Analyzing the experience of developing countries in recent years and the deadlock in trade negotiation in WTO, the author argues that the theories and practices of trade and industrial policies are surrounded by a number of fallacies: that universal and across-the-board trade liberalization is to the benefit of all developing countries, irrespective of their level of development; that the Invisible Hand of free market alone is conducive to industrialization, that the infant industry argument is against export expansion; that developed countries industrialized without government intervention; that WTO rules are conducive to development.
|Publisher:||Palgrave Macmillan UK|
|Product dimensions:||5.51(w) x 8.50(h) x 0.03(d)|
About the Author
MEHDI SHAFAEDDIN is a development economist with D.Phil from Oxford University, UK. He is in charge of the Macroeconomics and Development Policies Branch, Globalization and Development Strategies Division of UNCTAD. He has extensive experience at national and international levels as a researcher, university lecturer and trainer. He has published a large number of articles on trade and industrial policies, economic reform, development of oil exporting countries and other development policy issues.
Table of ContentsIntroduction Growth and Diversification The Impact of Reform on Investment Market and Government Universal Trade Liberalisation Infant Industry Argument and Import Substitutions History of Trade and Industrial Policy The World Trading System and Industrialization Concluding Remarks: An Alternative Approach
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The author, a senior economist at UNCTAD, studies the effects of the 'reform' programmes of the World Bank, IMF, WTO and EU. These involve trade liberalisation, capital account liberalisation, devaluation, budget cuts, higher interest rates and privatisation. Yet the World Bank's 1993 study, East Asian Miracle, admitted, "Most high-performing Asian economies began industrialization with a protectionist orientation." Its 1994 study admitted, "Import substitution, if done too rapidly, will reduce the profitability of domestic firms competing with imports." Yet the World Bank keeps on enforcing trade liberalisation. As a result, most developing countries have experienced de-industrialisation. Trade liberalisation has done the most damage to the poorest countries, like Ghana, Zimbabwe and Haiti. But others have suffered deindustrialisation too - Chile, Brazil, in fact most of Latin America. In Mexico, Jamaica, Ghana, Colombia, Uruguay and Paraguay, manufactured exports grew fast, and dependence on foreign markets grew, yet industry did not advance. Other countries' industries grew with little export growth because they liberalised their trade only after they reached a certain level of industrialisation and as part of a long-term industrial policy. Those countries that liberalised rapidly and indiscriminately did badly. The 'reform' programmes also failed to increase investment, particularly in manufacturing. Investment fell from 1979-81's level even when there was lots of foreign direct investment, as in Latin America. Private investors preferred to invest in real estate, and the World Bank enforced deep cuts in public spending. Shafaeddin cites Rowthorn and Ramaswamy's claim, "de-industrialisation is simply the natural outcome of successful economic development and is generally associated with rising living standards." Recent events are challenging this complacent assumption. Shafaeddin concludes that the 'reform' programmes are 'likely to lead to the destruction of the existing industries'. They will lock poorer countries into producing and exporting primary goods, simple processing and at best assembly operation or other labour-intensive work with little or no prospect for industrial advance.