Trade liberalisation involves a country lowering import tariffs and relaxing import quotas and other forms of protectionism.
One of the aims of liberalisation is to make an economy more open to trade and investment so that it can engage more directly in the regional and global economy. Supporters of free trade argue that developing countries can specialise in the goods and services in which they have a comparative advantage.
Consider the diagram below which shows the effects of removing an import tariff on cars perhaps as part of a new trade agreement between one or more countries:
Removing a tariff (ceteris paribus) leads to:
Exploring the possible impact of trade liberalisation
Trade liberalisation can have micro and macroeconomic effects:
Micro effects of trade liberalisation:
Macro effects of trade liberalisation:
Revision video on trade creation
Revision video on free trade agreements
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