Business, Legal & Accounting Glossary
Liberalization is described as a reduction in trade practices that thwart the free movement of goods and services from one country to another. Liberalization includes the abolition of tariff-like surcharges, export subsidies and duties. Non-tariff barriers like quotas and licensing regulations are also abolished. Greater private participation is a characteristic of countries with liberalized economies.
Liberalization has opened economies of many nations and has a positive effect on their growth. Foreign Direct Investment (FDI) played an important role in the economic success of many East Asian countries. The process has been catalyzed by the lowering of tariff barriers like import duties. Import duties have fallen from 30% to 10% over the preceding 20 years.
The opening up of country economies to global investment has assisted a number of countries to develop competitive manufacturing practices in certain products. The liberalization of the Chinese economy has made the Asian country a global supplier of soft toys and computer hardware. Poverty has also undergone a mass reduction in these countries.
Economic liberalization helps the poorer sections of a country’s population. Developing countries cannot afford large subsidies. Mismanagement and official misuse also divert subsidy benefits to a small privileged quantum of the population. In contrast, the increased incomes from greater economic growth positively affect large swathes of the population. Unskilled workers get employment and catapult them into the middle class section of society.
Economic liberalization not only encourage a country to invest in another, but the process also assists in opening up their own markets. Industrialized countries would benefit from agricultural market liberalization. Developing countries would gain the most as the lowering of tariff and non-tariff barriers in developed countries would enable them to export agricultural products.
A free trade area is a cluster of nations that do not impose any duties or tariffs in trade with each other. Participating nations tend to concentrate on their respective competitive advantages and freely trade those products they don’t have an expertise of. The whole process increases the profitability and efficiency of each participating nation. Example of a free trade area is the North American Free Trade Agreement (NAFTA). The constituent countries of NAFTA are the United States, Mexico and Canada.
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This glossary post was last updated: 28th March, 2020 | 0 Views.