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Taking Trade Policy Seriously: Export Subsidization as a Case Study in Policy Effectiveness

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  • Dani Rodrik

Abstract

In thinking about policy, academic economists alternate between theoretical models in which governments can design finely-tuned optimal interventions and practical considerations which usually assume the government to be incompetent and hostage to special interests. I argue in this paper that neither of these caricatures is accurate, and that there is much to be learned by undertaking systematic, analytical studies of state capabilities -- how they are generated and why they differ across countries and issue areas. Case studies of export subsidization in Korea, Brazil, Turkey, India, Kenya, and Bolivia are presented to confront usual presumptions against actual experience. Contrary to conventional wisdom, the successful cases (Korea and Brazil) turn out to be ones in which the government exercised discretion and selectivity, while the most uniform and non-discretionary cases (Kenya and Bolivia) were clear failures. The paradox is explained in terms of state autonomy and policy coherence.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4567.

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Date of creation: Dec 1993
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Publication status: published as Alan Dearforf, et al, eds. New Directions in Trade Theory, Ann Arbor, MI: University of Michigan Press, 1995.
Handle: RePEc:nbr:nberwo:4567

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  1. Charles R. Frank Jr. & Kwang Suk Kim & Larry E. Westphal, 1975. "Foreign Trade Regimes and Economic Development: South Korea," NBER Books, National Bureau of Economic Research, Inc, number fran75-1, octubre-d.
  2. Eaton, Jonathan & Grossman, Gene M, 1986. "Optimal Trade and Industrial Policy under Oligopoly," The Quarterly Journal of Economics, MIT Press, vol. 101(2), pages 383-406, May.
  3. Robert S. Pindyck & Andres Solimano, 1993. "Economic Instability and Aggregate Investment," NBER Working Papers 4380, National Bureau of Economic Research, Inc.
  4. Andrei Shleifer & Robert Vishny, 1992. "Pervasive Shortages under Socialism," RAND Journal of Economics, The RAND Corporation, vol. 23(2), pages 237-246, Summer.
  5. Staiger, Robert W & Tabellini, Guido, 1987. "Discretionary Trade Policy and Excessive Protection," American Economic Review, American Economic Association, vol. 77(5), pages 823-37, December.
  6. Krueger, Anne O, 1974. "The Political Economy of the Rent-Seeking Society," American Economic Review, American Economic Association, vol. 64(3), pages 291-303, June.
  7. Rodrik, Dani, 1991. "Policy uncertainty and private investment in developing countries," Journal of Development Economics, Elsevier, vol. 36(2), pages 229-242, October.
  8. Dixit, A., 1988. "Entry And Exit Decisions Under Uncertainty," Papers 91, Princeton, Department of Economics - Financial Research Center.
  9. Thomas, Vinod & Nash, John, 1991. "Reform of Trade Policy: Recent Evidence from Theory and Practice," World Bank Research Observer, World Bank Group, vol. 6(2), pages 219-40, July.
  10. Low, Patrick, 1982. "Export subsidies and trade policy: The experience of Kenya," World Development, Elsevier, vol. 10(4), pages 293-304, April.
  11. Bela Balassa, 1978. "Export incentives and export performance in developing countries: A comparative analysis," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 114(1), pages 24-61, March.
  12. Dixit, Avinash K, 1989. "Trade and Insurance with Adverse Selection," Review of Economic Studies, Wiley Blackwell, vol. 56(2), pages 235-47, April.
  13. Rodrik, Dani, 1992. "Political economy and development policy," European Economic Review, Elsevier, vol. 36(2-3), pages 329-336, April.
  14. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February.
  15. Carmichael, Calum M., 1987. "The control of export credit subsidies and its welfare consequences," Journal of International Economics, Elsevier, vol. 23(1-2), pages 1-19, August.
  16. McCulloch, Rachel, 1993. "The Optimality of Free Trade: Science or Religion?," American Economic Review, American Economic Association, vol. 83(2), pages 367-71, May.
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Cited by:
  1. Mody, Ashoka, 1999. "Industrial policy after the East Asian crisis - from"outward orientation"to new internal capabilities?," Policy Research Working Paper Series 2112, The World Bank.
  2. Hoekman, Bernard & Smarzynska Javorcik, Beata, 2004. "Policies Facilitating Firm Adjustment to Globalization," CEPR Discussion Papers 4692, C.E.P.R. Discussion Papers.
  3. Christian Helmers & Natalia Trofimenko, 2010. "Export Subsidies in a Heterogeneous Firms Framework: Evidence from Colombia," CSAE Working Paper Series 2010-26, Centre for the Study of African Economies, University of Oxford.
  4. Gunseli Berik, 2006. "Growth with Gender Inequity: Another Look at East Asian Development," Working Paper Series, Department of Economics, University of Utah 2006_03, University of Utah, Department of Economics.
  5. Hoekman, Bernard M. & Maskus, Keith E. & Saggi, Kamal, 2005. "Transfer of technology to developing countries: Unilateral and multilateral policy options," World Development, Elsevier, vol. 33(10), pages 1587-1602, October.
  6. Dani Rodrik, 2003. "Growth Strategies," NBER Working Papers 10050, National Bureau of Economic Research, Inc.
  7. Keuschnigg, Christian & Kohler, Wilhelm, 1996. "Commercial policy and dynamic adjustment under monopolistic competition," Journal of International Economics, Elsevier, vol. 40(3-4), pages 373-409, May.
  8. Gabriel Porcile & Gilberto Tadeu Lima, 2010. "Real exchange rate and elasticity of labour supply in a balance-of-payments-constrained macrodynamics," Cambridge Journal of Economics, Oxford University Press, vol. 34(6), pages 1019-1039.

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