The Strategic Use of Trade Policies for Development: Some General Equilibrium Issues

The neo-classical analysis of industrialization and trade strategy, especially in its ‘strong’ version, emphasizes neutrality across tradeables (with free trade the extreme version of this) and the avoidance of excessive selectivity of any factor or product market government interventions as the basis for success.2 There is considerable merit to this analysis. It has, for instance, helped to shift the intellectual balance and policy-makers away from the belief in the importance of government intervention to try to correct market failure to a greater willingness to rely on market mechanisms and prices. But several commentators on the neo-classical perspective, including Hans Singer, point to the insufficient emphasis it places on market failure/inefficiency (see Evans, 1990; Lall, 1991). Singer (1989) in fact calls for the use of policies of efficient import substitution. The intention is that import-substituting industries should be encouraged to develop into export industries, where externality or learning-by-doing gains can be reaped. In order to avoid existing export industries (especially non-traditional ones) from being disadvantaged by this, compensating export subsidies may be required.3 Thus the counter-case for selective or non-uniform interventions or strategic promotion of some import-substitute and export industries can be constructed around this ‘alternative perspective’.4