In a broad swing of the pendulum, developing countries have been shifting from severe and destructive protection to free trade fever. Many of the notable examples are in Latin America. This new enthusiasm for freer trade stems from four overlapping sources: anti-statism, poor economic performance, information, and world Bank pressure and evidence of success. This chapter reviews the actual situation of protection in developing countries, to set the stage for a discussion of the prospective gains from liberalization. Experiences with liberalization are then briefly sketched and the question is raised as to what can go wrong. Beyond the general benefit of exposure to an advanced, competitive world market, the act of trade liberalization also carries the potential of dynamic benefits. The chapter concludes by taking up directions in which liberalization is moving, regional free trade zones and liberalization of trade in services.
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