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Is the Washington Consensus Dead? Growth, Openness, and the Great Liberalization, 1970s-2000s

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  • Estevadeordal, Antoni
  • Taylor, Alan M

Abstract

According to the Washington Consensus, developing countries’ growth would benefit from a reduction in tariffs and other barriers to trade. But a backlash against this view now suggests that trade policies have little or no impact on growth. If "getting policies right" is wrong or infeasible, this leaves only the more tenuous objective of "getting institutions right" (Easterly 2005, Rodrik 2006). However, the empirical basis for judging recent trade reforms is weak. Econometrics are mostly ad hoc; results are typically not judged against models; trade policies are poorly measured (or not measured at all, as when trade volumes are spuriously used); and the most influential studies in the literature are based on pre-1990 experience (which predates the "Great Liberalization" in developing countries which followed the GATT Uruguay Round). We address all of these concerns - by using a model-based analysis which highlights tariffs on capital and intermediate goods; by compiling new disaggregated tariff measures to empirically test the model; and by employing a treatment-and-control empirical analysis of pre- versus post-1990 performance of liberalizing and nonliberalizing countries. We find evidence that a specific treatment, liberalizing tariffs on imported capital and intermediate goods, did lead to faster GDP growth, and by a margin consistent with theory (about 1 percentage point per annum). Endogeneity problems are considered and other observations are consistent with the proposed mechanism: changes to other tariffs, e.g. on consumption goods, though collinear with general tariffs reforms, are more weakly correlated with growth outcomes; and the treatment and control groups display different behavior of investment prices and quantities, and capital flows.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6942.

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Date of creation: Aug 2008
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Handle: RePEc:cpr:ceprdp:6942

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Keywords: capital goods; developing countries; GATT; growth; intermediate goods; trade liberalization; Uruguay Round;

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Citations

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Cited by:
  1. Bridgman, Benjamin, 2012. "The rise of vertical specialization trade," Journal of International Economics, Elsevier, vol. 86(1), pages 133-140.
  2. Pinelopi Koujianou Goldberg & Amit Kumar Khandelwal & Nina Pavcnik & Petia Topalova, 2010. "Imported Intermediate Inputs and Domestic Product Growth: Evidence from India," The Quarterly Journal of Economics, MIT Press, vol. 125(4), pages 1727-1767, November.
  3. Stankov, Petar, 2010. "Deregulation, economic growth and growth acceleration," MPRA Paper 26485, University Library of Munich, Germany.
  4. NAITO Takumi, 2012. "An Eaton-Kortum Model of Trade and Growth," Discussion papers 12055, Research Institute of Economy, Trade and Industry (RIETI).
  5. Naito, Takumi, 2012. "A Ricardian model of trade and growth with endogenous trade status," Journal of International Economics, Elsevier, vol. 87(1), pages 80-88.
  6. Crafts, Nicholas, 2011. "Economic History Matters," CAGE Online Working Paper Series 58, Competitive Advantage in the Global Economy (CAGE).
  7. Tarr, David, 2012. "Impact of services liberalization on industry productivity, exports and development : six empirical studies in the transition countries," Policy Research Working Paper Series 6023, The World Bank.
  8. Peter A. Petri, 2010. "Beyond the Golden Era: Asia Pacific Cooperation after the Global Financial Crisis," Working Papers 11, Brandeis University, Department of Economics and International Businesss School.
  9. Moritz Schularick & Solomos Solomou, 2011. "Tariffs and economic growth in the first era of globalization," Journal of Economic Growth, Springer, vol. 16(1), pages 33-70, March.
  10. Benjamin Brishman, 2010. "The Rise of Vertical Specialization Trade," BEA Working Papers 0051, Bureau of Economic Analysis.

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