal policies that aimed to revise taxes and tariff and to change welfare expenditure

4.      Trade policy that encourage liberal trade with international market

5.      The institutional policies that aimed to change institutions and legal framework.

These policies were aimed to liberalize foreign trade instead of implementing protection policies such as infant industry quota, subsidies and some non tariff barriers.

After the Second World War, many international institutions such as World Bank, International Monetary Fund and the world Trade Organizations were established in order to institutionalize the liberal trade among trading partners. According to Wikipedia encyclopedia, the establishment of GATT and the successive World Trade Organization (WTO) were helped gratefully in promoting world trade. Following actions were important in this regard.

a.       Elimination or minimizing  of tariff and creating free trade zones

b.       Reduction or elimination of capital controls

3. Reduction, elimination, or harmonization of subsidies for local businesses
4. Provide incentives for global corporations
5. Harmonization of intellectual property laws across the majority of states, with more restrictions
6. Supranational recognition of intellectual property restrictions (e.g. patents granted by China would be recognized in the United States)

Reduced transportation costs, especially resulting from development of containerization for ocean shipping were also greatly effective in spreading world trade. The development strategies followed by respective world economies for trade liberalization were based                                                                                                                                                                                                            on four models;

1.      Export oriented models

2.      Resource oriented Models

3.      Technology oriented models

4.      Situation optimization model

Activity 3.2

List liberal trade policy reforms implemented by countries to encourage globalization;