Trade Reform Policy Uncertainty And The Current Account

Permanent changes in trade policy do not affect intertemporal prices and should thus leave private savings unaffected. But if trade reform will not be reversed and the government cannot credibly communicate that intent, consumers trade on the wrong assumption-- so private savings are lower than they should be. This justifies policy intervention to increase private savings.

This paper presents a model that incorporates uncertainty about trade reform and analyzes the effects of trade and financial liberalization on domestic investment and savings, the current account balance and the real exchange rate, both when the capital account is open and when it is closed. Under certain assumptions financial liberalization leads to a movement of resources in the opposite direction to that implied by trade liberalization and to real exchange rate appreciation, thus defeating one of the objectives of tariff reform, when the capital account is open. When political economy linkages are taken into account, however, the indirect effects of financial liberalization may offset the direct effects, encouraging a movement of resources in the desired direction. With a closed capital account these results should still hold unless there are strong negative income effects from trade reform.

This paper examines two important issues for a small high-inflation open economy with trade controls where the government implements an exchange-rate based stabilization program: first, the extent to which the degree of openness of the economy influences the probability of success of the program; and second, the conditions under which a trade reform, implemented in conjunction with the stabilization program, will increase the probability that stabilization will be successful. The paper shows that in an economy with high export and import price elasticities, structural reforms to increase openness can be important in determining the success of the program.

Succeeding with Trade Reforms: The Role of Aid for Trade highlights the potential of aid for trade to boost economic growth and reduce poverty, while discussing the various reasons why it may not be realised.

A broad yet distinctive analysis of the growing political, economic, and social gap existing between the world’s northern and southern hemispheres. Featuring papers selected by the ISA President from the 2006 annual meeting, this upper-level volume examines the genesis of the North-South divide, the ongoing policy problems between developed and lesser developed states, and how these issues influence current and future world politics. An upper-level text ideal for academic libraries, think tanks, and libraries of policy institutions Organized into three distinct focus clusters: Problems afflicting the global South -- trade, development, financial crises, structural adjustment, democratization, human rights, disease; Specific conflicts between North and South -- energy, terrorism, weak states, nuclear weapon proliferation; Solutions to reduce the North-South gap -- foreign aid programs, global media, democratization, political power in the United Nations, the emerging powers phenomenon, transnational social movements, and Northern foreign policy adjustments Tackles the tough questions likely to dominate international relations discourse for decades to come