Impact of Trade Liberalization on Economic Growth in Developing Countries

In order to investigate the impact of trade liberalisation on economic growth, this paper analyses the existing research on trade liberalisation and growth, revises the well-used Sachs and Warner (1995) trade liberalisation index for 193 countries up to 2010, and applies a dynamic growth model to a substantial panel data set covering the years 1985 to 2010. The results suggest that the impact of trade liberalisation on economic growth differs depending on the industrial development level of a country. Lower-middle-income countries, on average, experience a minimum 3% greater advantage from the liberalisation of trade compared to other growing nations. This finding provides a persuasive rationale for altering the conventional "Washington Consensus" methodology and taking into account the economic development phase while suggesting trade policy modifications.