SoUTHErN STorMA hUrriCAne’s LeGACYWe’LL BUiLD BACK Bette.docx

SoUTHErN STorM
A hUrriCAne’s LeGACY:
“We’LL BUiLD BACK Better”
MARCH/APRIL 2006
A GroWING TrENd
FArMinG Moves
to the BiG CitY
h o r i z o n s | J O U R N E Y T O G R E E N E R B E G I N
N I N G S
Dear
Friends …
By Jo Luck
President and CEO
inspire other organizations to build green-
er futures too. As citizens of the Earth,
we must be purposeful in our efforts to
conserve natural resources. At Heifer, we
are proud to be a leader in environmen-
tal preservation and restoration, at home
and especially in our project work.
Many people are familiar with Heifer’s
livestock projects, but some are unaware
of our work in agroecology, which is just as
important to help families lift themselves

from poverty to self-reliance.
Heifer project participants learn which
crops grow best in their environment,
how to use natural fertilizers, and
how to conserve and improve soil and
water conditions.
In Peru, for example, families in the
dry tropical forest receive seeds, tree
saplings and training on managing
natural resources. Project participants in
the Andean mountain communities learn
how to reforest their lands and how to
use terracing to grow crops on the steep
hillsides of their villages.
I have no doubt that Heifer’s
agroecology initiatives in the field and
our commitment to conserve, recycle
and educate in our own backyards
will make an enormous difference
by making the world a better place.
Thank you for supporting Heifer in our
collective journey to greener beginnings
for future generations.
S
pring is the season of hope,
when the bareness of winter
gives way to the wonderment of
new beginnings. In March, as
nature unfolds her colorful blossoms
and awakened trees, Heifer will unveil
a “greener” beginning at the dedication

of the new Heifer International World
Headquarters. This dedication marks the
tremendous progress of our work to end
hunger and poverty and our efforts to
heal and replenish the environment.
Heifer’s new headquarters is no
ordinary building—it’s a “green” building,
showcasing many environmentally friendly
features. Caring for the environment is a
journey, not a destination—and it plays a
pivotal role in Heifer’s ongoing mission.
We are practicing what we preach by
building a headquarters that conserves
water through a tower that collects and
uses rain for flushing toilets. We also
save energy because the sun is the main
source of interior lighting, thanks to the
building’s narrow width.
Walkways, countertops and tile floors
are made of recycled materials, includ-
ing tires, bricks from abandoned ware-
houses and glass from discarded soda
bottles. The location is a living exam-
ple of sustainable development—the
headquarters is built on a restored
industrial brownfield, land that was
once tainted by pollutants and hazard-
ous contaminants.
Adjacent to the Clinton Presidential
Library, the Heifer International
World Headquarters is highly
visible, and we hope that
Heifer’s example will

Caring
for the
environment
is a journey,
not a
destination—
and it plays
a pivotal role
in heifer’s
ongoing
mission.
WORLD ARK
MARCH/APRIL 2006
PrEVIEW
6 Free Trade, Fair Trade
By Joseph e. stiglitz and Andrew Charlton
In an excerpt adapted from their book Fair Trade for All: How
Trade
Can Promote Development, economists Stiglitz and Charlton
explain how trade policies can be revised to level the playing fi
eld
between rich and poor countries.
18 A Growing Trend—
Farming Moves to the Big City
By Lauren Wilcox
Urban agriculture projects across the nation offer healthier
food

choices, income, friendships and learning opportunities for at-
risk
communities.
26 A Hurricane’s Legacy:
“We’ll Build Back Better”
By Austin Gelder
Hurricane Katrina devastated many communities along the Gulf
Coast. Even Heifer project participants who lived more than 100
miles inland suffered great losses of property, livestock and
feed.
Cover Photo by Darcy Kiefel
heifer international Photographer
D e P A r t M e n t s
2 Letters/Feedback From Our readers
4 For the record Giant catfi sh on the decline
31 Heifer spirit Beatrice Biira honors Heifer volunteers
34 Heifer Bulletin Llama Drama inspires teens to action
38 Mixed Media Reviews: Democracy’s Edge
42 Calendar of events
43 Travel With a Purpose
44 refl ection Coming Through by Emily King
“We now have international policies in place that, in many
ways, undermine
the developing countries.” —from Fair Trade for All by Joseph
Stiglitz
and Andrew Charlton
www.heifer.org March/April 2006 | WorLd Ark 1
Louisiana

Mississippi
Wisconsin
Chicago new York
6 18 26
In the January/February issue of World Ark, Heifer
International
volunteers Eliza Penick and Carla Schneider were honored for
their
outstanding work in the Northwest Region. They were
misidentifi ed
in the article. Penick has been involved with Heifer since
childhood,
while Schneider became involved with Heifer during her
graduate
studies at Seattle University. They are correctly identifi ed in
the
online version of World Ark. We regret the error.
L e t t e r s | f E E d B a C k f R O m O U R R E a d E R S
www.heifer.org March/April 2006 | WorLd Ark ��
March/April 2006 | WorLd Ark www.heifer.org www.heifer.org
March/April 2006 | WorLd Ark �� March/April 2006 | WorLd
Ark www.heifer.org
Q&A, September/October:

Have you ever passed up a job
or other opportunity because
doing so allowed you to have
more of what you believe really
matters in life?
In 1962 my life stood at a
crossroad. I worked with
the florida extension pro-
gram’s dairy herd improve-
ment program, but I also
had the opportunity to work
for Heifer Project, though
for less than a third of my
then-current salary. Then
I remembered something,
an event that occurred 60
years ago today, on the day
I write this.
I had served in the Ger-
man army and during the
battle for Berlin became a
Russian POW. after a while,
I, with two comrades, man-
aged to escape and drifted
slowly westward. One day
we passed a small home-
stead and there we saw in
a small garden patch some
turnips, and since we were
close to starving, we stole
some. at that moment an
old woman came out of
the door. She noticed our
poor condition, went back

into the house and brought
three slices of bread. I
never will forget that old,
gentle face.
many years later, I told
my father this story, and
then he revealed to me an-
other story. It was in 1943,
our family lived in what
was then koenigsberg,
now kalingrad. my mother
was returning
home after shopping for
their weekly rations when
a group of Russian prison-
ers was herded through our
street. my mother noticed
one very young man, under-
nourished and weak, and
instantly gave him a small
loaf of bread. Our neigh-
bors scolded her, saying,
“How can you give bread
to our enemies while we
have hardly enough for
ourselves?” according to
my father, she answered,
“maybe one day my son will
need some bread.”
Yes, our lives are influ-
enced by events whose sig-

nificance we do not realize
at the moment, but over
the years their meaning be-
comes very clear.
my three decades with
Heifer Project International,
especially the time in the
dominican Republic and
Guatemala, brought me
more satisfaction than I
could have ever imagined.
Fred Harder
Ashville, Ala.
Q&A, November/December:
Have you ever sought to pro-
mote peace within your
family, community or an-
other area of your life?
I have tried to make a
lifetime of peacemaking
as I believe strongly that
was the most powerful
message of Jesus.
The summer after high
school, in 1965, I worked
in a poverty program in the
appalachian mountains. I
spent the summer of 1972
in West africa studying
african culture and history.

In college in the late
1960s, I was actively in-
volved in issues of rac-
ism. I spent my career
teaching remedial reading
to inner-city children and
included numerous peace-
making lessons as part of
the “reading” curriculum.
I started a peer me-
diation program here in
Racine in 1985 that has
spread nationwide.
Outside of the class-
room, I was a founding
member of our local Cen-
tral american Solidarity
Coalition, which continues
today. In that role I coordi-
nated three vehicles from
our area to join Pastors for
Peace caravans, organized
phone-calling [efforts] to
cut off Contra aid, spent
five weeks in Nicaragua
at the height of the civil
war and chaired many pro-
grams with speakers on
the issues.
I have been an active
member of the Racine In-
terfaith Coalition, which

lobbies local and state leg-
islators and businesses on
justice issues. I chaired
the fund-raising commit-
tee and the Sacred Ground
committee, which helped
change liquor license laws
that were affecting poor
neighborhoods, and I have
been on the education and
immigration committees.
I have chaired the
Human Concerns Com-
mittee at St. Patrick’s for
15 years. four years ago
during advent we raised
over $2,000 for Heifer in
honor of a formerly active
parishioner in a nursing
home who had seen you
on “Oprah.” I chaired that
event, but other people in
the parish picked up on
it and started a knitting
group that has contributed
another $8,000.
We are now support-
ing the salary of a doctor
in the dominican Repub-
lic, hired by our former pas-
tor, who is working there,
and raising the money for
her salary, even though
we are a low-income bilin-

gual parish.
Now in retirement I am
sort of feeling my oats to
see where I want to put
more time, but am still
involved in most of the
above activities.
I just returned from the
School of the americas pro-
test, my second time there.
Ark www.heifer.org
PresiDent AnD Ceo
Jo Luck
1 World Avenue
Little Rock, AR/USA 72202
E-mail: [email protected]
To change or remove an
address, please e-mail
[email protected]
PUBLisher
Tom Peterson
CoMMUniCAtions
DireCtor
michael Haddigan

eDitor
Jan Cottingham
AssoCiAte eDitor
Sherri Nelson
GrAPhiC DesiGners
Pooi Yin Chong
Grace domagala-Zobkov
John Houser
Writer
austin Gelder
CreAtive serviCes
MAnAGer
marleen New
ADvertisinG sALes
[email protected]
(501) 907-2880
Heifer International publishes
World Ark bimonthly for donors and
friends. Heifer has helped millions
of impoverished families worldwide
become more self-reliant through
the gift of livestock and training in
their care. A nonprofit organization
rooted in the Christian tradition,
Heifer works for the dignity and
well-being of all people.
Heifer is a member of InterAction.
Federal employees may designate gifts
to the Combined Federal Campaign by
writing in #0315. Heifer International is
a 501 (c) (3) nonprofit organization and

gifts to Heifer are tax deductible and are
used as designated until current needs
of those projects are met. Further gifts
are applied to similar projects so that
gifts begin helping people immediately.
for a Christian, I don’t
see any other way to live. I
have retired friends who try
to recreate 24/7, but I can’t
see how that would give
any meaning to my life.
Connie Hohlfeld Molbeck
Racine, Wis.
I’ve worked to promote
peace in my family, my
community and the world.
One way is to give mon-
ey to Heifer International
since I believe that end-
ing poverty, caring for the
Earth and supporting the
dignity and self-reliance of
all people is the pathway
to peace.
We recently had a dis-
cussion of the parable of
Jesus and the Samaritan
woman at the well in our
adult Sunday school. When
we started discussing the
prejudice between Jews

