2. Dani Rodrik is one of the most important
political econo-mists of our time. Dani Rodrik
Born August 14, 1957 in Istanbul, Turkey.
3. Ph.D. in Economics, June 1985 in (Princeton
University)
Master in Public Affairs (M.P.A.), June 1981
with distinction Woodrow Wilson School of
Public and International Affairs in (Princeton
University)
4. Rafiq Hariri Professor of
International Political Economy
John F. Kennedy School of
Government Harvard University.
5. Professor of Economics and International
Affairs in Columbia University (1992-1996).
Assistant (1985-89) and Associate (1989-92)
Professor of Public Policy in John F. Kennedy
School of Government Harvard University .
Assistant Economic Affairs Officer United
Nations Conference on Trade and
Development Geneva, Switzerland (1980 and
1981-82).
6. One Economics, Many Recipes.
Has Globalization Gone Too Far?
Dani’s newest book, The Globalization
Paradox.
As well he is the author of a large number of
research articles.
7. Two major economic events happened in
the 1980s.
First, developing countries especially
Latin America and Africa became
overwhelmed in debt and
macroeconomic crises. Because of this,
this decade called the “lost decade” of
development.
8. Second is relating to policies.
The inward oriented and import
substituting policies were criticized from
policy makers in developing countries.
Anti export, anti private, public
enterprise, industrial promotion and
trade protection were condemned.
Policies regarding privatization,
industrial de-regulation and free trade
were implemented.
9. In this paper, Author has
discussed the consequences of
policy reforms with equal
measures of theory and evidence.
He focused on trade and
industrial policies,
macroeconomic stabilization
issues and microeconomic
reforms.
10. In 1980s, the tern “structural adjustment” became
virtually another name for policy reforms.
All most all major policy reforms during this time
was funded by structural adjustment Loans (SALs)
from the World Bank.
As well as IMF supported medium term assistance.
Structural adjustment = trsde liberalization and
outward orientation
Bretton wood and donor country leads reformist
agenda.
SAL,s leads to outward oriented economy.
11. In the context of 1980, some
World Bank officials did work
about this decade.
Policies were not stable in
developing countries. Than
World Bank took initiative.
SAL,s was appeared due to
payment crises. It correct the
micro and debt crises.
12. According to Ernest Stern, a vice
president of the World Bank who was closely
involved in the development of SALs, interest
in such lending arose from the
frustration felt in the Bank in the
aftermath of the second oil shook
regarding the lack of real
involvement in country policies,
despite substantial commitment of
resources in the form of project
assistance.
13. Origin of SALs lay in the external
payments crisis brought on by the
two rounds of oil shocks in the
1970s.
Then Bank's attention soon turned
to correcting microeconomic
distortions. Indeed, it became
common to view the subsequent
debt crisis of 1982 as "one of the
symptoms of these distortions.
14. The goals set forth for SALs, therefore, covered
both macroeconomic stabilization and
microeconomic reforms.
Two types of policy response:
The first was stabilization, or managed
reductions in expenditures to bring about an
orderly adjustment of domestic demand to the
reduced level of external resources available to
the country.
The second was structural adjustment, or
changes in relative prices and institutions
designed to make the economy more efficient,
more flexible, and better able to use resources
and so to engineer sustainable long-term
growth.
15. Streeten define the structural adjustment as In this very general
sense, development is synonymous with structural adjustment
and a paper on structural adjustment would he a paper on
development.
16. There are countless policies that came
under attack by reformers.
In trade policy, the reforms centered on
quantitative restrictions like licensing, high
tariff rates, export taxes, and heavy
bureaucratic requirements and paperwork.
On the other hand, industrial policy
emphasized inefficient and loss-making
public enterprises, entry and exit
restrictions on private enterprise, price
controls, discretionary tax and subsidy
policies, and soft-budget constraints.
17. Krueger, Schtff and Valdes (1991) have completed
a multi-volume study on agricultural pricing
policy that promises to do for agriculture what this
earlier work has done for trade policy in industry.
These authors quantify the effects of policy
interventions on agriculture, taking into account
both direct effects and indirect effetcs.
Direct effects leads to sector-specific interventions.
Indirect effects those arising from trade restrictions
on manufactures and induced changes in the
equilibrium exchange rate.
18. There are four basic arguments in favor of market-
oriented policy reform:
(i) economic liberalization reduces static
inefficiencies arising from resource misallocation
and waste
(ii) economic liberalization enhances learning,
technological change, and economic growth
(iii) outward-oriented economies are better able
to cope with adverse external shocks
(iv) market-based economic systems are less
prone to wasteful rent-seeking activities
19. (iii) outward-oriented economies are
better able to cope with adverse external
shocks.
(iv) market-based economic systems are
less prone to wasteful rent-seeking
activities.
20. Economic liberalization reduces static
inefficiencies arising from resource
misallocation and waste.
