Explain the Economical and Political Reasons Why States May Choose to Liberalize Their Economy.

Explain the economical and political reasons why states may choose to liberalize their economy.

Integration into the world economy has proven a powerful means for countries to promote economic growth, development, and poverty reduction. Policies that make an economy open to trade and investment with the rest of the world are needed for sustained economic growth. Countries that have opened their economies in recent years, including India, Vietnam, and Uganda, have experienced faster growth and more poverty reduction. These countries have become successful because they chose to participate in global trade, helping them to attract the bulk of foreign direct investment in developing countries (IMF 2001).

There are four scenarios where liberalizing policies of economies are likely to be seen and they are:

i) In economies that already follow liberal free enterprise policies,

ii) In socialist/communist economies largely controlled by the state,

iii) Relatively non-liberal, mixed economies regulated by the state, and

iv) In economies where the state is indifferent or irrelevant too much of ordinary economic life.

Liberalization means serious reorganisation of economic life, which only the state has the legal authority and the sheer social power to carry through (Kaviraj, 2004 p138). Kaviraj also say, “what liberalization actually means for its citizens of a particular state depends to a large extent on the kind of relations that already exist between the state and the economic sphere” (op.cit p135).

Social and economics forces shape states politics and the reshaping of the state’s politics leads to liberalization of trade and for its citizens. To attain this goal, states need to consider both the economic and political factors that underpin the need to liberalize their economies and furthermore, achieving a balance of political democracy against the choice of liberalization policies. Furthermore, liberalization presents the greatest opportunity for...