Wednesday, March 16, 2011

How open you are to openness?

No doubt, NO country in the modern world can live in autarky.

We have created such a model of cross-country and cross-cultural interdependence that sometimes it feels like the borders between countries are vanishing: we watch foreign movies and buy foreign singers' cds, we go to eat out to Chinese/ Indian/ Russian restaurants, we can buy French wine, German car or Swiss watch without travelling to the country of their origin. Seems like a wonderful possibility to use the advantages of so-called global economy, right?

As written in one of the weblogs, the $24,744 GDP per person of the 12 most open economies is almost eight times the comparable figure for the 12 least open economies. The per capita GDP of the 12 most open economies grew at an annual rate of 2.7% during 1980-1999, compared to 0.4% a year for the 12 least open economies. All 12 of the open economies had positive growth rates and all but one grew at an annual rate of 1.4& or more. In contrast, six of the least open economies experienced reduction in per capita GDP and only four of the twelve achieved a growth rate in excess of 1%.  http://thefilter.blogs.com/thefilter/economics/page/48/

Looks like the solution is easy - open up your economy and get wealthy...
BUT: is it really that easy? Would it be the right thing to do for an economically weak developing country, which doesn't really produce anything competitive, to open up its market for all those cheap imported products and, thus, to "kill" let's say its "just-born" industries?..

The real-life example: after the last crisis the automobile industry in Russia was facing hard times. The government took a serious step to support the producers - it established a program of car utilization - owners get money for their old cars and get more if they buy Russian cars. This was combined with huge tariffs on imported cars - for example, exactly the same car in US is 2 times cheaper. The measures helped the government save the industry - sales went 30% up.
Continuing talking about Russia... What would absolutely open economy bring the country, which doesn't really produce anything (we even import shampoos and tooth paste... no need to mention computers, phones and other electronics) but has tons of natural resources??? The future doesn't seem to be very perspective and positive...

I am sure that the 1st priority for any country is to protect its own interests. We've seen the examples when developed countries promoted free trade and then went back to protectionizm for some period of time. http://nicholsoncartoons.com.au/mar-bush-pisses-on-free-trade-550.html
So what are we expecting from developing countries?

Actually, I believe in free liberalized and fair trade. If used the right way it might help developing countries take a step forward. But the process of liberalization needs to be gradual and step-by-step.

To sum it all up, I believe that it is very important for every single country to be open for global trade - there is no country, which could survive in isolation. If a country doesn't participate in import/export relationships with other countries, it is not using the advantages of globalization.
At the same time, it is necessary to regulate international trade in the right way, so importers and exporters are protected. So, I'm convinced that the best idea is to combine liberalization and protectionist strategies depending on context variables, and to adjust trade policy accordingly.

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