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WTO Working Papers

WTO working papers usually represent research in progress. Such research may be conducted in the preparation of WTO Secretariat reports, studies or other material for WTO members. The papers are circulated for comment because the WTO considers critical review of professional research to be extremely important.

English

Can Trade Policy Help Mobilize Financial Resources for Economic Development?

The linkages between trade and resource mobilization are complex and not well defined in theory. To what extent does trade policy affect resource mobilization and what are the mechanisms? We argue that trade policy is a key factor of influencing the domestic fundamental balance between aggregate savings and investment. The main effect of trade policy on resource mobilization stems from its contribution to static and dynamic gains from trade. But the effect of trade policy on the supply of financial resources also operates through several channels including through linkages of trade policy with foreign investment, government revenues, income distribution, foreign aid. The paper looks at direct and indirect channels, and makes a distinction between short and long term effects of different trade strategies. We also briefly review trade barriers in goods and services affecting developing countries and the potential gains from further liberalization. The long term gains from trade liberalization are substantial, but they may have to be set against short-term adjustments costs. The latter could and should be reduced by effective institutional and tax reforms.

English

Keywords: Trade policy, income distribution, finance, foreign investment, aid
JEL: O16: Economic Development, Innovation, Technological Change, and Growth / Economic Development / Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance; O10: Economic Development, Innovation, Technological Change, and Growth / Economic Development / Economic Development: General; F13: International Economics / Trade / Trade Policy; International Trade Organizations; F10: International Economics / Trade / Trade: General
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