Trade Agreements, Trade Liberalization and Economic Growth: A Selective Survey

Since 1950 there has been a massive liberalization of world trade taking various forms including the formation of free trade areas, customs unions, unilateral reductions in tariff barriers, and reductions in non-tariff barriers to trade. To what extent has this liberalization contributed to the growth performance of countries, and what are the mechanisms through which faster export growth may impact favourably on economic growth? The paper first surveys the empirical literature which seems to show that countries that participate in regional trading agreements (RTAs) fare worse than countries which reduce tariffs unilaterally, and secondly comments on the theoretical literature relating to the mechanisms through which exports affect growth. It is argued that the orthodox neoclassical supply-side argument is only half the story, and much more emphasis needs to be placed on the effect of export performance in relaxing a balance of payments constraint on demand.