This document discusses various types of liberalization including economic, financial, trade, and agricultural liberalization. It provides background on liberalization, describing it as a reduction in the role of the state in economic affairs and a move towards privatization and free market policies. The document also outlines some of the debates around liberalization, noting potential benefits like increased trade and economic growth but also possible downsides like effects on certain industries and jobs. Key reforms associated with liberalization agendas are described, like reducing tariffs and subsidies in agriculture.

1. Liberalisation
Submitted to:
Sruthy Herbert,
School of Social Work,
Marian College,
Kuttikkanam.
Submitted by:
Bimal Antony,
II MSW, No. 111,
School of Social Work,
Marian College,
Kuttikkanam.
Date of Submission:
18th
November 2011.

2. 2Liberalisation
Introduction
Economic activities such as production and distribution of goods and services have been carried
on since ages both by private agencies such as individuals and firms as well as the state. The
extent and nature of their participation depends upon the stage of economic development of the
society, structure of the economy and the political ideas that rule at those periods. Generally, in
more developed economies, the role of the state in managing economic affairs of the society is
less. A society where the state has a relatively small role to play in the economic affairs of the
people is generally described as liberal. By liberalising trade and capitalising on areas of
comparative advantage, countries can benefit economically. Use of resources - land, labour,
physical and human capital - should focus on what countries do best.
Liberalisation
In the closing decades of the 20th century, many developing countries experimented with the
functional decentralization of revenue and expenditure to lower levels of government. For most
of these countries, decentralization has been a fundamentally new experience, representing a
historic break with the centralist past and setting into motion major changes in economic and
political life. Two salient hypotheses about the causes of decentralization can be identified.
According to the first hypothesis, the return to or establishment of democracy in developing
countries has unleashed pressures for decentralization that were either dormant under or resisted
by non-democratic governments. According to the second hypothesis, politicians who want to
shrink the role of the state in the economy and achieve fiscal stability at the center endorse
decentralization as a policy that will further their liberal goals.
One of the challenges facing these and other theories is the apparent newness of the phenomena.
In most developing countries, since decentralizing changes are quite recent and ongoing, it will
take some time before scholars can answer difficult questions about their consequences for
democracy and economic performance. There is some sense that “decentralization” is still a
moving a target and, given the confusion and disarray that changes of such magnitude inevitably
involve, will continue to be so for a number of years. But decentralization – defined as increases
in the policy authority of lower-level state officials relative to national-level state officials – is
not everywhere a strictly new phenomenon. Looking at changes in revenue sharing rules
implemented by both democratic and authoritarian governments and by governments that
endorsed statist and liberal development models makes it possible to evaluate both hypotheses.
Changes in revenue sharing rules, typically involving attempts by successive political leaders to
increase or decrease the set of taxes subject to revenue sharing and/or the percentage of revenues
sent to lower levels of government, can be thought of as movement along a decentralization
continuum. Overall, the period between 1934 and 1999 witnessed an expansion in the number of
taxes subject to revenue sharing and significant increases in the percentage of tax revenue
automatically sent to sub-national governments, but there were also significant periods of
recentralization.

3. 3Liberalisation
Economic / Financial Liberalisation
Economic liberalization may be described as the freedom to engage in economic activity at home
and/or abroad, a freedom subject to institutional and policy constraints needed to guarantee
public interests at large. It can be also said as a virtual withdrawal of the state from economic
activities.
Financial liberalization (FL) refers to the deregulation of domestic financial markets and the
liberalization of the capital account. The effects of FL have been a matter of some debate. In one
view, it strengthens financial development and contributes to higher long-run growth. In another
view, it induces excessive risk-taking, increases macroeconomic volatility and leads to more
frequent crises. Financial liberalization has led to financial deepening and higher growth in
several countries.
Trade Liberalisation
The process of trade liberalization and market-oriented economic reform that had started in many
developing countries in early 1980s intensified in the 1990s. The reform undertaken varied in
ownership and contents in different countries. The reforming countries can be classified into
three groups. The first group consists of a number of countries in East Asia which continued
their own dynamic industrial and trade policies initiated in 1960s. The second group includes a
large number of countries, mostly in Africa, which have gone through the reform programmes
designed and dictated by the IFIs. The third group comprises a number of Latin American
countries that undertook economic reform since early 1980s, initially under the pressure from
IFIs. Nevertheless, in 1990s they intensified their reform process without having been
necessarily under pressure of those institutions in all cases. The contents and philosophy of their
reform programmes were, however, similar to those designed by the IFIs which in turn have
been referred to as the “Washington Consensus” since the early 1990s. Universal and uniform
trade liberalization was a part of that “Consensus”. “Universal” implies that all developing
countries are to follow the same trade policy regime-trade liberalization-irrespective of their
levels of development and industrial capacities. “Uniform” implies that all sectors and industries
are to be subject to the same tariff rates-preferably zero rate, or low rate. Apart from trade
liberalization, such reform programmes included mainly: capital account liberalization,
devaluation at the early stages of reform to compensate for trade liberalization, fiscal and
financial reform through contractionary macroeconomic policies such as budget cuts, increase in
interest rates and privatization.
Trade liberalization measures, in particular, are believed to be a reaction to the failure of
traditional import substitution (MS) policies of the 1950s–1970s. The philosophy behind the
reform programmes was that the role of government in making decisions on resource allocation
should be minimized and the incentive structure should change in favour of exports through
import liberalization in order to follow an export promotion (EP) path instead of MS. It was

