The Trade Reform Wave of 1985-1995

The decade from 1985 to 1995 was an unprecedented period of declining barriers to global trade. The reform wave was especially pronounced in developing countries where overvalued currencies were eliminated, quantitative import restrictions dismantled, and import tariffs reduced. What accounts for this remarkable transformation in policy? This paper focuses on how many of these restrictions were imposed for balance of payments purposes. As the benefits of managing payments imbalances through exchange rate adjustments rather than import controls came to be understood, economists in high-ranking government positions had the opportunity to shift policy in this direction. Perhaps surprisingly, special interests played little role in fostering the move to more open markets.