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Openness and Economic Performance this lecture: focus on trade liberalization – reduction of barriers to entry for foreign firms and products Liberalization and its effects on economic performance have been the sub- ject of an intense and passionate debate over the last decade Optimistic view: argues that trade liberalization, and the implied elimina- tion of barriers to competition, is the right road for developing countries to promote growth and eradicate poverty Skeptical view: Object that there can be no such progress without an active role for domestic institutions and policies to correct market failures – they argue that liberalization may even be detrimental to growth, by inhibiting infant industries and the local accumulation of knowledge Innovation and investment lie at the heart of economic growth – a central
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Unformatted text preview: questions concerns how liberalization affects the innovations and invest-ment incentives of domestic Frms We also need to look at how to take into account heterogeneity across and within industries – affects who gains and loses from liberalization Arguments for Liberalization Gains from trade – comparative advantage Competition leading to innovative investments and improvements in pro-ductivity Long run improvements in living standards Technology transfer Arguments Against Liberalization Large scale exit of domestic Frms Large scale unemployment Increased poverty Erosion of investment and innovation incentives for domestic Frms Development Economics, LSE Summer School 2007 153...
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