$325 billion during 1991-93 and an estimated additional $173 billion in 1994,<sup>and</sup> provided, for the recipient countries, much more financing for imports than they were able to use. During the oil price hikes of 1973-74 and 1979-80, purchasing power<sup>was</sup> transferred to oil exporting countries through changes in terns of trade (and eventually reached other LMIC regions, notably Latin America, in the form of private capital flows). These transfers were translated into higher import demand by direct and indirect recipient regions. A surge in capital flows-targeted to highly absorbent regions such as East Asia and Latin America-has been creating heightened import demand among recipients in a more direct manner, supporting the growth of world trade.

9. Results from Granger causality tests between reserve positions and nomninal import values (goods and services) imply that import capacity tends to be strongly binding in Latin America, South Asia, Sub-Saharan Africa, and Europe and<sup>Central Asia (ECA);</sup> and rmildly binding in Middle East and North Africa. It is not likely to<sup>be a binding factor</sup> in East Asian import demand. However, in Asia, a surge in import demand<sup>has been</sup> largely sustained by regional trade integration, fueled by intra-regional foreign<sup>direct</sup> investments and by expansion in trade-related credits. In 1991-93, on average,<sup>foreign</sup> direct investment accounted for 54 percent of private long-term capital inflow<sup>into East</sup> Asia, followed by private loans dominated by banks' export credits guaranteed<sup>by official</sup> and private export credit institutions. By looking at recent movements in net<sup>resource</sup> flows to LMIC regions and the contribution of these regions to world trade,<sup>and by</sup> noting the aforementioned aspects of East Asian capital flows, it becomes obvious<sup>that the</sup> recent surges in private capital flows into these regions have supported<sup>high import</sup> demand out of these regions.

# Waves of Liberalization since the Mid 1980s-A Revolution in Development Strategy

10. The 1991 inaugural issue of the World Bank's _Global Economic Prospects and the Developing Countries (GEP9I)_ stated that: All through the period 1950-90, international trade grew faster than output. The rapid growth of world trade in the 1950s and 1960s was due partly to a recovery from the stagnation of the interwar years. It was spurred by buoyant growth in industrial countries, reduced barriers to trade, low world inflation, modest real rates of interest, and expanding real resource transfers to developing countries. But many of these trends were reversed in the 1970s and 1980s. The growth of international trade slowed markedly and the gap with world output growth narrowed.... The forces for trade liberalization have weakened since the mid 1970s, when industrial countries began to establish new barriers to trade. By 1986, almost 16 percent of OECD imports were covered by nontariff barriers.... The protectionis **t** rend in developing countries has been similar.

11. Looking back, however, there was a marked acceleration in world integration through trade again in the mid 1980s. Measured by a ratio of trade to output, this meant a reversal in the trend in trade integration for OECD, which had been slowed by the macroeconomic instabilities and heightened nontariff barriers in the 1970s and early