The Importance Of Trade Liberalization

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is in many cases associated with globalization, trade openness or liberalization. Under such circumstances, trade liberalization is perceived as an stimulant of better competition for domestic producers and is projected to cause an increase in informality. This occurs because firms slash formal workers to cut costs in order to remain competitive. Throughout the world economy from early 1990’s, industrial tariffs are much lower than they used to be in the previous times while there new heights are being reached through foreign direct investment flows. Quite evidently and noticeably, globalization has aided technology transfer and induced efficiencies in production processes. As a result, on most occassions trade liberalization when it occurs in economies that are undergoing transition is mostly seen as a positive (McMillan and Rodrik, 2011).…show more content…
The conventional outlook suggests that trade liberalization would play an important role in the increase in informality. The term informality is used to describe the portion of a country’s output of goods and services which does not conform to government regulation. A commonly observed activity in most countries, informality is larger in proportion and more persistent in developing countries (Schneider and Enste, 2000; Tokman, 2007). During the course of the past two decades, regardless of the predictions that suggested otherwise, employment in the informal sector of the economy has risen promptly in every region of the developing world and in most of these regions, various types of non-standard employment have gained prominence. (Carr and Chen,

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