Preferential Trade Agreements and Trade Liberalization Efforts in the OIC Member States
With Special Emphasis on the TPS-OIC
27
6. Terms of trade impacts. There is a greater likelihood of adverse terms of trade changes
for the excluded country should: goods be more homogeneous; there be a larger market share
between FTA members; there be larger tariff cuts intra-FTA or there is a greater overlap in
exports of the excluded country and an FTA partner.
2.5. TRADE LIBERALISATION AND DEVELOPMENT
The concept of development covers many aspects which range from GDP per capita, poverty
reduction, inequality, human development, security (both national and for the individual),
political empowerment, to sustainability. The concept of economic growth typically focusses
on the first of these - GDP per capita. In good measure this is probably best seen as a means to
achieving all the other aspects as opposed to being an end in and of itself. It is no doubt harder
to achieve the other outcomes without economic growth, which is perhaps why discussions of
development often focus on how to increase GDP per capita - ie how to increase economic
growth.
Fundamentally developing countries are poor because of low productivity, and therefore
increasing GDP per capita depends upon increasing the output per input in the economy. In
that context there is a considerable literature on the relationship between international trade
and economic growth. The empirical evidence on this is somewhat mixed. Hence it is not
unambiguously the case that countries that liberalise will grow faster. What is clear from
the empirical literature is that growth is complex and that other factors such as the level of
education, the quality of institutions, the nature of the regulatory environment, the
quality of the physical and financial infrastructure are key factors impacting on growth.
However, what is also clear is that in the presence of these other factors more open economies
tend to grow faster and can help stimulate a higher level of economic activity. Important here
is the inter-linkages between openness and some of the other factors. Hence it is more likely
that with better regulatory infrastructure that international trade can help to promote growth.
But equally the liberalising of trade can provide greater incentives for improving the
regulatory environment - hence the two issues become self-reinforcing.
Effect on Growth
There are several channels through which a more open economic environment can impact
positively on productivity and economic growth. In order to understand this it is important to
consider what the possible sources of economic growth are and then to examine how inter-
national trade either through multilateral or regional integration might impact positively (or
negatively) on that growth process. We can distinguish between three channels:
1. Increase in inputs i.e. either capital or labour. An increase in inputs enlarges the size of
the economy - this could be through improvements in education increasing the size and quality
of the labour force, through population growth or migration; or it could be through increased