On the history of protectionist development and trade policy
There is renewed debate around the merits of protectionism and free trade, spurred by political rhetoric from the left and right in the US, and in Europe and Latin America. Active disagreements over the consequences of free trade date back to policies promoted in the 50s and 60s, a period during which many newly-decolonized countries undertook an import-substitution-industrialization (ISI) model of development. Popularized by Argentine economist Raul Prebisch, ISI was a development strategy which advocated a prolonged period of state investment in manufacturing and infrastructure prior to trading in the global market. Subject to extensive criticism, it was thought to have been discredited in favor of the Washington Consenus throughout the late-70s and early 2000s.
Beginning most notably with Hajoon Chang’s Kicking Away the Ladder, however, a growing number of economists have come to question the viability of the Washington Consensus as a development model, both historically and in the present. In a 2017 article, AREGBESHOLA R. ADEWALE lends further evidence to these critiques. Using the World Bank’s Development Indicators, he develops a model which tests the relationship between ISI policies and industrialization in the BRICS (Brazil, Russia, India, China, South Africa). His model finds a strong and consistent correlation between economic growth and ISI policy:
"The analyses confirm the short and long run relationships between growth and ISI’s measurable indicators, in a chronological manner that supports import substitution in the short run and exports promotion in the long run… A conclusion can thus be drawn, both from literature and econometric estimations, that the ISI macroeconomic policy defies the self-defeating prophecy levied against it by the institutions of the Washington Consensus."
Link to the paper.
- Dani Rodrik’s 2011 book, The Globalization Paradox, offers a detailed overview of the distributional consequences of free trade both domestically and globally. Chapter 8 of the book presents a compelling vindication of ISI policies: "Even where ISI underperformed, it often bequeathed industrial capacities that would later prove very helpful." Link to the book, and link to an earlier blog post in which Rodrik takes Mexico as a case study for the potential benefits of ISI.
- "This special issue is an attempt to advance a production-centred agenda focusing on the real dynamics of productive organisations and ecosystems, with the emphasis on their transformation and innovative renewal in mature economies." Hajoon Chang introduces an issue of the Cambridge Journal of Economics. Link.
- John Waterbury’s The Egypt of Nasser and Sadat provides a rigorous evaluation of the transition from state- to market-led development in Egypt from the 50s and into the 80s. Link.
- "I find that regions in the French Empire which became better protected from trade with the British for exogenous reasons during the Napoleonic Wars (1803-15) increased capacity in mechanized cotton spinning to a larger extent than regions which remained more exposed to trade.” Réka Juhász tests the economic impacts of protectionism through a natural experiment. Link.
- An excellent new paper by Nathaniel Lane surveys new empirical research examining industrial policy. Link.