Trade Policy and Economic Development: How We Learn, Issue 5896
Ideas with regard to trade policy and economic development have changed radically since the 1950s. Then and now, it was recognized that trade policy was central to the overall design of policies for economic development. But in the early days, there was a broad consensus that trade policy for development should be based on ýmport-substitution.' By this was meant that domestic production of import-competing goods should be started and increased to satisfy the domestic market under incentives provided through whatever level of protection against imports, or even import prohibitions, was necessary to achieve it. It was thought that import substitution in manufactures would be synonymous with industrialization, which in turn was seen as the key to deve- lopment. The contrast with views today is striking. It is now widely accepted that growth prospects for developing countries are greatly enhanced through an outer-oriented trade regime and fairly uniform incentives (primarily through the exchange rate) for production across exporting and import competing goods. This paper addresses the changes in thought and policy. What was the contribu- tion of economic research to the sea change in thinking, policy prescriptions, and politicians' acceptance of the need for reform? What sorts of economic research best informed the policy process? In a nutshell, how did we learn? In this paper, I first sketch the initial approach to trade policy in early development research and thought. Next, consideration is given to the evolu- tion of thought, research, and experience with respect to trade and develop- ment over the next several decades, and to the conventional wisdom' of the 1990s. Finally, the role of research and the sorts of research that proved most fruitful in guiding policy and changing the consensus is considered
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academic analysis Andrei Shleifer bureaucrats capital Chenery comparative advantage consensus contributed costs demonstrated developing countries domestic distortions domestic market domestic production dynamic externalities East Asian experience economic growth economists effective rates evidence export earnings export pessimism factors first-best foreign exchange free trade Harry Johnson import licensing import substitution policies import-competing income distribution considerations increased industrialized countries infant industry argument inner-oriented trade instructions inside interpretation of theory intervention investment Jagdish Bhagwati Krueger labor levels of protection list of NBER living standards manufacturing market failure misapplication Monetary NBER Working Papers negative results Nonetheless optimal output Papers and Reprints partial subscriptions policy makers policy prescriptions policy reform premises primary commodity production proposition rates of protection relevance removing protection rent-seeking Reprints with searchable research results resource role searchable abstracts sector shadow prices stylized facts Taiwan theorists trade and development trade policy underdeveloped uniform tariff Washington consensus World Wide Web