Impact of Trade Liberalization on Economic Growth: USA and Lao PDR

This essay examines the impact of trade liberalization on economic growth by comparing the experiences of the USA and Lao PDR. It discusses trade openness as a percentage of GDP, foreign direct investment, and portfolio investments as measures of globalization. The analysis reveals contrasting correlations between GDP per capita and trade openness in the two countries, with the USA showing a positive correlation and Lao PDR showing a negative correlation. The essay also explores the policy changes in both countries, including the US Congress's “Expansion of Trade Act” and Lao PDR's shift to a market mechanism economy, highlighting the complexities of trade liberalization and its effects on economic development. Desklib provides a platform to access this document and many other solved assignments.

qwertyuiopasdfghjklzxcvbnmqwertyui
opasdfghjklzxcvbnmqwertyuiopasdfgh
jklzxcvbnmqwertyuiopasdfghjklzxcvb
nmqwertyuiopasdfghjklzxcvbnmqwer
tyuiopasdfghjklzxcvbnmqwertyuiopas
dfghjklzxcvbnmqwertyuiopasdfghjklzx
cvbnmqwertyuiopasdfghjklzxcvbnmq
wertyuiopasdfghjklzxcvbnmqwertyuio
pasdfghjklzxcvbnmqwertyuiopasdfghj
klzxcvbnmqwertyuiopasdfghjklzxcvbn
mqwertyuiopasdfghjklzxcvbnmqwerty
uiopasdfghjklzxcvbnmqwertyuiopasdf
ghjklzxcvbnmqwertyuiopasdfghjklzxc
vbnmqwertyuiopasdfghjklzxcvbnmrty
uiopasdfghjklzxcvbnmqwertyuiopasdf
ghjklzxcvbnmqwertyuiopasdfghjklzxc
[Type the document title]
[Type the document subtitle]
[Pick the date]
Geeta

Contents
Question 1...................................................................................................................................................2
Question 2...................................................................................................................................................3
Question 3...................................................................................................................................................4
Question 4...................................................................................................................................................4
Bibliography................................................................................................................................................4
Question 1
The percentage of Trade as a part of GDP or Trade / GDP describes the extent to
which an economy relies on trade as a means to earn income or to procure goods.
Trade Openness is often used as a proxy for trade liberalization which is a step
towards free trade. Free Trade is one of the tenets of globalization. Trade
liberalization allows citizens to trade freely and access goods and services from
the global markets, instead of just the local, regional or national markets.
(Vujakovic, 2009)
There are several measures and indices that measure globalization on various
parameters. Other Measures of globalization include Foreign Investment such as
Foreign Direct Investment (FDI) as a percentage of Gross Domestic Product..
These metrics measure the monetary value of investment received from outside
of the country. A country may receive low Foreign Direct investment due to,
among other reasons, protectionist laws against foreign investments within the
country. Protectionist laws are usually made in order to prevent foreign nationals
against holding assets in the country. Other measures include Portfolio
Investments such as holding in equity markets by foreign investors. (Vujakovic,
2009)
Question 2

Year
1986
1988
1990
1992
1994
1996
0
10
20
30
40
50
60
70
80
90
Trade (as % of GDP)
USA
Lao PDR
Trade (in % of GDP)
Figure 1: Trade as Percentage of GDP of USA and Lao PDR. Source: (The World
Bank, 2018)
Trade as a percentage of GDP, for 1985-2005, was lower for USA (16 - 40%) than
Lao PDR (15-85%) possibly due to large size of the domestic economy of USA as
compared to Laos. For Laos, trade openness increased progressively with
intermittent drops especially following the 1997 Asian Crisis.
Question 3
Co-relation co-efficient describes the strength of co-relation between two
variables or how closely the trend of one variable follows the trend of another.
The Correlation Co-efficient between GDP per capita and Trade Openness for Lao
PDR is -0.186 and for USA is 0.86. This implies that GDP per capita and trade
liberalization are negatively co-related and that GDP per Capita declined as trade
openness increased. For the USA, GDP per capita increased as the Trade

Openness increased. This may imply that the domestic economy of USA probably
had markets that were more suitable to make the most of trade openness that
Laos.
Question 4
The US Congress established the “Expansion of Trade Act”, in accordance with
the General Agreement on Tariff and Trade Agreement (GATT Agreement)”. In
keeping with this agreement, trade liberalization was adopted in USA as tariff and
as non-tariff barriers were significantly lowered. (Canto, 1983 ). The idea behind
such policies was that opening up domestic markets would encourage other
countries to offer a quid pro quo and open up their markets which may help in
increasing exports. (Canto, 1983 ). Subsequently, USA adopted neo-liberal policies
in the 1980s. (Kotz, 2003) (United States Trade Representative, 2018)
Lao PDR moved to a market mechanism economy from being a centrally planned
economy in the year 1986. Further, a law to promote greater foreign investment
was introduced in 1989, following which the country saw an exponential rise in
Foreign Direct Investment which helped increase trade openness. However,
research seems to show that this had a negative impact on the economic growth of
the country. The Asian Financial Crisis of 1997-1999 hit the country hard as
macro-economic stability (exchange rate , lending rates etc. showed instability)
which is a probable cause of the relative decline in trade openness following that
period. (Phommahaxay, 2013)
Bibliography
Kotz, D. (2003). Neoliberalism and the US Economic Expansion of the 1990s. Monthly Review, 15-33.
Lardy, N. (2003). Trade Liberalization and Its Role in Chinese Economic Growth . A Tale of Two Giants:
India's and china's Experience with Economic Growth (pp. 1-15
https://www.imf.org/external/np/apd/seminars/2003/newdelhi/lardy.pdf). New Delhi:
International Monetary Fund.
Phommahaxay, A. (2013). Impact of FDI on Economic Growth of Lao PDR. Mekong Institute Working
Paper Series 2013, 1-29.

The World Bank. (2018, July 31). Trade (% of GDP). Retrieved from The World Bank:
https://data.worldbank.org/indicator/NE.TRD.GNFS.ZS
United States Trade Representative. (2018). America and the World Trade Organization. Retrieved from
Institute of Agriculture and Trade Policy:
https://www.iatp.org/files/America_and_the_World_Trade_Organization.htm
Vujakovic, P. (2009). WIFO Working Paper: How to Measure Globalisation? A New Globalisation. Viena:
WIFO Working Papers, No. 343, Austrian Institute of Economic Research.