and Samaritans, we tried
to relate this to our own
lives by acknowledging our
own prejudices.
I find that driving is a
perfect example of how
easy it is to judge others
and disturb the peace.
most of us believe that
we are good drivers and it
is only the other guy who
is a jerk. We talked about
ways to accept the other
drivers, to bless them and
ourselves as we drive and
also how to increase our
own safety by slowing down.
We also discussed the
joy of mass transit for
relieving the stress of being
on the streets.
as I look at my own life,
it seems that when I try to
live lighter on the Earth, it
has wonderful and unex-
pected benefits. When I
ride the bus, I have more
time to read, and I don’t
swear at the other drivers
or look for ways to support
my prejudices about older
drivers with hats or drivers
of SUVs. I have come to be

more aware of my neigh-
bors as we share the bus.
I also get to listen to young
people and people with
developmental disabilities,
which is wonderful since
most of my friends are like
me and my age.
Instead of arriving at
work tense because of idiot
drivers, I arrive with a flush
on my face from my short
walk and a better attitude
for my first client.
Thank you for your work.
Nancy Gallagher
Eugene, Ore.
the Kindness
of Kenyans
I have just finished read-
ing Jan Cottingham’s arti-
cle about Wangari maathai
[November/december
World Ark].
my friend anna and I
had occasion to experience
the incredible kindness of
kenyan women when a
young man snatched anna’s
necklace in Nairobi.

The young man dropped
the necklace when he spot-
ted the police nearby, but it
was a group of women who
came to our assistance,
bringing with them the
necklace. One of them in-
sisted on accompanying us
back to our hotel. She was
a lovely young woman, and
although that was some
years ago, my friend anna
constantly remembers her
in her prayers.
I want to say that during
our three weeks in kenya
that was our only bad
experience. That morning
we had attended mass at
the basilica, which was full,
and were warmly received.
Maryann Pike
Claymont, Del.
Q&A
Do you know
what “fair trade”
means and, if
so, do you seek to
buy Fair Trade-
Certified ™ goods?

mail your response
and tell us a little
about why you
responded as you did
to the address on our
masthead, or e-mail it
to [email protected]
❑ Yes
❑ No
For the reCorD
Ark www.heifer.org
“We must protect the
forests for our children,
grandchildren and children
yet to be born. We must
protect the forests for
those who can’t speak for
themselves such as the birds,
animals, fish and trees.”
—Qwatsinas (Hereditary Chief
Edward Moody), Nuxalk Nation
In the South Asian nation of Cambo-dia, the wellness of the
entire popu-
lation is tied to the health of rivers and
lakes. Images of fish and fishermen deco-

rate religious buildings and public spac-
es in the capital city, and Cambodians
depend on fish for 70 percent of the pro-
tein in their diets.
But some experts are beginning to
worry about the future of fishing in Cambodia. The National
Geographic
Society reports that a recent decline in the endangered Mekong
giant catfish
signals that deforestation, overpopulation and dams may be
taking a toll.
The Mekong catfish is the largest freshwater fish in the world,
growing as
large as 6�0 pounds. A century ago, fishermen pulled
hundreds—sometimes
thousands—of these monstrous bottom feeders from the Mekong
river each
year. Today, the average annual catch comes in below a dozen.
The Mekong
giant catfish is listed as a critically endangered species, and
some fear this
vulnerable creature will soon disappear altogether.
Giant Catfish on the Decline
Nightmarish hordes of locusts have descended on fields in
West Africa during recent grow-
ing seasons, gnawing through
crops and threatening the health
and livelihoods of families across
the region. The damage caused
by the gluttonous insects has
been compounded by drought
in Mauritania, Mali and Niger.
Experts at the World Food Pro-

gramme say the recent locust in-
vasion is the worst in 1� years.
Locust War
Growing Poor
Nearly half of Asia’s children live in poverty, and many of them
must often go without food, safe
drinking water, health care or shelter, according to
a report from the humanitarian organization Plan.
Although economic growth and globalization are
pumping money into the region, half of Asia’s families
aren’t reaping any benefits, the report says. rapid
population growth exacerbates the problem.
According to the Growing Up in Asia report,
possible solutions include forgiving debt and paying
more for goods produced in developing countries.
Acute malnutrition in children under five
Afghanistan ��%
Somalia 17%
Cambodia 1�%
Laos 1�%
Madagascar 1�%
Niger 1�%
Sri Lanka 1�%
Burkina Faso 1�%

Source: UNICEF
Ark www.heifer.org
8.0
7.1
7.1
7.0
6.9
6.8
6.7
6.5
6.8
6.8
6.8
1.2
1.2
1.2
1.2
1.2
1.2
1.2
1.2
1.2
1.2

1.2
Source: The Population Reference Bureau’s 2005 Data Sheet
Countries With the Highest and Lowest Fertility Worldwide
L i F e T i M e B i r T H s P e r W O M A n
Nonprofi t groups in the United States and Europe are giving
struggling people around the world access to convenient,
inexpensive transportation with programs that give new life
to secondhand bicycles. Groups
like re~Cycle in the United
kingdom and Bikes Not
Bombs in Boston collect
used bicycles, refurbish
them, then ship
them off to Africa,
Central America
and other regions
where affordable
transportation is
diffi cult to come by.
recycle
Aerodynamically,
the bumblebee
shouldn’t be
able to fly, but
the bumblebee
doesn’t know
it so it goes on
flying anyway.
—Mary Kay Ash

It takes 70 percent less
energy to produce a ton
of paper from recycled
paper than from trees.
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www.heifer.org
www.heifer.org
I
n the last �0 years, two concepts—
globalization and free trade—have
dominated the debate about how best to
achieve fair and sustainable development
throughout the world, particularly in the
developing countries.
Although these issues may seem complex and
irrelevant to everyday life, probably everyone
in the United States and abroad has personal
experience with the results of globalization
and the issues surrounding both free and fair
trade—even if they don’t realize it.

If you’ve called a computer manufacturer
asking for help with your laptop, you may have
noticed that the voice on the other end of the
line speaks English with a foreign accent. It’s
called “out-sourcing,” and it’s an element of
globalization. If a textile mill has closed in
your town, that, too, was most likely the result
of globalization: the mill owner found cheaper
labor outside the United States.
When prices for commodities such as coffee
plunge because of a glut in the market, con-
sumers may benefit, at least in the short term,
but farmers and their families in coffee-pro-
ducing countries, most of them poor, suffer.
The protests that took place in Seattle in
1999 during a meeting of the World Trade
organization concerned, among other
things, the economic inequities in developing
countries resulting from freer trade and more
open markets.
Joseph Stiglitz, who won the Nobel Prize in
economics in �001, has been in the middle of
these debates for years. Stiglitz was chairman
Foreword by Jan Cottingham,
World Ark Editor
Photos by Darcy Kiefel
Heifer Photographer
Lazero Rosales Garcia of Mexico leads a mule he
received through Heifer International. Before he
became involved with Heifer, Garcia and his family

had to carry heavy sacks of coffee on their backs.
A woman in Mombasa, Kenya, uses muscle power to transport
cargo. People
in developing regions often lack the livestock and machinery
that would make
transportation easier.
www.heifer.org
Developing countries should be
given the discretion to pursue
the policies that they believe
are the best for themselves.
of President Clinton’s Council of Economic
Advisers from 199� to 1997 and went on to
become the chief economist
and senior vice president
of the World Bank from
1997 to �000. Stiglitz, now
a professor at Columbia
University, is also the author
of the international best
seller Globalization and
Its Discontents.
In his latest book, Fair
Trade for All: How Trade Can
Promote Development, he and

co-author Andrew Charlton,
a research fellow at the London School of
Economics, examine how trade policies can
be changed to help level the playing fi eld
between rich and poor countries. They
seek to explain how new policies can help
developing countries participate more
effectively in the world trading system and
help them grow their economies.
As Stiglitz and Charlton write: “This book
starts from the presumption that trade can
be a positive force for development.”
Because Heifer International works
around the world to promote just and
sustainable development, to help lift people
out of poverty and move them toward self-
reliance, the issue of trade policy—who’s
helped and who’s hurt—bears signifi cantly
on Heifer’s work. And that makes Fair Trade
for All important reading.
What follows is an excerpt adapted from
Fair Trade for All, with the kind permission
of the authors and the publisher, oxford
University Press.
www.heifer.org

Fair Trade for All
How Trade Can Promote development
International trade can greatly improve economic growth and
development. In the 18th century, technological
breakthroughs put Britain on the path to
becoming the fi rst truly “modern” economy.
Between 1870 and 19�0 Britain’s population
nearly tripled. Towns like Birmingham,
Liverpool and Manchester grew into huge
cities, average incomes grew more than
twofold, and the share of farming fell
from just under a half to less than a fi fth of
total production.
Many social, political and geographical
factors caused the Industrial revolution,
but Britain’s trade with her neighbors and
colonies played a decisive role in fueling
the new industrial activity and spreading
prosperity to other countries. Before long,
British cities became the workshops of the
world, importing vast quantities of food and
raw materials, and exporting manufactured
goods to America, Asia and Africa.
Japan’s rapid industrialization in the
early �0th century was also the result of a
combination of domestic and international
factors. The ruling elite established stable
political institutions and were quick to
adopt the Western technology they had
seen during missions to Europe and the
United States in the 1870s. They established

