The Dilemma of Protectionism Versus Trade Liberalization in Small Economies

Abstract

This study examines the dilemma between protectionism and trade liberalization in small economies characterized by high external vulnerability and structural constraints such as limited domestic markets and import dependence. It compares the effects of both trade policy approaches on economic growth, competitiveness, employment, and macroeconomic stability. Based on documentary analysis of World Bank, IMF, and WTO sources, as well as relevant economic literature, the research finds that protectionism can support domestic industries in the short term, while trade liberalization enhances productivity and global integration. However, both policies involve trade-offs depending on national economic conditions. The study concludes that the most effective approach for small economies is a flexible combination of protectionist and liberalization measures. CZU: 339.5.012.435+339.5.012.42; JEL: F13, F14, F15, O24