Washington DC, 23 November 2021 (GNP/ TDI): IMF reports on ‘How Trade Can Help Asia Economic Recovery’. Trade is a powerful tool for economic growth and poverty alleviation. However, there is a need to reduce trade barriers for economic recovery.
According to the Asia-Pacific Regional Economic Outlook research easing, non-tariff barriers can boost gross domestic product In Asia. It can boost trade up to 1.6%.
Trade Barriers in Asia
Asia has a long history of cross-border activity. The strong GDP growth in Asia was due to trade openness, like greater participation in global value chains. However, this openness has stalled in recent years. Consequently, the Asia growth engine slowed even before the pandemic.
The tariff barriers in Asia fell sharply from the 1970s. Moreover, nontariff barriers are also a significant impediment to trade. IMF working paper compiles a comprehensive measure of trade restrictions for 159 economies. This index uses detailed trade-barrier data in the IMF’s Annual Report on Exchange Arrangements and Exchange Restrictions. This research reveals the various obstacles such as licensing requirements along with the documentation hurdles for releasing foreign currency.
The index shows that there is a major drop in tariffs in the last few years. However, the non-tariff barriers have declined less and remained relatively elevated.
Open Trade benefits
Empirical analysis suggests lowering nontariff barriers offers potentially large economic gains. For instance, the improvements come from greater investment along with productivity. The advances from trade and liberalization can contribute to productive firms.
The advances from trade liberalization occur via multiple channels that include benefits from specialization, technology transfer, and the reallocation of resources to more productive firms.
The report also indicated that policymakers must prioritize economic reforms to support growth. Moreover, to minimize the scarring from the crisis. There is a need for reforms in the labor and product market.
Lowering goods barriers
Asian economies require import and export licenses along with the restrictive use of foreign exchange. Removing these obstacles can reduce costs for international transactions.
Reducing trade restrictions has historically meant more growth, investment, and productivity – a lesson for Asia as the region works to support its recovery from the pandemic. #IMFblog https://t.co/pC6aGocZVI pic.twitter.com/B1wRg13sQQ
— IMF (@IMFNews) November 21, 2021
Reducing services restrictions
There is significant scope to ease restrictions on transactions beyond physical goods in areas. For instance in travel, shipping, and international transfers. These Reforms will likely offer greater benefit in the coming years.
Reducing trade barriers can help boost output in the medium term. Moreover, it can also come with potentially adverse distributional consequences. The reallocation generates winners and losers. Therefore, it’s essential to accompany trade reforms.
There is a need for policies to mitigate impacts on inequality. Besides, there is also a need for financial support for the hardest hit along with the retraining programs to help workers find new jobs.
Trade openness is a promising avenue to explore post-pandemic economic recovery. IMF research shows that that reducing trade barriers can reignite Asia’s growth engine.