By Joseph E. Stiglitz
and Andrew Charlton
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a new education system for all young
people, sent students to the United States
and Europe, and emphasized modern
science, mathematics, technology and
foreign languages.
The government built railroads, im-
proved the road network and pursued land
and financial sector reforms. Trading op-
portunities were also vital. It is hard to
imagine the industrialization of Japan if it
had not been able to import vast quantities
of machinery and transport equipment and
other capital goods from the West in ex-
change for exports of cheap cloth, toys and
other labor-intensive consumer products.
And this trade would have been impossible
if it were not for the steady flow of food and
cheap raw materials arriving in Japan from
its colonies in Taiwan and korea.
Similarly, international trade played a
major role in the industrial development
of North America and Australia in the
19th century, and of the East Asian “Tiger”

economies, India and China, in the second
half of the �0th century. These examples,
together with the many instances where
growth did not occur, show that trade
was necessary for sustained industrial
development, but it was not enough on its
own. Trade liberalization—the removal
of barriers like tariffs and taxes—created
opportunities for economic development,
but other factors determined the extent to
which those opportunities were realized.
The notion that trade—free trade, unen-
cumbered by government restrictions—ben-
efits society is one of the most fundamental
doctrines in modern economics. But con-
troversy has always surrounded the subject
because the issue facing most countries is
not a choice of either no trade or free trade,
but rather a choice among a spectrum
of trade regimes with different degrees
of liberalization.
Almost every country today imposes some
trade restrictions and taxes. Since World
War II, the world has been moving gradually
toward reducing tariffs and restrictions on
trade. Some of the developed countries
that have been the most ardent advocates
of free trade have been a little hypocritical.
They have negotiated the reduction of
tariffs and the elimination of subsidies for
the goods in which they have an advantage,
but are more reluctant to open up their
own markets and to eliminate their

own subsidies in other areas where the
developing countries have an advantage.
As a result, we now have international trade
policies that, in many ways, undermine the
developing countries.
In a world in which many see global
poverty—the more than � billion people
living on less than two dollars a day—as
the world’s most pressing problem, this is
especially disturbing. It seems obvious that
if the developed countries truly wanted to
promote development they should reduce
their tariffs and subsidies on the goods of
interest to the developing countries.
But many of the developed countries’
negotiators have turned this argument on
its head. They suggest that the reduction
of one’s own tariffs is beneficial, and so
the developing countries would be helping
themselves by liberalizing in the World
Trade organization, regardless of what the
developed countries do. They argue that
the developing countries should accept
almost any offer that is put on the table.
If matters were so easy, a pro-
development trade agenda would be
trivial—the developing countries should
simply unilaterally open up their markets,
and the faster they do so, the better.
But matters are not so easy, and a pro-
development agenda is more complex.
Trade liberalization can promote devel-

opment, but the results of different trade
policies have varied across countries. The
evidence suggests that the benefits of liber-
alization depend on many factors, and so
the process of opening up trade needs to
be sensitive to national circumstances.
the notion
that trade—
free trade,
unencumbered
by government
restrictions—
benefits
society is one
of the most
fundamental
doctrines
in modern
economics.
But
controversy
has always
surrounded
the subject
because the
issue facing
most countries
is not a choice
of either no
trade or free
trade, but
rather a choice
among a
spectrum of
trade regimes

with different
degrees of
liberalization.
March/April 2006 | WorLd Ark 1110 March/April 2006 |
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Mexico and nAFtA
In 199�, Mexico entered the North Amer-ican Free Trade
Agreement (NAFTA), a
far-reaching trade liberalization agreement
with its northern neighbors, the United
States and Canada. If ever there were an
opportunity to demonstrate the value of
free trade for a developing country, this was
it. NAFTA gave Mexico access to the larg-
est economy in the world, which was right
next door.
After 10 years, Mexico’s experience of
trade liberalization under NAFTA has been
mixed. There certainly have been benefits.
Trade liberalization has stimulated trade,
with …
The Process of Economic Development

‘The Process of Economic Development has been an excellent
text and resource for development
studies and economic development students for many years. The
new fourth edition of this book
continues to provide these important educational services in a
relevant and scholarly manner, while
effectively keeping up with the evolving research literatures of
the field.’
— Kenneth A. Reinert, George Mason University, USA
The fourth edition of The Process of Economic Development
offers a thorough and up-to-date treatment
of development economics. This landmark text will continue to
be an invaluable resource for students,
teachers, and researchers in the fields of development
economics and development studies.
The new edition has been revised and updated throughout,
reflecting the most recent developments
in research and incorporating the latest empirical data, as well
as key theoretical advances. The period
since the publication of the third edition of The Process of
Economic Development has been a time of
immense change in the developing world. The period has seen
huge economic growth in China,
economic restructuring in India and the continuing impact of
environmental issues such as climate
change. The fourth edition reflects these developments, as well
as including numerous case studies
and new material on the following:
transnational corporations and labor in export processing zones
perspectives on structural change
gender inequality, income distribution and development
progress towards the Millennium Development Goals

technology and national innovation systems
aid and the least developed nations
the post-debt crisis era and debt relief for Africa.
Cypher’s comprehensive account remains the development
economics text par excellence, as it takes
a much more practical, hands-on view of the issues facing
developing countries than other, overly
mathematical texts. This book is unique in its scope and in the
detailed attention it gives to the
historical contexts that have influenced progress toward
development. It is accessibly written both for
students of economics and for those with an interest in the many
aspects of development studies.
James M. Cypher is Research Professor, Doctoral Program in
Development Studies, at the Universidad
Autónoma de Zacatecas, Mexico, and Emeritus Professor of
Economics at California State University,
Fresno, USA.
This page intentionally left blank
The Process of
Economic
Development
Fourth edition
James M. Cypher

First edition published 1997
Third edition published 2009
This edition published 2014
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
and by Routledge
711 Third Avenue, New York, NY 10017
Routledge is an imprint of the Taylor & Francis Group, an
informa business
© 1997, 2004, 2009 James M. Cypher and James L. Dietz
© 2014 James M. Cypher
The right of James M. Cypher to be identified as author of this
work has been asserted by him in
accordance with the Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this book may be reprinted or
reproduced or utilized in any form or
by any electronic, mechanical, or other means, now known or
hereafter invented, including
photocopying and recording, or in any information storage or
retrieval system, without permission in
writing from the publishers.
Trademark notice: Product or corporate names may be
trademarks or registered trademarks, and are
used only for identification and explanation without intent to
infringe.
British Library Cataloguing in Publication Data

A catalogue record for this book is available from the British
Library
Library of Congress Cataloging in Publication Data
Cypher, James M.
The process of economic development / James Cypher, James L.
Dietz. —
Fourth Edition.
pages cm
Includes bibliographical references and index.
1. Economic development. I. Dietz, James L., 1947- II. Title.
HD82.C96 2013
338.9—dc23 2013034438
ISBN: 978-0-415-64327-6 (hbk)
ISBN: 978-0-415-64328-3 (pbk)
ISBN: 978-0-203-08058-0 (ebk)
Typeset in Perpetua and Bell Gothic
by Keystroke, Station Road, Codsall, Wolverhampton
v
Contents
List of illustrations vii
Acknowledgments xi
Introduction xiii
PART I
AN OVERVIEW OF ECONO MIC DEVELOPMENT 1
1 THE DEVELOPMENT IMPERATIVE 3

2 MEASURING ECONOMIC GROWTH AND
DEVELOPMENT 35
3 DEVELOPMENT IN HISTORICAL PERSPECTIVE 81
PART II
THEORIES OF DEVELOPMENT AND
UNDERDEVELOPMENT 121
4 CLASSICAL AND NEOCLASSICAL THEORIES 123
5 DEVELOPMENTALIST THEORIES OF ECONOMIC
DEVELOPMENT 164
6 HETERODOX THEORIES OF ECONOMIC DEVELOPMENT
197
PART III
THE STRUCTURAL TRANSFORMATION 235
7 THE STATE AS A POTENTIAL AGENT OF
TRANSFORMATION 237
8 ENDOGENOUS GROWTH THEORIES AND NEW
STRATEGIES
FOR DEVELOPMENT 275
9 THE INITIAL STRUCTURAL TRANSFORMATION:
INITIATING
THE INDUSTRIALIZATION PROCESS 312
10 STRATEGY SWITCHING AND INDUSTRIAL POLICIES
353
11 AGRICULTURE AND DEVELOPMENT 394

12 POPULATION, EDUCATION, AND HUMAN CAPITAL 457
13 TECHNOLOGY AND DEVELOPMENT 491
CONTENTS
vi
PART IV
PROBLEMS AND ISSUES 525
14 TRANSNATIONAL CORPORATIONS AND ECONOMIC
DEVELOPMENT 527
15 MACROECONOMIC EQUILIBRIUM: THE EXTERNAL
BALANCE 573
16 THE DEBT PROBLEM AND DEVELOPMENT 613
17 INTERNATIONAL INSTITUTIONAL LINKAGES: THE
IMF,
THE WORLD BANK, AND FOREIGN AID 645
Index 694
vii
List of illustrations
FIGURES
2.1 The Kuznets curve 65

2.1A A Lorenz curve of income distribution 80
3.1 Historical growth trend of per capita income 84
4.1 A classical aggregate production function 131
4.2 Thomas Malthus 132
4.3 Production and consumption possibilities with and without
trade 137
4.4 A Solow-type production function 150
5.1a Lewis’s surplus labor model: agriculture 182
5.1b Lewis’s surplus labor model: industry 182
6.1 Elasticity of supply and equilibrium price adjustment 200
6.2 Declining real commodity prices: 1960–2009 (1960 = 100)
209
6.3 Characteristics of economic dependency 218
7.1 The developmental state 261
7.2a The Brazilian state: the intermediate state 267
7.2b The South Korean state: the developmental state 267
8.1 An endogenous growth production function 290
8.2 Technological change versus technical efficiency change
298
9.1 Average costs of production, new versus established firms
327
9.2 Impact of an infant industry tariff 332
9.3 Impact of easy ISI on the productive possibilities frontier
(PPF) 344
10.1 Stages of structural and industrial transformation and
strategy switches 383
11.1 Farm size and yields 445
12.1 The demographic transition 465
12.2 The private optimum and the social optimum level of
education 478
14.1 An EPZ circuit of capital 563
15.1 Exchange rate determination: floating rates 588
15.2 Exchange rate determination: fixed rates 592
15.3 Floating exchange rates and the balance of payments 601
15.4 An under-valued exchange rate 606
17.1 Growth in membership of the IMF 647

