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Outward-Orientation and Development: Are Revisionists Right

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  • T. N. Srinivasan

    ()
    (Economic Growth Center, Yale University)

  • Jagdish Bhagwati
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    Abstract

    The costs of import substitution (IS) as a strategy for industrialization, which was deemed synonymous with economic development by many development economists of the fifties and sixties, were shown to be substantial in the influential and nuanced studies of the seventies and eighties under the auspices of OECD, NBER and World Bank. These studies played a critical role in shifting policies in several developing countries away from the IS strategy. Recently there has been a proliferation of cross country regressions as a methodology of analysis of issues relating to growth, trade and other issues. Both proponents (e.g. Sachs and Warner (1995)) and opponents (Rodriguez and Rodrik (1999)) of the view that openness to trade is linked to higher growth have relied on such regressions. The paper systematically reviews the theoretical and empirical studies on such linkage. It rejects the cross-country regression methodology for reasons of their weak theoretical foundation, poor quality of their data base and their inappropriate econometric methodologies. It argues that the most compelling evidence on this issue can come only from careful case studies of policy regimes of individual entries such as those of OECD, NBER and World Bank. It concludes that the virtues of openness established in these nuanced in-depth studies remain unrefuted.

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    File URL: http://www.econ.yale.edu/growth_pdf/cdp806.pdf
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    Bibliographic Info

    Paper provided by Economic Growth Center, Yale University in its series Working Papers with number 806.

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    Length: 44 pages
    Date of creation: Sep 1999
    Date of revision:
    Handle: RePEc:egc:wpaper:806

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    Related research

    Keywords: Developing Countries; Economic Development; Economic Growth; International Trade; Openness; Import Substitution; Export Promotion; Cross-Country Regressions;

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    References

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    1. repec:umd:umdeco:rodriguez9901 is not listed on IDEAS
    2. Balasubramanyam, V N & Salisu, M & Sapsford, David, 1996. "Foreign Direct Investment and Growth in EP and IS Countries," Economic Journal, Royal Economic Society, vol. 106(434), pages 92-105, January.
    3. Jeffrey Sachs & Andrew Warner, 1995. "Economic Reform and the Progress of Global Integration," Harvard Institute of Economic Research Working Papers 1733, Harvard - Institute of Economic Research.
    4. Krueger, Anne O & Schiff, Maurice & Valdes, Alberto, 1988. "Agricultural Incentives in Developing Countries: Measuring the Effect of Sectoral and Economywide Policies," World Bank Economic Review, World Bank Group, vol. 2(3), pages 255-71, September.
    5. Krueger, Anne O, 1997. "Trade Policy and Economic Development: How We Learn," American Economic Review, American Economic Association, vol. 87(1), pages 1-22, March.
    6. Brecher, Richard A. & Diaz Alejandro, Carlos F., 1977. "Tariffs, foreign capital and immiserizing growth," Journal of International Economics, Elsevier, vol. 7(4), pages 317-322, November.
    7. Hamada, Koichi, 1974. "An economic analysis of the duty-free zone," Journal of International Economics, Elsevier, vol. 4(3), pages 225-241, August.
    8. Tjalling C. Koopmans, 1963. "On the Concept of Optimal Economic Growth," Cowles Foundation Discussion Papers 163, Cowles Foundation for Research in Economics, Yale University.
    9. Arvind Panagariya, 2003. "Trade Openness: Consequences for the Elasticity of Demand for Labor and Wage Outcomes," International Trade 0308007, EconWPA.
    10. Bhagwati, Jagdish N, 1982. "Directly Unproductive, Profit-seeking (DUP) Activities," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 988-1002, October.
    11. Francisco Rodriguez & Dani Rodrik, 1999. "Trade Policy and Economic Growth: A Skeptic's Guide to Cross-National Evidence," NBER Working Papers 7081, National Bureau of Economic Research, Inc.
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