4. 4Liberalisation
argued that private agents, guided by the operation of market forces, would better achieve the
objectives of growth and diversification of exports and output structure in favour of
manufactured goods. Such objectives would in turn be attained through the expansion of
investment, better channelling of resources and allocation of investment outlays to productive
sectors. The change in the structure of incentives would not only lead to growth and
diversification but also to the upgrading of the production structure, facilitated by imported
technology and improved skills enhanced by trade.
Benefits from trade liberalisation
Consumers ultimately benefit because liberalised trade can help to lower prices and broaden the
range of quality goods and services available. Companies can benefit because liberalised trade
diversifies risks and channels resources to where returns are highest. When accompanied by
appropriate domestic policies, trade openness also facilitates competition, investment and
increases in productivity.
Downside of trade liberalisation
Trade reforms, even if beneficial for a country overall, may negatively affect some industries or
some jobs and many commentators worry about negative effects on the environment. The
solution to these problems is not to restrict trade. They should be tackled directly at source
through labour, education and environmental policies.
Agriculture Liberalisation
In recent years, trade in agriculture has not only attracted growing attention but is being viewed
as the vehicle for global growth and equity. By expanding markets and by removing distortions
caused by high levels of protection in agriculture, global trade will not only facilitate competition
but spur growth in an area that is linked directly to poverty and hunger. The main goal of
agricultural trade has been said to be to provide an enabling environment for a majority of the
world's poorest to take advantage of the enormous opportunities to improve incomes and enjoy
healthy lives.
The Significance of Tariffs.
Tariffs and tariff-rate quotas are by far the most costly of the policies that distort world
agricultural trade as they account for 80 percent to 90 percent of the total cost. Moreover,
extremely high tariffs on a few selected products cause a disproportionately large percentage of
the economic burden of agricultural tariffs. Correspondingly, an agreement that does not ensure
that many of those high tariffs are significantly reduced is not likely to have much beneficial
effect. The plan in the Doha Round negotiations was to allow each country to choose a few
sensitive products and each developing country to choose a few additional special products
whose protective tariffs would be cut less than others.

5. 5Liberalisation
The 2006 World Bank study modeled variations on a prototype scenario for agricultural
liberalization in the general range of those under discussion in the Doha Round. That study found
that allowing countries to designate as few as 2 percent of their tariff lines as protecting sensitive
products and developing countries to designate an additional 2 percent as protecting special
products could eliminate 80 percent of the economic gain that would otherwise result from the
prototype liberalization scenario.
The Effects of Subsidies.
Domestic subsidies are the second most costly of the policies distorting agricultural trade,
followed by export subsidies. Unlike tariffs, which tend to harm all countries, subsidies tend to
benefit the countries purchasing the subsidized products and to harm the countries granting the
subsidies (although their agricultural sectors benefit) and the countries that are competing
agricultural exporters. Because most subsidies are granted by developed countries, export
subsidies tend to benefit developing countries and to harm developed countries; and, to a lesser
extent, the same pattern is true for domestic subsidies.
References:
S.M. Shafaeddin (2005): TRADE LIBERALIZATION AND ECONOMIC REFORM IN DEVELOPING COUNTRIES:
STRUCTURAL CHANGE OR DE-INDUSTRIALIZATION?, Discussion Paper No.179, Untited Nations
Conference on Trade and Development.
What is trade liberalisation and isn't it a good thing?
http://www.traidcraft.co.uk/get_involved/campaign/stop_epas/faq/trade_liberalisation Accessed on
13.11.2011
Trade liberalisation,
http://www.oecd.org/document/2/0,3746,en_2649_37431_41049090_1_1_1_37431,00.html, accessed
on 13.11.2011.
Kent Eaton (2000): Decentralization, Democratization, and Liberalization:The History of Revenue Sharing
in Argentina, 1934-1999. New Jersey: Center for International Studies, Princeton University.
Devinder Sharma (2005): Trade Liberalization in Agriculture: Lessons from the First 10 Years of the WTO.
Brussels: APRODEV.
Bruce Arnold (2006): Agricultural Trade Liberalization, ECONOMIC AND BUDGET ISSUE BRIEF,
Novermber 20, 2006. Washington: CBO. obtained from http://www.cbo.gov/ftpdocs/76xx/doc7690/11-
20-AgTrade.pdf