Import-substitution policies, covering
high levels of trade protection and
industrial regulation had encouraged the
development of high-cost industries that
did little to increase productivity.
21. The resulting pattern of
specialization shifted away from
comparative advantage.
It yielded anti-export, anti-
agriculture, anti-labor, and anti-
newcomers effects for resource
allocation.
22. Economic liberalization enhances learning,
technological change, and economic growth.
Domestic and foreign competition provides
incentives to keep up with modern technology
to improve operations and market position.
This view provides an explanation for the East
Asian success and a prospective argument for
the removal of distortions in other developing
countries.
23. Katz (1987), Lalt (1987), Pack (1987), Levy
(1991)and Pack (1992) show that there is
a considerable amount of technological
tinkering that goes on even when firms
are cut off from foreign markets.
They do not lead to any easy
generalizations regarding the extent to
which trade regimes affect the pace of
learning.
24. There exist a number of studies that correlate
aspects of policy regimes with measured changes in
total factor productivity (TFP) at the industry level.
The most notable of these are Krueger and Tuncer
(1982a), Ntshimizu and Robinson (1984), Nishimizu
and Page (1991).
There have not been many studies that have
attempted to test the infant-industry hypothesis
directly. A well-known paper by Krueger and
Tuncer (1 982b) comperes sectoral TFP growth rates
in croas-section of Turkish industries, and reports
that there was no systematic tendency for more
protected industries to have had higher TFP growth
than less protected industries.
25. Strictly speaking, the authors' method
does not constitute an appropriate test of
the Infant-industry argument. Such a test
would require e counterfactual regarding
the TFP path that the protected
industries would have followed in the
absence of protection; the implicit
assumption that the less protected
industries provide the appropriate
counterfactual is not compelling.
26. Finally, a recent group of papers has
been devoted specifically to the
experiences of countries undergoing
structural adjustment programs, and has
paid close attention to econometric and
conceptual issues. These papers will be
discussed when we turn to the results of
recent policy reforms.
27. A large number of cross-country studies
have looked at the relationship between
economic growth and some measure of
trade policy and/or price distortions,
using various controls on the right-hand
aide of the regression.
These studies generally conclude that
openness has been conducive to higher
growth.
28. The immediate problem in such
regressions is corning up with an
appropriate indicator of trade parley that
would rank countries consistently among
each other from least open to most open.
Many candidate indicators exist,
including trade shares, tariff and non-
tariff measures, and residuals from
factor-endowments models of trade
patterns
29. A number of problems have plagued the
empirical studies surveyed here. We
summarize the more important here:
(i) The trade-regime indicator used is
typically measured very badly, and is often
an endogenous variable itself.
(ii) The direction of causality is not always
clear, even when a policy variable is used as
the trade indicator: governments may choose
to relax trade restrictions when economic
performance is good.
30. (iii) Openness in the sense of lack of trade
restrictions is often confused with
macroeconomic aspects of the policy regime,
notably the exchange-rate stance.
(iv) The causal mechanisms that link
openness to beneficial dynamic effects are
rarely laid out carefully and subjected to test
themselves; this makes it very difficult for
policy conclusions to be drawn.
31. Outward-oriented economies are
better able to cope with adverse
external shocks.
Balassa (1981) analyzed the
comparative experiences of countries
during the first oil shock and found
that export-promoting countries were
able to increase their world market
shares, which in turn affected their
economic growth positively.
32. He later confirmed these findings with a
larger sample of developing countries.
Sach (1985) gave a similar conclusion using
East Asian and Latin American experiences.
Their works do not suggest that outward
oriented countries are resistant to shocks.
Rather, they propose that such countries
have an easier time getting out of crisis.
33. Market-based economic systems are
less prone to wasteful rent-seeking
activities.
The institutional setting under which
import-substitution policies have
typically operated has given rise to a
wide variety of incentive distortions
and resource misallocations.
34. In contrast, Bhagwati and Srinivasan
(1980) have noted that tariff revenue can
be sought by rent-seekers as the
anonymity of revenues that accumulate to
the general budget shields them from the
rent-seeking.
Similarly, a uniform tax system may be
more resistant to lobbying than one with a
highly differentiated structure.
35. It is the last argument in the support of policy
reforms.
What is Rent Seeking.
Organization or an individual uses their
resources to obtain economic gain from others
without reciprocating any benefits back to society
through wealth creation.
37. The resource costs of prevailing distortions are
increased many times in the presence of following
activities.
Lobbyists in the pursuit of licenses and incentive to
be obtained from government officials.
Individual and groups use political power to obtain
particularistic benefits for themselves.
38. Rent seekers started to run after export
subsidies instead of import licenses.
This types of policies are more conducive to
rent seeking than others.
Tariff revenue can be sought by rent seekers
just as quota premia.
