Trade and the Environment in Developing Economies

Copeland, Brian R.; Gulati, Sumeet

Through reviewing the experience of seven countries (Armenia, Cambodia, China, Kyrgyz Republic, Mongolia, Uzbekistan and Vietnam), this paper draws general lessons on the macroeconomic and adjustment policies that are best suited to foster growth, employment and poverty reduction under conditions of transition from centrally planned to regulated, market-based economies. The state-led, export-oriented transition strategies of China and Vietnam have been the most successful. They have opened their economies gradually and been cautious in liberalizing their financial systems and capital accounts and privatizing their state-owned enterprises. While their fiscal policies have been expansionary, their monetary policies have tended to be more restrictive. Also, neither has opted for a completely flexible exchange rate regime. While Cambodia has also followed an export-led strategy, the state's management of the economy has been much weaker. It has rapidly liberalized its current and capital account and made itself perilously dependent on external demand and development assistance. As a consequence, the Government has little control over fiscal and monetary policies. Armenia, Kyrgyz Republic and Mongolia have implemented "shock therapy" policies, rapidly privatizing and liberalizing their economies, and experiencing, as a result, catastrophic drops in output and incomes. Swift trade liberalization has led to de-industrialization and ballooning trade deficits. Even during recovery, these countries have had restrictive fiscal and monetary policies, hampering their prospects for growth, employment and poverty reduction. By contrast, Uzbekistan has been cautious in opening up and liberalizing its economy, following an import-substitution strategy instead of one oriented to exports. Its state-managed transition strategy has dictated a slow process of trade liberalization, financial liberalization and privatization. By actively using counter-cyclical fiscal and monetary policies, it has achieved macroeconomic stabilization without experiencing a severe recession.


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Initiative for Policy Dialogue
Initiative for Policy Dialogue
Initiative for Policy Dialogue Working Paper Series
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February 3, 2010


The opinions expressed in these papers represent those of the author(s) and not The Initiative for Policy Dialogue. These papers are unpublished and have not been peer reviewed. Please do not cite without explicit permission from the author(s).