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.
New Researchers: LIQUIDITY EFFECTS
Testing the impact of Income-Driven-Repayment schemes on student welfare
In a recently revised paper, JFI Fellow and newly-appointed Assistant Professor at the University of Arizona DANIEL HERBST uses a novel data set to examine the impact of income-driven repayment (IDR) programs on the post-college income profiles of more than one million student borrowers. He finds that IDR policies overwhelmingly increase borrower welfare while producing no negative labor-market effects. From the abstract:
"Within seven months of take up, IDR enrollees are 31 percentage points less likely to fall delinquent and pay down 162 dollars more student debt each month compared to those who remain on standard repayment plans. IDR enrollees have credit scores that are 8.6 points higher, hold 0.1 more credit cards, and carry 293 dollars higher credit card balances than non-enrollees one year after the servicing call, suggesting increased short-term consumption out of liquidity."
Each week we highlight great work from a graduate student, postdoc, or early-career professor. Have you read any excellent research recently that you'd like to see shared here? Send it our way: email@example.com.
- New posts at the Phenomenal World: Owen Davis on the emerging monopsony consensus, and Jack Marley-Payne on ideology in AP economics. Link and link.
- At Slate, Arindrajit Dube on the late Alan Krueger. Link. See also Dylan Matthews' overview of the immense contributions Krueger made to the field, and Susan Dynarski's comments on his legacy.
- Branko Milanovic: nation states are the common root of our failure to deal with inequality and climate change. Link.
- Andrew Selbst and Solon Barocas on the problems that machine learning poses for the explainability discourse: "intuition serves as the unacknowledged bridge between a descriptive account and a normative evaluation. But because machine learning is often valued for its ability to uncover statistical relationships that defy intuition, relying on intuition is not a satisfying approach. This Article thus argues for other mechanisms for normative evaluation. To know why the rules are what they are, one must seek explanations of the process behind a model’s development, not just explanations of the model itself." Link.
- Who profits from patents? Researchers Patrick Kline, Neviana Petkova, Heidi Williams, and Owen Zidar examine the internal distribution of rents at innovative firms. Link.
- Researcher Emily Moschini finds that universal subsidies yield greater welfare gains than targeted child care subsidies: "Universal subsidies more fully insure newborns against the risks they face than targeted subsidies, and do not disincentivize skill investment." Link.
- A paper by Tim Jackson surveys the literature on secular limits to growth. "It also points to the historical congruence (and potential causal links) between declining productivity growth and resource bottlenecks." Link.
- A report examining the possible effects of automation on labor displacement of older black women. Link.
- From the Internet Society, a report on consolidation across the Internet, from internet applications, to access provision, to service infrastructure. Link to the executive summary, link to the report.
- From Adam Tooze: What are central banks for? Link.
- "The German banking crisis was crucial to boosting the Nazi movement’s electoral fortunes. It aggravated the German economy’s downturn, leading to more radical voting because of declining incomes. In addition, it also increased the Nazis’ popularity directly… After controlling for changes in economic fundamentals, higher exposure [to failing banks] by local firms directly increased Nazi voting above and beyond its direct effect through falling incomes. While the Nazis' message was similar across Germany, it had greater success in cities affected by [major bank] failures." Link.