Impact of International Trade Policies and Tariffs on Economic Growth and Trade Balance of Developed and Developing Countries

Author(s): Dr. Himanshu, Ankit Akanksha, Nishtha Shrivastava, Karn Rawal, Harsh Gulati

Abstract:

This paper compares the different impacts of international trade policies and tariff systems on the economic performance of the developed and the developing economies in terms of financial/macroeconomic. An analysis of key economic indicators utilizing a balanced panel data set of 50 countries (25 developed and 25 developing) in the years 2004 to 2024 examines how essential instruments of trade policy; tariffs, exchange rates and trade openness affect them. The analysis examines the effect of significant tools of trade policy namely tariffs, exchange rates, and openness to trade on trade. The research utilizes the different panel regression models which consider the major macroeconomic variables which include inflation, employment rate, population growth, and the real interest rate. The empirical evidence shows that the effects of trade policies are very heterogeneous depending on the level of economic development. Trade intensity has been considered in developed economies as a leading factor of economic growth and balance of trade, but other factors such as tariffs and exchange rates have a relatively small influence on the GDP growth and capital account balance in the balance of payments. On the other hand, in third world economies, tariffs and exchange rate volatility have a significant effect on the GDP growth, balance of trade as well as incoming inflows of foreign direct investment. These findings demonstrate the value of macroeconomic stability when it comes to achieving good performance by both groups of nations. The paper shows that the impacts of trade policy are not homogenous and highly dependent on the situation, and hence, homogenized trade policies might not be the best. The results offer useful suggestions to policy makers in the designs of trade and macroeconomic policies that are favorable to sustainable growth and monetary stability.

Keywords: International Trade Policies, Tariff Barriers, Economic Growth, Trade Balance, Developed and Developing Economies

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