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Brilliant study of the policies needed for economic growth
Dani Rodrik, Professor of International Political Economy at Harvard University, advises developing countries not to rely on financial markets or the international financial institutions. He argues that the principles of property rights, the rule of law, sound money, and honest public finances need to be put into practice, and the conditions for doing so vary from country to country. There is no single, simple recipe for growth.
He proposes six policies to help implement industrial policy: export subsidies, domestic-content requirements, import-export linkages, import quotas, patent and copyright infringements, and directed credit.
He argues against relying on foreign direct investment, writing, "careful studies have found very little systematic evidence of technological and other externalities from foreign direct investment, some even finding negative spillovers. In these circumstances, subsidizing foreign investors is a silly policy, as it transfers income from poor-country taxpayers to the pockets of shareholders in rich countries, with no compensating benefit."
Rodrik says countries cannot have 'globalisation', nation-states and democracy all at once, only any two of the three. So if we want a nation-state and democracy, we must limit our participation in the global economy.
If trade liberalisation brought wealth, Haiti would be the richest country in the world. As Rodrik observes, "no country has developed simply by opening itself up to foreign trade and investment." And, "there is no convincing evidence that trade liberalisation is predictably associated with subsequent economic growth. . integration with the world economy is an outcome, and not a prerequisite, of a successful growth strategy."
All countries have the right to protect their own institutions and development priorities; none has the right to impose its preferences on others. So Rodrik opposes any country's using the World Bank, the IMF and the WTO to enforce its views. He writes, "Trade rules should seek peaceful coexistence among national practices, not harmonisation."
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