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AuthorUnited Nations Conference on Trade and Development
TitleTrade Policy as Development Policy: Building on Fifty Years' Experience
Imprint Geneva, United Nations. 2000
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Descript 25 pages


Summary: Despite 50 years of debate, international trade continues to be one of the main areas of development policy. I offer a brief account of how openness came to be the generally preferred policy stance, and analyze a number of remaining trade issues for the new millennium. The advocacy of import substitution as a route to development arose naturally from the intellectual and practical policy-making environment after the Second World War. Big government apparently worked (and bureaucrats knew how to plan), manufacturing was equated with development and required planning, and foreign exchange had to be conserved for necessary imports of capital equipment by economizing on all other imports. In time, this view fell apart. Economic theory showed that trade policy was not an appropriate response to most market failures, open economies overtook closed ones in performance, and import substituting trade regimes were shown to be rife with huge, arbitrary and costly distortions. Moreover, once it was realized that political capture rendered it very difficult to make effective and unbiased interventions, policy advice veered towards market-friendly and non-interventionist positions. Such positions have not completely dominated the debate, however, because, as well as traditional protectionist sentiments, such policies raise genuine concerns about equity and because we do not fully understand how openness contributes to economic growth. For the future, I argue that openness and non-discrimination should remain our watchwords. Not only does openness boost economic efficiency and, on the balance of the evidence, economic growth, but simple and open trade regimes aid good governance. They reduce the opportunities for discretionary policy, and hence for corruption and arbitrariness, and they offer a way of conserving skilled labour for the many other challenges of development, such as education and efficient administration. I argue that countries should embrace vigorous trade liberalization packages, albeit with suitable transitional periods, that trade policy should address barriers, such as poor customs formalities, infrastructure and tariffs, and that liberalization should be multilateral and not regional in nature. Concern for equity should be pursued by explicit redistribution. A key factor in the ascendancy of open trade policies in the 1970s was measurement, which showed the indefensible state of trade regimes under import substitution. Our current inability to measure and summarize trade regimes lies at the heart of the difficulty of proving conclusively that openness is good for economic growth. For the next decade an UNCTAD that devises and produces effective measures of trade regimes would make a huge contribution and more than measure up to the complaints of its critics: "An UNCTAD that measures, measures up!"

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