17.2 IMF lending (credit outstanding for all members) 648
17.3 A bilateral aid quality index, 2006 684
TABLES
1.1 Extent of world poverty and the poverty gap 6
1.2 Average income per capita and growth rates of per capita
output 13
1.3 World income, population, and their distribution, 1985–
2010 18
LIST OF ILLUSTRATIONS
viii
2.1 GDP and GNI comparisons, selected nations, 1990 and
2010 39
2.2 Real GDP per person versus nominal GDP per person, 2000
and 2012 44
2.3 Income distribution, selected economies 46
2.4 Purchasing power parity (PPP) measure of GNI per capita
56
2.5 Human Development Index (HDI), Gender Index and
Inequality-
Adjusted HDI, 1990 and 2012 60
3.1 Indian and West Indian British colony transfers to England
94
3.2 Peasant versus commercial export agriculture in India,
1891–1941
(annual average growth) 100
3.3 Selected colonial systems in 1914 107
4.1 Number of hours required to produce one unit of cloth and

wine in
England and Portugal 136
4.2 Marx’s Circuits of Capital 145
6.1 Terms of trade (TOT) and price effects versus volatility
effects 203
8.1 Comparative growth rates 278
8.2 Saving and investment by region (as a percentage of GDP)
280
8.3 Estimates of input contributions to per capita economic
growth 292
8.4 Estimates of technical efficiency change, 1960–89 300
9.1 Industrialization and economic growth (annual percentage
growth of
constant dollar GDP and industry) 314
9.2 Labor force distribution, by sector 316
10.1 Composition of imports (as a percentage of total imports)
356
10.2 Export structure 362
11.1 Improving growth rate in agricultural output in low- and
middle-income
countries 397
11.2 Annual rate of growth of agricultural output and total
factor productivity 399
11.3 Agriculture as a percentage of total government
expenditures 404
11.4 Changes in per capita food production and cereal output,
1990–2009 408
11.5 Degree of export dependency, low-income food deficit
nations
(1999–2001) 409
11.6 Land tenure relations in the 1990s 421
11.7 Peasant production conditions versus cash crop farming

429
12.1 Actual population growth rates, by region and selected
countries 459
12.2 Crude birth rates, crude death rates, and the natural rate of
population growth 461
12.3 Fertility rates, income, and women’s education 468
12.4 Infant and child mortality rates 471
12.5 Education and human capital accumulation 475
12.6 Average years of schooling (percentage of the population
15 years
and above) 476
12.7 Population age profile, dependency ratio, and public
expenditure
on education 482
13.1 Professional researchers and R&D expenditures 499
13.2 Technological capability and development capacity 501
13.3 Total factor productivity (TFP) estimates, 1960–1987
(percentages) 505
14.1 FDI outflows and inflows by region (in billions of current
US$, or percent) 529
14.2 Share of the stock of world FDI (percentage of world total)
532
14.3 Net long-term resource flows into developing regions
(billions of dollars) 543
14.4 Developing nations’ 10 leading industrial exports: skill
level and
capital intensity 546
14.5 UNCTAD’s TNC foreign affiliates “Contribution Index,”
2009
(percentage share in each variable’s total for the region) 567

ix
15.1 The current account of the balance of payments 576
15.2 The capital and financial account of the balance of
payments 579
15.3 Bilateral exchange rates, selected countries 586
16.1 Total external debt, 1970–2010 (billions of US$) 618
16.2 Debt service ratios and the debt burden 626
16.3 Gross capital formation (as percentage of GDP) 634
17.1 New IMF loans, calendar year (billions of SDRs) 653
17.2 The impact of IMF austerity programs: capital’s share and
labor’s share 659
17.3 World Bank Group lending and co-financing (billions of
US$,
fiscal years) 667
17.4 ODA flows of selected advanced nations 681
FOCUSES
1.1 Saving lives: ORT 5
1.2 The Millennium Development Goals 10
1.3 MDG Goal 1: Eradicate extreme poverty and hunger 11
1.4 Progress and regress, winners and losers 12
2.1 Valuing women’s work: the productivity trap 48
2.2 Sustainable development: balancing economic growth and
the environment 50
2.3 Inequality as a constraint on growth 66
2.4 China: a new tiger? 68
2.5 An environmental Kuznets curve: too good to be true? 70
3.1 Path dependence and colonial structures 87
3.2 What difference independence? The United States versus

Mexico 93
3.3 The colonial drain 94
3.4 Africa’s colonial infrastructure 100
3.5 Trends in the terms of trade 104
4.1 Was Malthus right? 132
5.1 Virtuous circles 167
5.2 Alice Amsden: a twenty-first-century developmentalist 176
5.3 Other dualist models of structural transformation 184
5.4 Testing Rostow’s concept of reactive nationalism: the case
of Latin America
after independence 189
6.1 Are there adverse terms of trade for some manufactured
goods? 211
6.2 Celso Furtado: a giant of structural and dependency
analysis 219
6.3 Dependence and the semi-periphery 227
7.1 Corruption and development: is there a relationship? 246
7.2 State capacity in Africa and development policy 260
7.3 Performance standards and state stimulus in Thailand 262
7.4 Advanced electronics and embeddedness in Korea 263
8.1 China and India on the rise: income convergence? 283
8.2 Inequality and growth 296
9.1 The export structure 321
9.2 Credit and market failure 325
9.3 Development banks and ISI 330
9.4 Taiwan’s experience with ISI in textiles 334
9.5 Growth versus development: is India a free market miracle?
338
10.1 Foreign capital and technology in Korea 360
10.2 China’s explosive growth with unlimited supplies of labor
367
10.3 Comparative incomes: East Asia and Latin America 377

x
10.4 Creating dynamic comparative advantage 378
11.1 Gender bias: women in agriculture 402
11.2 Agriculture and the environment: deforestation and soil
erosion 407
11.3 India’s agricultural sector 410
11.4 An agricultural-led development strategy? 412
11.5 Agriculture and the environment: pesticides and the circle
of poison 425
11.6 Agriculture and the environment: property rights and
resource depletion 441
12.1 A return to the past: the HIV/AIDS challenge in Sub-
Saharan Africa 466
12.2 Women’s eduction, income, and health 472
12.3 Primary education in Bolivia and Indonesia 481
13.1 China’s National Innovation System 495
13.2 The Salter Effect: the importance of physical capital
investment 503
13.3 Joseph Schumpeter and the Neo-Schumpeterians 507
13.4 Indigenous learning and Korea’s steel industry 513
14.1 Subcontracting in Indonesia 535
14.2 Global Value Chains in developing nations 536
14.3 Women workers in export processing zones 557
14.4 Unions under integrated production systems 559
14.5 Management of FDI: the case of Taiwan 566
15.1 Parallel markets and capital flight 583
15.2 Trade in toxic waste: one way to encourage foreign
exchange inflows 593
15.3 Is China’s currency under-valued? 599
16.1 OPEC’s absorption problem 617
16.2 The evolution of external debt accumulation and the debt
burden 619
16.3 Ineffective use of external debt 623

16.4 The first debt-for-nature swap 630
16.5 Brazil: in and out of crisis, 1980 to 2010 632
17.1 What is conditionality? 649
17.2 The World Bank Group 664
xi
Acknowledgments
As is always the case, this book could not have been written
without the help of many individuals.
As is also the case, none should be held responsible in any way
for the result.
To begin, thanks are due to the reviewers of the first edition and
the five anonymous reviewers
who labored over the second edition and offered detailed and
well-thought-out suggestions for
further revision. More recently, another battery of comments
was furnished by five reviewers
as the fourth edition began to be rethought and rewritten.
Next thanks are due to many generations of students. I have had
the good fortune of teaching
from this book at both the undergraduate and graduate levels to
students of economics and to
those of other fields in Mexico and the US. Nothing could be
more immediate than the give-
and-take of the classroom, along with the pleasant surprises and
sometimes painful awareness
that arises from reading exams, or fielding questions and
opening debates. These activities with
quite varied students have given new insight into how best to
present the material in this book.

Next James Dietz—the long-time coauthor of this book—who
could not participate in the
preparations of the fourth edition, deserves recognition for his
countless earlier contributions,
many carried through into the fourth edition. Dietz is the rarest
of economists: a superb writer,
a first-rate interpreter of all aspects of neo-classical economics,
a mathematical economist well
versed in modern econometric methods, and above all a
consummate development economist. His
steady hand has been greatly missed in bringing this book to
press.
Many colleagues played a role in the years of research that have
gone into the preparation and
writing of various editions of this book. In preparing the fourth
edition I am grateful to Quinn
Cypher and Elizabeth Gómez Rodríquez for technical
assistance. Likewise, this latest edition
was facilitated by an array of able specialists spread around the
globe who shared their wisdom,
including: Antonio Avalos, Demian Castro, Bill Dugger, Eli
Friedman, Kevin Gallagher, John
Hall, John Henry, Anil Hira, Peter Ho, Yan Liang, Arthur
MacEwan, Carlos Mallorquín, Carlos
Medieros, Tracy Mott, Miguel Moctezuma, B. Nega, Aldo
Pérez, Oscar Pérez-Veyna, Gabriel
Porcile, Luis Prado, Alejandro Reuss, Fabio Scatolin, Geoffrey
Schneider, Roberto Soto, Cris
Tilly and Matías Vernengo. For assistance in the preparation of
earlier editions I thank the
following individuals: M. Shahid Alam, Jun Borras, Paul
Bowles, Paul Dale Bush, Al Campbell,
Juan Castaings Teillery, Ha-Joon Chang, Eugenia Correa, Willy
Cortez, Raúl Delgado Wise,

Enrique Dussel Peters, David Fairris, Sasan Fayazmanesh, Raúl
Fernandez, Guillermo Foladori,
Kevin Gallagher, Ross Gandy, Rodolfo Garcia Zamora, Alicia
Gíron, Arturo Guillén, Martin
Hart-Landsberg, Peter Ho, Barney Hope, Marc Humbert, Noela
Invernizzi, Cristóbal Kay,
Kathy Kopinak, Fred Lee, Yan Liang, Oscar Muñoz, Gerardo
Otero, Robert Pollin,
ACKNOWLEDGMENTS
xii
Skye Stephenson, Carolina Stefoni, Miguel Ángel Rivera, Cesar
Ross, Howard Stein, Osvaldo
Sunkel, Linda Shaffer, Janet Tanski, Marc Tool, Mayo Toruño,
Gregorio Vidal, and Eduardo
Zepeda.
At Routledge I have experienced the best of all possible worlds.
Editors Terry Clague and
Robert Langham ably facilitated the second edition. Alan Jarvis,
who first accepted our outline
and provisional chapters for the original manuscript, along with
Alison Kirk and Kate Stone,
who edited the first edition, are not to be forgotten. For the
third edition Robert Langham
pitched in at every turn, even editing several chapters with a
careful eye and kind words. Sarah
Hastings shepherded the manuscript of the third edition through
the intricate production
process without a hitch. In completing the fourth edition, once
again Robert Langham is
deserving of special thanks for his sincere support and

sophisticated interest in the first phases
of this endeavor. With Mr. Langham moving upward and
onward at Routledge, the bulk of
the editing was conducted by editors Emily Kindleysides, Emily
Senior and Natalie Tomlinson.
They offered continual insight, support, respect, and
understanding in the face of many
unanticipated problems. Unlike so many in the corporatized
world of publishing, Routledge
has given wide latitude to present ideas, while providing
sensible editing and clear, crisp
communication. This has remained true through the four
editions of this book. What else could
be asked?
For institutional support in the preparation of the fourth edition
the Doctoral Program in
Development Studies at the Universidad Autónoma de
Zacatecas, Mexico, deserves praise:
Araceli Herrera Flores, Monse García, and Concepción Olivia
Martínez, resolved countless
administrative problems and smoothed the way. Librar ian
Cynthia Chavéz was ever-willing and
innovative. The US Fulbright Program provided for two years of
seasonal residency in Brazil.
There, the Universidade Federal do Paraná offered every
conceivable amenity, including the
assistance of numerous talented colleagues, not all of whom
have been named above. The
language school affiliated with the Universidade Federal do
Paraná was the perfect complement
to the academic facilities in the graduate economics program. In
addition special thanks are due
to the Latin America Studies Program at Simon Fraser
University for electronic access to that
university’s remarkable library.

