Economic Growth and Trade Policy

Economic Growth and Trade Policy

Generally, economically developing countries that trade more frequently have been observed to have a consistent growth path, attributed to bilateral trade. However, for many years past, little research has been conducted into the relationship between economic growth and business. The current study explores whether there is a significant long-term relationship between economic growth and foreign trade for Zimbabwe during the period 1995 to 2020.

 

Our research design relies on a detailed analysis of eleven economic variables. Using this framework, we can draw three broad conclusions. First, there is no apparent negative relationship between economic growth and trade openness or trade policy regime. Trade openness and economic growth do not directly interact in a way that could potentially bring about a net loss for one or the other.

 

Second, there is a close relationship between growth and international technological transfer. This means that there may be some gains in economic development by allowing access to higher-level technology. Specifically, change may make it easier to implement technology transfer policies. Regarding technology transfer, it was observed that countries that adopt open and liberal economic policies enjoy higher levels of IT investments per capita. Conversely, the opposite is true for developing nations that adopt protectionist policies and restrict IT investment.

 

Third, both domestic economic policies and external policies that restrict technology transfer may negatively affect economic growth. This is since the restriction of IT activities may negatively affect productivity growth. Besides, this will also negatively impact imports and exports. Thus, although there is a positive relationship between development and IT and export-based economic policies, the impact of protectionist policies on technology transfer may be more significant than was previously thought.

economic policies

Fourth, it is essential to note that economic policies based on open sources of information and technological advancement can be more likely to increase openness to global trade. Indeed, numerous theories were developed during the 1970s by scholars who attempted to explain the direction of international economic growth. Those theories suggest that the openness of a country’s economy plays a crucial role in determining the extent to which it will be open to external trade. They noted that although protectionist policies can limit imports and exports, there is still a significant ability to improve competitiveness by opening up the economy to external trade. Specifically, this can occur through opening up the government and making it more economical to protect its domestic industries.

 

Finally, it is essential to note that several factors beyond openness may affect economic growth and trade integration. For example, a country’s political system can affect honesty in foreign trade. Several factors are beyond the control of governments that can impact the development of the economy. As a result, researchers must consider all these factors when explaining the relationship between openness and economic growth.

openness and economic growth

One of the factors that appear to be most consistent with the relationship between openness and economic growth is the level of protectionism in a country’s domestic market. Protectionism can arise for various reasons. The most common rationale for protectionism occurs when a government attaches tariffs to imported goods to prevent competitors from undermining the domestic market. A country’s central bank may also opt to maintain a special interest rate to avoid the currency from depreciating too quickly.

 

Most empirical research suggests that protectionist policies do have some significant macroeconomic impacts. However, most empirical literature only examines the direct macroeconomic implications of trade liberalization on employment and prices. By looking more deeply into the microeconomics of firms, including informal sectors such as street vendors and salaried workers, it appears that these same macroeconomic policies lead to a more significant employment generation, especially for unskilled workers. Finally, by reducing distortions caused by tradable goods, protectionism leads to more efficient utilization of aggregate demand, leading to higher output and lower unemployment rates.

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