Benefits of liberalisation policy

Advantages of Trade Liberalisation

• Comparative advantage. Trade liberalisation allows countries to specialise in producing the goods and services where they have a comparative advantage (produce at lowest opportunity cost). This enables a net gain in economic welfare.
• Lower prices. The removal of tariff barriers can lead to lower prices for consumers. E.g. removing food tariffs in West would help reduce the global price of agricultural commodities. This would be particularly a benefit for countries who are importers of food.
• Increased competition. Trade liberalisation means firms will face greater competition from abroad. This should act as a spur to increase efficiency and cut costs, or it may act as an incentive for an economy to shift resources into new industries where they can maintain a competitive advantage. For example, trade liberalisation has been a factor in encouraging the UK to concentrate less on manufacturing and more on the service sector.
• Economies of scale. Trade liberalisation enables greater specialisation. Economies concentrate on producing particular goods. This can enable big efficiency savings from economies of scale.
• Inward investment. If a country liberalises its trade, it will make the country more attractive for inward investment. For example, former Soviet countries who liberalise trade will attract foreign multinationals who can produce and sell closer to these new emerging markets. Inward investment leads to capital inflows but also helps the economy through diffusion of more technology, management techniques and knowledge.