Finally, steadfast family support and understanding over the
years has been of the utmost
importance at all stages of this endeavor. This most precious-of-
all sustenance is very gratefully
acknowledged.
JMC
xiii
Introduction
Success, it is commonly noted, has many fathers, failure has
none.
Until recently, across a broad swath once designated as the
“Third World,” with the rarest of
exceptions: “failure,” or something perilously close to it was,
seemingly, ubiquitous. The great
descent began in the early 1980s with the onset of the “Debt
Crisis.” Prior to that alarming
historical moment, nations that had followed the ideas of the
developmental “pioneers,” or
had innovated sufficiently on their own, had given shape and
hope to national projects
of development. In many instances the formulations and policy-
driven conceptualizations of
these enthusiastic early proponents of development were
buttressed by the able intersessions
of charismatic political leaders and competent cadres of state
operatives all moving forward in
lock-step with a newly emerged national bourgeoisie and an
ambitious middle-class strata of

professionals. From this combination of elements the idea of
endogenous development sprang
forth in the late 1940s and early 1950s. Unevenly, this grand,
gravity-defying, endeavor gained
a certain inertial momentum.
When Raúl Prebisch advocated for and then led UNCTAD (the
United Nations Conference
on Trade and Development) from its onset in 1964; and, when—
subsequently—the Brandt
Commission called for a New International Economic Order in
the 1970s—at a time when
OPEC had successfully confronted the globe-straddling
petroleum industry of the “North”—the
“South” vaulted onward and upward. “Success” spearheaded by
state-led industrial promotion
across the developing nations, had crystalized. Famously,
Mexico’s president announced that
“managing abundance” was the challenge of the future.
Then, suddenly, events began to swing in the opposite direction
and “failure” became the new,
unspoken, catchword—state-led developmentalism was now
derided and labeled “exhausted.”
Conveniently overlooked by the critical observers arrayed
against any attempt to revive and
deepen the creative developmental initiatives that marked the
1950s, 1960s, and 1970s was the
straightforward fact that the few nations of the South who
continued on a successful trajectory
in the 1980s did so with the aid of somewhat better, refocused,
national projects of development.
These nations were all located in Asia. As the 1980s bled into
the 1990s, as the reverberations
of the debt crisis continued, monetarism, IMF austerity, “shock
treatments,” World Bank

first-generation structural adjustment, followed by second-
generation structural adjustment,
were all promoted by the Washington-based “Money Doctors.”
They were promoted, that is,
until the destructive medicaments proffered had been silently
abandoned by the “Money
Doctors” of the North shortly after the turn of the millennium.
Eventually, no-one claimed
“fatherhood” for the failed neoliberal era.
INTRODUCTION
xiv
Slowly and quietly around 2002 the undertow of the 1980s and
1990s was replaced by a rising
tide that continued to sweep the developing nations forward
through 2012. By 2013 “success”—
so long forgotten—seemed to be, at long-last, once-again
materializing. Even Africa was viewed
as on the cusp of a new era where “hope” was more than facile
rhetoric.
Of course the dichotomy of success and failure is simplistic
when applied in the vast, always
shifting, interdisciplinary field of “development.” When, once-
upon-a-time, developmentalism
was ascendant, exceptions were to be found. Likewise, through
the dark neoliberal era several
East Asian nations, particularly China, marched ahead.
By 2013, after more than a decade wherein a “reversal of
fortune” had been experienced in
most developing nations, a whiff of triumphalism, however

faint, could be detected. Consider
the following:
From 2000 through 2012 the annual real rate of growth per
capita for the less developed
nations rose by 5.0 percent. At that rate, real income per person
over this thirteen-year
period had all but doubled.
This rate of growth per capita was five times higher than the
rate of growth of the developed
nations.
During the first decade of the twenty-first century the real rate
of growth per person per
year in East Asia was 8.6 percent—which far more than doubled
the average standard of
living for well over 1 billion people.
As noted by the United Nations Development Program in their
2013 Human Development
Report: The rise of the South is unprecedented in its speed and
scale. Never in history have the living
conditions and prospects of so many people changed so
dramatically and so fast ... the current economic
takeoffs in China and India began with about 1 billion people in
each country and doubled output per
capita in less than 20 years—an economic force affecting a
hundred times as many people as the
Industrial Revolution did.
The Report further notes that: The 21st century transformation
of the South has been accompanied
by major advances in public health, education, transportation,
telecommunications, and civic engagement
in national governance. The human development consequences
have been profound: the proportion of
people living in extreme poverty fell from 43.1 percent in 1990
to 22.4 percent in 2008; more than
500 million people have been lifted out of poverty in China

alone.
Developing nations have increased their share of world
merchandise trade during the
1980–2010 period from 25 percent to 47 percent, while their
share of world output has
risen from 33 to 45 percent and South–South trade as a share of
world trade has climbed
from only 8 percent to 26 percent.
Across the developing nations the infant mortality rate fell by
50 percent from 1990 to 2010.
Malnutrition, once the number one risk factor for death, had
fallen to the number eight
position by 2010.
This, then, is the new context that undergirds the fourth edition
of The Process of Economic
Development.
As has been the case with earlier editions, preparing this edition
entailed reassessment
and rewriting of the contents in order to incorporate new
perspectives on a very broad
range of topics. The changes in this edition greatly transcend
those in previous editions.
INTRODUCTION
xv
The fourth edition presents a massive amount of new
information, while bringing into the
foreground an array of theoretical advances along with all the
new data available on the
topics included: the linked themes of labor conditions,

subcontracting and “global value
chains” have been incorporated. China’s ascendency is analyzed
at multiple points in the text.
Joseph Schumpeter and the “Neo-Schumpeterians” are
introduced. David Ricardo’s
advocacy of comparative advantage is historically
contextualized and now can be seen in a
much different light. Adam Smith’s pre-industrial perceptions
are critically analyzed. Marx’s
“productionist” focus is given its due. Two new, extremely
important, index measures of
human development are introduced. Alice Amsden is included
in the pantheon of develop-
mental pioneers. The post-debt crisis era and debt relief for
Africa are analyzed. New attention
is given to the demographic bonus. Along with the debate over
the secular trend in the terms
of trade, this edition follows the latest advances that incorporate
volatility and its effects
into the debate over the secular effects of production and
specialization in export commodities. And
this is to mention only a few of the substantive changes that
have been made, and will be noted in
every chapter.
It is too soon to anticipate what will be the next phase for the
developing nations. However,
there is little likelihood that the blistering pace of economic
ascent that occurred from 2002
through (much of) 2012 can be reproduced. China’s economy
has definitely slowed and most
specialists have expressed their forebodings. India was seen in a
much different, and much more
positive, light only a half-decade ago. In 2013 grim notices
leading to reassessment of India’s
developmental profile, such as the fact that 42 percent of

India’s children below five years of age
suffer from malnutrition, are all too common.
As Paul Baran long-ago noted, the real essence of economic
development can ultimately
be found in how a society utilizes its economic surplus—the
difference between the total annual
value of production and that part of production used by society
merely to reproduce
itself. Unfortunately, a very significant portion of the very large
economic surplus that
the developing nations managed to obtain early in the twenty-
first century has been used to
build outsized financial reserves in hard currencies, frequently
in “Sovereign Wealth Funds.”
By 2012 developing nations combined held between $7 and 8
trillion of such “reserves.”
These reserves were commonly used to purchase low-yielding
financial assets from the
developed nations—such as US Treasury bonds and notes.
While there has been a great deal
of analysis linking “development” to the opportunities created
by incoming capital …
Foreign Policy In Focus (FPIF)
w w w . f p i f . o r g
A Think Tank Without Walls
1. Introduction
Central to the neoliberal discourse on globalization is
the conviction that free trade, more than free movements
of capital or labor, is the key to global prosperity. Even

many of those who are not enthusiastic about all aspects
of globalization—ranging from the free-trade economist,
Jagdish Bhagwati, advocating capital control to some non-
governmental organizations (NGOs) accusing the devel-
oped countries for not opening up their agricultural mar-
kets—seem to agree that free trade is the most benign, or
at least a less problematic, element in the progress of glob-
alization.
Part of the conviction in free trade that the proponents
of globalization possess comes from the belief that eco-
nomic theory has irrefutably established the superiority of
free trade, even though there are some formal models
which show free trade may not be the best. However, even
the builders of those models, such as Paul Krugman, argue
that free trade is still the best policy because intervention-
ist trade policies are almost certain to be politically
abused. Even more powerful for the proponents of free
trade, is their belief that history is on their side. After all,
the defenders of free trade ask, isn’t free trade how all the
world’s developed countries have become rich? What are
some developing countries thinking, they wonder, when
they refuse to adopt such a tried and tested recipe for eco-
nomic development?
A closer look at the history of capitalism, however,
reveals a very different story (Chang, 2002). As we shall
establish in some detail in this paper, when they were
developing countries themselves, virtually all of today’s
developed countries did not practice free trade (and lais-
sez-faire industrial policy as its domestic counterpart).
Rather, they promoted their national industries through
tariffs, subsidies, and other measures. Particularly notable
is the fact that the gap between “real” and “imagined” his-
tories of trade policy is the greatest in relation to Britain

and the United States, which are conventionally believed
to have reached the top of the world’s economic hierarchy
by adopting free trade when other countries were stuck
with outdated mercantilist policies. These two countries
were, in fact, often the pioneers and frequently the most
ardent users of interventionist trade and industrial policy
measures in their early stages of development.
Debunking the myth of free trade from the historical
perspective demonstrates that there is an urgent need for
thoroughly re-thinking some key conventional wisdom in
the debate on trade policy, and more broadly on globaliza-
tion.
2. The “Official History of Capitalism”
and Its Limitations
The “official history of capitalism,” which informs
today’s debate on trade policy, economic development,
and globalization, goes like the following.
From the eighteenth century, Britain proved the superi-
ority of free-market and free-trade policies by beating
interventionist France, its main competitor at the time,
and establishing itself as the supreme world economic
power. Especially once it had abandoned its deplorable
agricultural protection (the Corn Law) and other rem-
nants of old mercantilist protectionist measures in 1846, it
was able to play the role of the architect and dominant
FPIF Special Report
Kicking Away the Ladder:
The “Real” History of Free Trade
By Ha-Joon Chang | December 2003

