Nowadays, foreign technology accounts for the bulk of domestic productivity growth in most countries and the smaller the country, the more this is the case. Trade liberalisation also allows the most productive firms to expand into the bigger markets it creates.

How does liberalization lead to economic growth?

Liberalization could increase growth rates in the short run and this also could result into higher imports than exports. ... The higher growth rate in developed countries and improvement in income terms of trade of developing economies tends to reduce trade deficits and current account deficits of developing economies.

How does liberalization affect the economy?

Economic liberalization is generally thought of as a beneficial and desirable process for developing countries. The underlying goal of economic liberalization is to have unrestricted capital flowing into and out of the country, boosting economic growth and efficiency.