The proposed paper will assess the barriers to unilateral trade liberalization and the role of regional blocs in facilitating their members' shift from inward-oriented to open trade regimes. The analysis will begin by categorizing the menu of policies that are lumped together under the general heading of trade liberalization. Categorizing the range of outward-oriented reforms leads naturally to a consideration of their associated adjustment paths. In the developing world, import-substitution policies have typically been one element in a broad complex of dirigiste policies affecting all domestic economic activity--extensive public ownership, selective subsidies, and government restrictions affecting operation of domestic capital and labor markets as well as the foreign-exchange market. Furthermore, many developing countries experienced double- or even triple-digit inflation rates during the 1960s and 1970s, thanks to over-reliance on money creation to finance government spending. A prolonged period of economic distress following liberalization may be due at least in part to insufficient attention to the appropriate sequencing of needed reforms. A large literature has addressed this issue. However, the sequencing literature usually treats "trade liberalization" as a single element in a reform program. Remaining unanswered questions concern sequencing of individual policy changes required to complete a country's successful transformation from import substitution to outward-oriented growth.

The Lerner Symmetry Theorem suggests that barriers to imports are equivalent to barriers to exports. This may be valid in comparing equilibria. In practice, the most controversial aspect of trade liberalization is not the configuration in the new equilibrium versus the old one, but the path by which a nation moves from one to the other. In the new outward-oriented equilibrium both imports and exports will be much larger. The extent of overall economic losses and income redistribution, and hence the difficulty of maintaining adequate political support for needed reforms, all depend critically on whether imports grow sooner or later than exports. In addition to tariff reductions, outward-oriented reforms in many countries include elimination of import licensing, tariffication of quantitative import restrictions, rationalization of the tariff structure, elimination of multiple exchange rates used to discourage "nonessential" imports, rebates of import duties on capital equipment and/or intermediate inputs used to produce exports, establishment of export-processing zones, and a large variety of other incentives intended to raise the profitability of all or selected export-oriented activities. The effectiveness of such policies of course depends also on appropriate macroeconomic management, and particularly avoidance of exchange-rate overvaluation.

In evaluating alternative liberalization strategies and the associated adjustment path, at least five criteria must be considered:
(1) Dislocations due to short-term rigidities of domestic prices and wages.
(2) Adjustment costs associated with sector-specific human and physical capital.
(3) Adverse income-distribution effects from changes in the value of sector-specific assets and/or loss of employment that results from short-run wage rigidity.
(4) Complementary macroeconomic adjustments.
(5) Political support for reforms.

These criteria address the cost of achieving a superior efficiency outcome after complete adjustment to new policies. But implicit in (4) and (5) is that, because adjustment paths differ, it is unlikely that alternative liberalization strategies will arrive at the same "final" result because policies cannot be sustained or because of differences in foregone output associated with temporary dislocations and new investment. The relevant comparison may thus be between a low-adjustment-cost strategy with modest eventual benefits and a more radical, high-adjustment-cost strategy that is less likely to succeed but will provide greater eventual benefits if it does.

Given these criteria, what can be said about the choice between unilateral and reciprocal liberalization? Arguments for reciprocal over unilateral liberalization have been made on at least three related but distinct grounds.

(1) Reciprocal liberalization may produce a superior final outcome for an individual country.
(2) By promoting action on the part of countries that might otherwise choose to free-ride, reciprocal liberalization may result in more liberalization and thus greater global as well as national gains.
(3) Reciprocity typically eases political and economic problems associated with trade reform.

The paper will review relevant literature and speculate on valuable are as for future research.