Ha-Joon Chang <[email protected]> teaches in the Faculty of
Economics and is Assistant Director of Development Studies at
Cambridge University. This special report from Foreign Policy
in Focus (www.fpif.org) was first presented at a conference
entitled
“Globalization and the Myth of Free Trade” sponsored by the
Center for Economic Policy Analysis at the New School
University in New York
City on April 18, 2003 and is scheduled to appear in a
forthcoming book of the same name edited by Anwar Shaikh.
This paper draws upon
Dr. Chang’s recent book, Kicking Away the Ladder—
Development Strategy in Historical Perspective (Anthem Press,
2002). Professor
Chang wishes to thank the Korea Research Foundation for its
research support through its BK21 program at the Department of
Economics,
Korea University, where he was a visiting research professor
when the first draft was written.
influence of a new “liberal” world economic order. This
liberal world order, perfected around 1870, was based on
laissez-faire industrial policies at home; low barriers to the
international flows of goods, capital, and labor; and
macroeconomic stability, both nationally and internation-
ally, guaranteed by the Gold Standard and the principle of
balanced budgets. A period of unprecedented prosperity
followed.
Unfortunately, according to this story, things started to
go wrong with the First World War. In response to the
ensuing instability of the world economic and political
system, countries started to erect trade barriers again. In

1930, the United States also abandoned free trade and
raised tariffs with the infamous Smoot-Hawley tariff,
which Jagdish Bhagwati called “the most visible and dra-
matic act of anti-trade folly” (Bhagwati, 1985, p. 22, foot-
note 10). The world free trade system finally ended in
1932, when Britain, hitherto the champion of free trade,
succumbed to the temptation and re-introduced tariffs.
The resulting contraction and instability in the world
economy, and then finally the Second World War,
destroyed the last remnants of the first liberal world order.
p. 2 www.fpif.org
TABLE 1. AVERAGE TARIFF RATES ON MANUFACTURED
PRODUCTS FOR SELECTED DEVELOPED COUNTRIES IN
THEIR EARLY STAGES OF DEVELOPMENT
(weighted average; in percentages of value)1
18202 18752 1913 1925 1931 1950
Austria3 R 15–20 18 16 24 18
Belgium4 6–8 9–10 9 15 14 11
Denmark 25–35 15–20 14 10 n.a. 3
France R 12–15 20 21 30 18
Germany5 8–12 4–6 13 20 21 26
Italy n.a. 8–10 18 22 46 25
Japan6 R 5 30 n.a. n.a. n.a.
Netherlands4 6–8 3–5 4 6 n.a. 11

Russia R 15–20 84 R R R
Spain R 15–20 41 41 63 n.a.
Sweden R 3–5 20 16 21 9
Switzerland 8–12 4–6 9 14 19 n.a.
United Kingdom 45–55 0 0 5 n.a. 23
United States 35–45 40–50 44 37 48 14
Source: Bairoch (1993), p. 40, table 3.3.
Notes:
R= Numerous and important restrictions on manufactured
imports existed and therefore average tariff rates are not
meaningful.
1. World Bank (1991, p. 97, Box table 5.2) provides a similar
table, partly drawing on Bairoch’s own studies that form the
basis of the above table.
However, the World Bank figures, although in most cases very
similar to Bairoch’s figures, are unweighted averages, which are
obviously less preferable
to weighted average figures that Bairoch provides.
2. These are very approximate rates, and give range of average
rates, not extremes.
3. Austria-Hungary before 1925.
4. In 1820, Belgium was united with the Netherlands.
5. The 1820 figure is for Prussia only.

6. Before 1911, Japan was obliged to keep low tariff rates (up to
5%) through a series of “unequal treaties” with the European
countries and the United
States. The World Bank table cited in note 1 above gives
Japan’s unweighted average tariff rate for all goods (and not
just manufactured goods) for the
years 1925, 1930, 1950 as 13%, 19%, 4%.
After the Second World War, so the story goes, some sig-
nificant progress was made in trade liberalization through
the early General Agreement on Trade and Tariffs (GATT)
talks. However, unfortunately, dirigiste approaches to eco-
nomic management dominated the policymaking scene
until the 1970s in the developed world, and until the early
1980s in the developing world (and the Communist
world until its collapse in 1989).
Fortunately, it is said, interventionist policies have been
largely abandoned across the world since the 1980s with
the rise of neoliberalism, which emphasized the virtues of
small government, laissez-faire policies, and international
openness. Especially in the developing world, by the late
1970s economic growth had begun to falter in most coun-
tries outside East and Southeast Asia, which were already
pursuing “good” policies (of free market and free trade).
This growth failure, which often manifested itself in eco-
nomic crises of the early 1980s, exposed the limitations of
old-style interventionism and protectionism. As a result,
most developing countries have come to embrace “policy
reform” in a neoliberal direction.
When combined with the establishment of new global
governance institutions, represented by the World Trade

Organization (WTO), these policy changes at the national
level have created a new global economic system, compa-
rable in its potential prosperity only to the earlier “golden
age” of liberalism (1870–1914). Renato Ruggiero, the first
director-general of the WTO, thus argues that, thanks to
this new world order, we now have “the potential for erad-
icating global poverty in the early part of the next [twen-
ty-first] century—a utopian notion even a few decades
ago, but a real possibility today” (1998, p. 131).
As we shall see later, this story paints a fundamentally
misleading picture, but no less a powerful one for it. And
it should be accepted that there are some senses in which
the late nineteenth century can indeed be described as a
laissez-faire era.
To begin with, there was a period in the late-nineteenth
century, albeit a brief one, when liberal trade regimes pre-
vailed in large parts of the world economy. Between 1860
and 1880, many European countries reduced tariff protec-
tion substantially (see table 1). At the same time, most of
the rest of the world was forced to practice free trade
through colonialism and through unequal treaties in the
cases of a few nominally “independent” countries (such as
the Latin American countries, China, Thailand [then
Siam], Iran [then Persia], and Turkey [then the Ottoman
Empire], and even Japan until 1911). Of course, the obvi-
ous exception to this was the United States, which main-
tained very high tariff barriers even during this period (see
table 1). However, given that the United States was still a
relatively small part of the world economy, it may not be
totally unreasonable to say that this is as close to free trade
as the world has ever come.
More importantly, the scope of state intervention before

the First World War was quite limited by modern stan-
dards. States had limited budgetary policy capability
because there was no income tax in most countries and
the balanced budget doctrine dominated. They also had
limited monetary policy capability because many of them
did not have a central bank, and the Gold Standard
restricted their policy freedom. They also had limited
command over investment resources, as they owned or
regulated few financial institutions and industrial enter-
prises. One somewhat paradoxical consequence of all these
limitations was that tariff protection was far more impor-
tant as a policy tool in the nineteenth century than it is in
our time.
Despite these limitations, as we shall soon see, virtually
all of today’s developed countries—or now-developed
countries (henceforth NDCs)—actively used intervention-
ist trade and industrial policies aimed at promoting, not
simply “protecting,” it should be emphasized, infant
industries during their catch-up periods.
3. History of Trade and Industrial Policies
in Today’s Developed Countries
3.1. Britain
As the intellectual fountain of the modern laissez-faire
doctrines and as the only country that can claim to have
practiced a total free trade at least at one point, Britain is
widely regarded as having developed without significant
state intervention. However, this cannot be further from
the truth.
Britain entered its post-feudal age (thirteenth to four-
teenth centuries) as a relatively backward economy. It
relied on exports of raw wool and, to a lesser extent, of

low-value-added wool cloth to the then more advanced
Low Countries (Ramsay, 1982, p. 59; Davies, 1999, p.
348). Edward III (1312–1377) is believed to have been
the first king who deliberately tried to develop local wool
cloth manufacturing. He only wore English cloth to set an
example, brought in the Flemish weavers, centralized trade
in raw wool, and banned the import of woolen cloth
(Davies, 1999, p. 349; Davis, 1966, p. 281).
p. 3 www.fpif.org
Further impetus came from the Tudor monarchs. The
famous eighteenth-century merchant, politician, and the
author of the novel, Robinson Crusoe, Daniel Defoe,
describes this policy in his now-almost-forgotten book, A
Plan of the English Commerce (1728). In this book, he
describes in some detail how the Tudor monarchs, espe-
cially Henry VII (1485–1509), transformed England from
a raw-wool exporter into the most formidable woolen-
manufacturing nation in the world (pp. 81–101).
According to Defoe, from 1489, Henry VII implemented
schemes to promote woolen manufacturing, which includ-
ed sending royal missions to identify locations suited to
wool manufacturing; poaching skilled workers from the
Low Countries; increasing duties on the export of raw
wool; and even temporarily banning the export of raw
wool (Ramsay, 1982, provides further details).
For obvious reasons, it is diffi-
cult to establish the exact impor-
tance of the above-mentioned
infant industry promotion poli-
cies. However, without them, it

