Coping with Trade Liberalisation Adjustment

Abstract

With the prospect of further trade liberalisation the question for developing and vulnerable countries of how best to manage the adjustment process consecutive to reform needs clearer answers. This paper discusses the process of adjustment for developing countries, highlighting three motives for policy intervention during this process: equity, efficiency and political economy.

Because these motives for intervention will necessarily arise, and also because their interplay - not always negative as complementarities may arise - it is necessary to get maximum clarity about the policy objective behind any adjustment policy. It is likely that the balance of equity, efficiency and political economy motives will be different in developing countries than in more developed ones, and vary across countries, thus calling for careful consideration of the context of each reform.

The simple analysis grid suggested in this paper is discussed over the specific dimension of developing countries' characteristics. Examples of what is thought as desirable and less desirable policies are then discussed.

Keywords: adjustment, developing countries, trade policy, political economy, equity, assistance