Trade liberalization and trade performance in Asia : 1974-2008

This paper examines whether trade liberalization helps in relaxing the balance of payments constraints in 17 Asian countries covering the period of 1974 to 2008 using non-parametric, inferential analysis; panel fixed effects and error correction models. We find that exports and imports increased among Asian countries because of trade liberalization under the WTO as evidenced by the inferential analysis. Nepal had trade balance deterioration after 1995. We find evidence of differentiated price effects (specifically on export growth and trade balance to GDP ratio) of trade liberalization among East Asian countries from both panel and ECM analyses. This implies that supply-side factors (\u27learning by doing\u27 with product variety and type, increasing returns to scale, foreign direct investments, technology, global production networks) excluded from the model might determine the export performance of China, India and East Asian countries. Except for China, and newly industrialized economies, most of the countries had slower if not negative growth and worse trade deficits. India, China and South Korea are making a balance of payments surplus as evidenced by the test of Thirlwall\u27s growth rate. In cases of Philippines, Thailand, Cambodia, Vietnam and Bangladesh, the study notes that external shocks and crises, or political factor might be the predominant influences that constrained their growth. This indicates that trade liberalization policy alone is not sufficient to attain trade balance surplus and eventually growth in Asia. It must be complemented with the monetary and exchange rate policy, and supported with institutions that will implement it effectively. The paper concludes that trade liberalization policy influences trade balance but there are supply-side factors, external shocks and crises, or political factor that affect export performance positively or constrain economic growth