Martin Wolf's review of two books that favor trade protection for developing countries has led to an interesting debate, including a contribution from Ned Phelps. I find some of the comments there astonishing. Here are a couple.
few free-trade advocates argue that free trade by itself is enough to launch a country into high-growth orbit. My own forthcoming book India: An Emerging Giant (OUP, NY) is 500-pages long precisely because it carefully spells out the reforms needed in various areas to achieve and sustain a double-digit growth in India.
Panagariya has apparently set a new length record for the list of complementary reforms that ensure trade liberalization works. With such a comprehensive list, we can always blame countries ex post for having neglected reforms on p. 325 and 483 in case their reforms come to nought...
economists and policy makers [in the 1950s and 1960s] regarded trade protection as a major policy instrument for achieving rapid growth through industrialization. Much sad experience has shown that not to be the case. Many countries adopted policies of “import-substitution”, protecting new industries (indefinitely) with import prohibitions or very high walls of protection. There is enough experience to show why that strategy does not work.
It was not neoclassical economic theory, but primarily the failures of the “import-substitution” strategies that resulted in unsatisfactorily low growth rates. In country after country, high-cost domestic monopolies or duopolies were developed in industry after industry. They achieved little total factor productivity growth, and remained high cost behind high walls of protection.
I cannot believe Krueger is not aware of the actual TFP numbers. Why does she say things that are, at best, misleading?
Martin Wolf sounds like a very wise man in his response. And you should also read Ha-Joon Chang's comments, which I think get it exactly right. I agree with him when he says "Trade is simply too important for economic development to be left to free trade economists."