would have been very difficult
for Britain to make this initial
success in industrialization, with-
out which its Industrial
Revolution may have been next
to impossible.
The most important event in Britain’s industrial devel-
opment, however, was the 1721 policy reform introduced
by Robert Walpole, the first British prime minister, during
the reign of George I (1660–1727). Prior to this, the
British government’s policies were, in general, aimed at
capturing trade and generating government revenue. Even
the promotion of woolen manufacturing was partly moti-
vated by revenue considerations. In contrast, the policies
introduced after 1721 were deliberately aimed at promot-
ing manufacturing industries. Introducing the new law,
Walpole stated, through the king’s address to the
Parliament: “it is evident that nothing so much con-
tributes to promote the public well-being as the exporta-
tion of manufactured goods and the importation of for-
eign raw material” (as cited in List, 1885, p. 40).
The 1721 legislation, and the supplementary policy
changes subsequently made, included the following meas-
ures (for details, see Brisco, 1907, pp. 131–33, p. 148–55,
pp. 169–71; McCusker, 1996, p. 358; Davis, 1966, pp.
313–4). First of all, import duties on raw materials used
for manufactures were lowered, or even altogether
dropped. Second, duty drawbacks on imported raw mate-
rials for exported manufactures were increased. Third,
export duties on most manufactures were abolished.
Fourth, duties on imported foreign manufactured goods
were raised. Fifth, export subsidies (then called “bounties”)
were extended to new export items like silk products and

gunpowder, while the existing export subsidies to sailcloth
and refined sugar were increased. Sixth, regulation was
introduced to control the quality of manufactured prod-
ucts, especially textile products, so that unscrupulous
manufacturers would not damage the reputation of British
products in foreign markets. What is very interesting is
that these policies, as well as the principles behind them,
were uncannily similar to those used by countries like
Japan, Korea, and Taiwan during the post-war period (see
below).
Despite its widening techno-
logical lead over other countries,
Britain continued its policies of
industrial promotion until the
mid-nineteenth century. As we
can see from table 1, Britain had
very high tariffs on manufactur-
ing products even as late as the
1820s, some two generations
after the start of its Industrial
Revolution.
By the end of the Napoleonic
War in 1815, however, there were increasing pressures for
free trade in Britain from the increasingly confident man-
ufacturers. Although there was a round of tariff reduction
in 1833, the big change came in 1846, when the Corn
Law was repealed and tariffs on many manufacturing
goods abolished (Bairoch, 1993, pp. 20–21).
The repeal of the Corn Law is now commonly regarded
as the ultimate victory of the classical liberal economic
doctrine over wrong-headed mercantilism. Although we
should not underestimate the role of economic theory in
this policy shift, it is probably better understood as an act

of “free trade imperialism” (the term is due to Gallagher
& Robinson, 1953) intended to “halt the move to indus-
trialization on the Continent by enlarging the market for
agricultural produce and primary materials” (Kindleberger,
1978, p. 196). Indeed, many leaders of the campaign to
repeal the Corn Law, such as the politician Richard
Cobden and John Bowring of the Board of Trade, saw
their campaign precisely in such terms (Kindleberger,
1975, and Reinert, 1998). Cobden’s view on this is clearly
revealed in the following passage: “The factory system
would, in all probability, not have taken place in America
p. 4 www.fpif.org
Virtually all of today’s developed countries
actively used interventionist trade and
industrial policies aimed at promoting,
not simply “protecting,” infant industries
during their catch-up periods.
and Germany. It most certainly could not have flourished,
as it has done, both in these states, and in France,
Belgium, and Switzerland, through the fostering bounties
which the high-priced food of the British artisan has
offered to the cheaper fed manufacturer of those coun-
tries” (The Political Writings of Richard Cobden, 1868,
William Ridgeway, London, vol. 1, p. 150; as cited in
Reinert, 1998, p. 292).
Symbolic as the repeal of the Corn Law may have been,
it was only after 1860 that most tariffs were abolished.
However, the era of free trade did not last very long. It

ended when Britain finally acknowledged that it had lost
its manufacturing eminence and re-introduced tariffs on a
large scale in 1932 (Bairoch, 1993, pp. 27–8).
Thus seen, contrary to the popular belief, Britain’s tech-
nological lead that enabled this shift to a free trade regime
had been achieved “behind high and long-lasting tariff
barriers” (Bairoch, 1993, p. 46). And it is for this reason
that Friedrich List, the nineteenth-century German econo-
mist who is mistakenly (see section 3.2 below) known as
the father of modern “infant industry” theory, wrote the
following passages.
“It is a very common clever device that when anyone
has attained the summit of greatness, he kicks away the
ladder by which he has climbed up, in order to deprive
others of the means of climbing up after him. In this
lies the secret of the cosmopolitical doctrine of Adam
Smith, and of the cosmopolitical tendencies of his
great contemporary William Pitt, and of all his succes-
sors in the British Government administrations.
Any nation which by means of protective duties and
restrictions on navigation has raised her manufacturing
power and her navigation to such a degree of develop-
ment that no other nation can sustain free competition
with her, can do nothing wiser than to throw away these
ladders of her greatness, to preach to other nations the
benefits of free trade, and to declare in penitent tones
that she has hitherto wandered in the paths of error,
and has now for the first time succeeded in discovering
the truth [italics added]” (List, 1885, pp. 295–6).
3.2. United States of America
As we have just seen, Britain was the first country to

successfully use a large-scale infant industry promotion
strategy. However, its most ardent user was probably the
U.S.; the eminent economic historian Paul Bairoch once
called it “the mother country and bastion of modern pro-
tectionism” (Bairoch, 1993, p. 30). This fact is, interest-
ingly, rarely acknowledged in the modern literature, espe-
cially coming out of the United States. However, the
importance of infant industry protection in U.S. develop-
ment cannot be over-emphasized.
From the early days of colonization, industrial protec-
tion was a controversial policy issue. To begin with,
Britain did not want to industrialize the American
colonies, and duly implemented policies to that effect
(e.g., banning of high-value-added manufacturing activi-
ties). Around the time of independence, the southern
agrarian interests opposed any protection, and the north-
ern manufacturing interests wanted it, represented by,
among others, Alexander Hamilton, the first Secretary of
the Treasury of the United States (1789–1795).
In fact, it was Alexander Hamilton in his Reports of the
Secretary of the Treasury on the Subject of Manufactures
(1791) who first systematically set out the infant industry
argument, and not the German economist Friedrich List,
as it is often thought (Corden, 1974, ch. 8; Reinert,
1996). Indeed, List started out as a free trade advocate and
only converted to the infant industry argument following
his exile in the U.S (1825–1830) (Henderson, 1983,
Reinert, 1998). Many U.S. intellectuals and politicians
during the country’s catch-up period clearly understood
that the free trade theory advocated by the British classical
economists was unsuited to their country. Indeed, it was
against the advice of great economists like Adam Smith
and Jean Baptiste Say that the Americans were protecting

their industries.
In his Reports, Hamilton argued that the competition
from abroad and the “forces of habit” would mean that
new industries that could soon become internationally
competitive (“infant industries”) would not be started in
the United States, unless the initial losses were guaranteed
by government aid (Dorfman & Tugwell, 1960, pp.
31–32; Conkin, 1980, pp. 176–77). According to him,
this aid could take the form of import duties or, in rare
cases, prohibition of imports (Dorfman & Tugwell, 1960,
p. 32). He also believed that duties on raw materials
should be generally low (p. 32). We can see close resem-
blance between this view and the view espoused by
Walpole (see section 3.1 above)—a point that was not lost
on the contemporary Americans, especially Hamilton’s
political opponents (Elkins & McKitrick, 1993, p. 19).
Initially, the United States did not have a federal-level
tariff system, but when the Congress acquired the power
to tax, it passed a liberal tariff act (1789), imposing a 5%
flat rate tariff on all imports, with some exceptions
(Garraty & Carnes, 2000, pp. 139–40, p. 153; Bairoch,
p. 5 www.fpif.org
1993, p. 33). And despite Hamilton’s Reports, between
1792 and the war with Britain in 1812, the average tariff
level remained around 12.5%, although during the war all
tariffs were doubled in order to meet the increased govern-
ment expenses due to the war (p. 210).
A significant shift in policy occurred in 1816, when a

new law was introduced to keep the tariff level close to the
wartime level—especially protected were cotton, woolen,
and iron goods (Garraty &
Carnes, 2000, p. 210; Cochran
& Miller, 1942, pp. 15–16).
Between 1816 and the end of
the Second World War, the U.S.
had one of the highest average
tariff rates on manufacturing
imports in the world (see table
1). Given that the country
enjoyed an exceptionally high
degree of “natural” protection
due to high transportation costs
at least until the 1870s, we can
say that the U.S. industries were
literally the most protected in the world until 1945.
Even the Smoot-Hawley Tariff of 1930, which Bhagwati
in the above quote portrays as a radical departure from a
historic free-trade stance, only marginally (if at all)
increased the degree of protectionism in the U.S. econo-
my. As we can see from table 1, the average tariff rate for
manufactured goods that resulted from this bill was 48%,
and it still falls within the range of the average rates that
had prevailed in the United States since the Civil War,
albeit in the upper region of this range. It is only in rela-
tion to the brief “liberal” interlude of 1913–1929 that the
1930 tariff bill can be interpreted as increasing protection-
ism, although even then it was not by very much (from
37% in 1925 to 48% in 1931, see table 1).
In this context, it is also important to note that the
American Civil War was fought on the issue of tariffs as
much as, if not more than, on the issue of slavery. Of the
two major issues that divided the North and the South,

the South had actually more to fear on the tariff front
than on the slavery front. Abraham Lincoln was a well-
known protectionist who had cut his political teeth under
the charismatic politician Henry Clay in the Whig Party,
which advocated the “American System” based on infra-
structural development and protectionism, thus recogniz-
ing that free trade was in the “British” interest (Luthin,
1944, pp. 610–11; Frayssé, 1986, pp. 99–100). Moreover,
Lincoln thought the blacks were racially inferior and slave
emancipation was an idealistic proposal with no prospect
of immediate implementation (Garraty & Carnes, 2000,
pp. 391–92; Foner, 1998, p. 92). He is said to have eman-
cipated the slaves in 1862 as a strategic move to win the
war rather than out of some moral conviction (Garraty &
Carnes, 2000, p. 405).
It was only after the Second World War, with its indus-
trial supremacy unchallenged, that the U.S. liberalized its
trade (although not as unequivo-
cally as Britain did in the mid-
nineteenth century) and started
championing the cause of free
trade—once again proving List
right on his “ladder-kicking”
metaphor. The following quote
from Ulysses Grant, the Civil
War hero and president of the
United States from 1868 to
1876 clearly shows how the
Americans had no illusions
about ladder-kicking on the
British side and their side.
“For centuries England has relied on protection, has

