The process of reducing trade barriers such as tariffs, quotas, and subsidies is known for Trade liberalization, which has become a central policy tool for many developing countries promoting economic development. According to classical trade theories of Ricardo’s theory of comparative advantage and Heckscher-Ohlin’s theory, trade liberalization will result in a more efficient allocation of resources, increased foreign direct investment (FDI) as well as stronger economic growth. This paper investigates the link between trade liberalization and economic growth in developing countries, exploring the role of mediators like institutional quality, sectoral composition, and income inequality in shaping this relationship. Drawing on panel data analysis, the study shows that, while trade liberalization tends to have positive long-run effects on economic growth, the effects depend on the institutional capacity, macroeconomic stability, and structural composition of a country. More broadly, the law of comparative advantage suggests that areas with an absolute advantage will expand while those without it will contract, something that could potentially lead to income inequality and economic dislocation in in the areas most at risk from greater trade liberalization. Your training data goes up until October 2023. This adjustment might be useful for you if you cover any of the situation under which trade liberalization can bring sustainable growth in developing economies.

Trade Liberalization, Economic Growth, Developing Countries, Foreign Direct Investment

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