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Working Paper 63 - Trade, Trade Liberalisation and Economic Growth: Theory and Evidence


In the world economy since 1950 there has been a massive liberalisation of world trade, first under the auspices of the General Agreement on Tariffs and Trade (GATT), established in 1947, and now under the auspices of the World Trade Organisation (WTO) which replaced the GATT in 1993. Tariff levels in high-income developed countries have come down dramatically, and now average approximately 4 percent. Tariff levels in developing countries have also been reduced, although they still remain relatively high, averaging 20 percent in the low-and middle-income countries. Non-tariff barriers to trade, such as quotas, licenses and technical specifications, are also being gradually dismantled, but rather more slowly than tariffs.

Regional Trade Agreements (RTAs) have also become very fashionable in the form of Free Trade Areas and Customs Unions. The WTO lists 76 that have been established or modified since 1948. A list of 22 of the most important ones is given in Appendix 1. The major ones are the European Union (EU); the North American Free Trade Area (NAFTA); Mercosur covering Argentina, Brazil, Paraguay, Uruguay and Chile; APEC, covering countries in the Asia and Pacific region; ASEAN covering South-East Asian countries, and SACU, covering countries in southern Africa.

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