carried it to extremes and has obtained satisfactory
results from it. There is no doubt that it is to this sys-
tem that it owes its present strength. After two cen-
turies, England has found it convenient to adopt free
trade because it thinks that protection can no longer
offer it anything. Very well then, Gentlemen, my
knowledge of our country leads me to believe that
within 200 years, when America has gotten out of pro-
tection all that it can offer, it too will adopt free trade.”
(Ulysses S. Grant, president of the United States,
1868–1876, cited in A.G. Frank, Capitalism and
Underdevelopment in Latin America, New York,
Monthly Review Press, 1967, p. 164).
Important as it may have been, tariff protection was not
the only policy deployed by the U.S. government in order
to promote the country’s economic development during
its catch-up phase. At least from the 1830s, it supported
an extensive range of agricultural research through the
granting of government land to agricultural colleges and
the establishment of government research institutes
(Kozul-Wright, 1995, p. 100). In the second half of the
nineteenth century, it expanded public educational invest-
ments—in 1840, less than half of the total investment in
education was public, whereas by 1900 this figure had
risen to almost 80%—and raised the literacy ratio to 94%
by 1900 (p. 101, especially f.n. 37). It also promoted the
p. 6 www.fpif.org
Initially, the United States did not have
a federal-level tariff system,
but when the Congress acquired
the power to tax,

it passed a liberal tariff act.
development of transportation infrastructure, especially
through the granting of land and subsidies to railway
companies (pp. 101–102).
And it is important to recognize that the role of the U.S.
federal government in industrial development has been
substantial even in the post-war era, thanks to the large
amount of defense-related procurements and research and
development (R&D) spending, which have had enormous
spillover effects (Shapiro & Taylor, 1990, p. 866; Owen,
1966, ch. 9; Mowery & Rosenberg, 1993). The share of
the U.S. federal government in total R&D spending,
which was only 16% in 1930 (Owen, 1966, pp. 149–50),
remained between one-half and two-thirds during the
postwar years (Mowery & Rosenberg, 1993, table 2.3).
The critical role of the U.S. government’s National
Institutes of Health (NIH) in supporting R&D in phar-
maceutical and biotechnology industries should also be
mentioned. Even according to the U.S. pharmaceutical
industry association itself (see http://www.phrma.org/pub-
lications), only 43% of pharmaceutical R&D is funded by
the industry itself, while 29% is funded by the NIH.
3.3. Germany
Germany is a country that is today commonly known as
the home of infant industry protection, both intellectually
and in terms of …

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01/08
Global Trade Liberalization
and the Developing Countries
By IMF Staff
November 2001
Español
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Contents
I. International Trade and the World Economy
II. The Benefits of Trade Liberalization
III. The Need for Further Liberalization of International Trade
IV. Reaping the Benefits
Recent decades have seen rapid growth of the world economy.
This growth has been driven
in part by the even faster rise in international trade. The growth
in trade is in turn the result
of both technological developments and concerted efforts to
reduce trade barriers. Some
developing countries have opened their own economies to take
full advantage of the
opportunities for economic development through trade, but
many have not. Remaining
trade barriers in industrial countries are concentrated in the
agricultural products and
labor-intensive manufactures in which developing countries
have a comparative advantage.
Further trade liberalization in these areas particularly, by both
industrial and developing
countries, would help the poorest escape from extreme poverty

while also benefiting the
industrial countries themselves.
I. International Trade and the World Economy
Integration into the world economy has proven a powerful
means for countries to promote
economic growth, development, and poverty reduction. Over the
past 20 years, the growth
of world trade has averaged 6 percent per year, twice as fast as
world output. But trade has
been an engine of growth for much longer. Since 1947, when
the General Agreement on
Tariffs and Trade (GATT) was created, the world trading system
has benefited from eight
rounds of multilateral trade liberalization, as well as from
unilateral and regional
liberalization. Indeed, the last of these eight rounds (the so-
called "Uruguay Round"
completed in 1994) led to the establishment of the World Trade
Organization to help
administer the growing body of multilateral trade agreements.
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https://www.imf.org/external/np/exr/contacts/contacts.aspx
https://www.imf.org/external/np/exr/glossary/index.asp
The resulting integration of the world economy has raised living
standards around the
world. Most developing countries have shared in this prosperity;
in some, incomes have
risen dramatically. As a group, developing countries have
become much more important in
world trade—they now account for one-third of world trade, up
from about a quarter in the
early 1970s. Many developing countries have substantially
increased their exports of
manufactures and services relative to traditional commodity
exports: manufactures have
risen to 80 percent of developing country exports. Moreover,
trade between developing

countries has grown rapidly, with 40 percent of their exports
now going to other developing
countries.
However, the progress of integration has been uneven in recent
decades. Progress has been
very impressive for a number of developing countries in Asia
and, to a lesser extent, in
Latin America. These countries have become successful because
they chose to participate
in global trade, helping them to attract the bulk of foreign direct
investment in developing
countries. This is true of China and India since they embraced
trade liberalization and other
market-oriented reforms, and also of higher-income countries in
Asia—like Korea and
Singapore—that were themselves poor up to the 1970s.
But progress has been less rapid for many other countries,
particularly in Africa and the
Middle East. The poorest countries have seen their share of
world trade decline
substantially, and without lowering their own barriers to trade,
they risk further
marginalization. About 75 developing and transition economies,
including virtually all of
the least developed countries, fit this description. In contrast to
the successful integrators,
they depend disproportionately on production and exports of
traditional commodities. The
reasons for their marginalization are complex, including deep-
seated structural problems,
weak policy frameworks and institutions, and protection at
home and abroad.
II. The Benefits of Trade Liberalization

Policies that make an economy open to trade and investment
with the rest of the world are
needed for sustained economic growth. The evidence on this is
clear. No country in recent
decades has achieved economic success, in terms of substantial
increases in living standards
for its people, without being open to the rest of the world. In
contrast, trade opening (along
with opening to foreign direct investment) has been an
important element in the economic
success of East Asia, where the average import tariff has fallen
from 30 percent to 10
percent over the past 20 years.
Opening up their economies to the global economy has been
essential in enabling many
developing countries to develop competitive advantages in the
manufacture of certain
products. In these countries, defined by the World Bank as the
"new globalizers," the
number of people in absolute poverty declined by over 120
million (14 percent) between
1993 and 1998.1
There is considerable evidence that more outward-oriented
countries tend consistently to
grow faster than ones that are inward-looking.2 Indeed, one
finding is that the benefits of
trade liberalization can exceed the costs by more than a factor
of 10.3 Countries that have
opened their economies in recent years, including India,
Vietnam, and Uganda, have
experienced faster growth and more poverty reduction.4 On
average, those developing
countries that lowered tariffs sharply in the 1980s grew more

quickly in the 1990s than
those that did not.5
Freeing trade frequently benefits the poor especially.
Developing countries can ill-afford the
large implicit subsidies, often channeled to narrow privileged
interests, that trade protection
provides. Moreover, the increased growth that results from freer
trade itself tends to
increase the incomes of the poor in roughly the same proportion
as those of the population
as a whole.6 New jobs are created for unskilled workers, raising
them into the middle class.
Overall, inequality among countries has been on the decline
since 1990, reflecting more
rapid economic growth in developing countries, in part the
result of trade liberalization.7
The potential gains from eliminating remaining trade barriers
are considerable. Estimates of
the gains from eliminating all barriers to merchandise trade
range from US$250 billion to
US$680 billion per year. About two-thirds of these gains would
accrue to industrial
countries. But the amount accruing to developing countries
would still be more than twice
the level of aid they currently receive. Moreover, developing
countries would gain more

from global trade liberalization as a percentage of their GDP
than industrial countries,
because their economies are more highly protected and because
they face higher barriers.
Although there are benefits from improved access to other
countries' markets, countries
benefit most from liberalizing their own markets. The main
benefits for industrial countries
would come from the liberalization of their agricultural
markets. Developing countries
would gain about equally from liberalization of manufacturing
and agriculture. The group
of low-income countries, however, would gain most from
agricultural liberalization in
industrial countries because of the greater relative importance
of agriculture in their
economies.
III. The Need for Further Liberalization of International Trade
These considerations point to the need to liberalize trade
further. Although protection has
declined substantially over the past three decades, it remains
significant in both industrial
and developing countries, particularly in areas such as
agriculture products or labor-
intensive manufactures and services (e.g., construction) where
developing countries have
comparative advantage.
Industrial countries maintain high protection in agriculture
through an array of very high
tariffs, including tariff peaks (tariffs above 15 percent), tariff
escalation (tariffs that increase
with the level of processing), and restrictive tariff quotas (limits

on the amount that can be
imported at a lower tariff rate). Average tariff protection in
agriculture is about nine times
higher than in manufacturing. In addition, agricultural subsidies
in industrial countries,
which are equivalent to 2/3 of Africa's total GDP, undermine
developing countries'
agricultural sectors and exports by depressing world prices and
pre-empting markets. For
example, the European Commission is spending 2.7 billion euro
per year making sugar
profitable for European farmers at the same time that it is
shutting out low-cost imports of
tropical sugar.
In industrial countries, protection of manufacturing is generally
low, but it remains high on
many labor-intensive products produced by developing
countries. For example, the United
States, which has an average import tariff of only 5 percent, has
tariff peaks on almost 300
individual products. These are largely on textiles and clothing,
which account for 90
percent of the $1 billion annually in U.S. imports from the
poorest countries—a figure that
is held down by import quotas as well as tariffs. Other labor-
intensive manufactures are also
disproportionately subject to tariff peaks and tariff escalation,
which inhibit the
diversification of exports toward higher value-added products.
Many developing countries themselves have high tariffs. On
average, their tariffs on the
industrial products they import are three to four times as high as
those of industrial
countries, and they exhibit the same characteristics of tariff

peaks and escalation. Tariffs on
agriculture are even higher (18 percent) than those on industrial
products.8
Nontraditional measures to impede trade are harder to quantify
and assess, but they are
becoming more significant as traditional tariff protection and
such barriers as import quotas
decline. Antidumping measures are on the rise in both industrial
and developing countries,
but are faced disproportionately by developing countries.
Regulations requiring imports to
conform to technical and sanitary standards comprise another
important hurdle. They
impose costs on exporters that can exceed the benefits to
consumers. European Union
regulations on aflotoxins, for example, are costing Africa $1.3
billion in exports of cereals,
dried fruits, and nuts per European life saved.9 Is this an
appropriate balance of costs and
benefits?
For a variety of reasons, preferential access schemes for poorer
countries have not proven
very effective at increasing market access for these countries.
Such schemes often exclude,
or provide less generous benefits for, the highly protected
products of most interest to

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