DEVELOPMENT POLICY AND THE ROLE OF TRADECraig Belden & Heidi Correa

THE WASHINGTON CONSENSUS: A POST-MORTEMRobert K. McCleery and Fernando De Paolis

WASHINGTON CONSENSUS (WC) OVERVIEW Consists of ten factors

Maintenance of public exchange rate Privatization Macroeconomic stability Reforming tax systems Trade liberalization Liberalization of interest rates Deregulation Property rights Reordering public expenditures Liberalization of FDI

THREE GROUPS Group One

Things that everyone agrees with Group Two

Factors that are correct if done right Group Three

A more contentious group

CURRENT PROPONENTS OF THE WC

What would be their reasons for the WC not working like it was designed to?

Not the fault of the policies Problems of timing Lack of coordination Poor implementation

THE WC VIEW OF GROWTH, POVERTY, AND DISTRIBUTION

“Trickle-down” Effect Current studies support this finding

Do you think that distribution is an important factor in poverty reduction?

AUTHORS VIEW OF GROWTH, POVERTY, AND DISTRIBUTION

Distribution Matters! In egalitarian societies

Higher incentive to save and invest Land reform promote efficiency Universal education gives everyone a head start

INEQUALITY AND GROWTH

Inverse relationship Inequality serves as an excuse for corruption

which can lead to Capital flight Rent seeking Tax evasion

TRADE THEORY

Does increased trade reduce inequality?NO!

What is important is factor endowments of developing countries relative to other developing countries, NOT developed

China and India example

CAN THE ARGUMENT FOR TRADE LIBERALIZATION BE SAVED?

It needs a link to the development of institutions

WC VIEW ON INSTITUTIONAL INVOLVEMENT

The government should lay the foundation of economic growth in a country and leave everything else to the free market.

What does this mean? Give examples of actions a government should

take and actions they shouldn’t

SHOULD

Provide legal system to protect property rights to encourage investment

Provide security Provide macroeconomic stability Provide basic social services Provide infrastructure

SHOULDN’T

Directing credit Controlling prices of goods and services Intervening in labor markets Borrowing heavily Excessive taxing Blocking foreign investment Producing or distributing goods and services

INTERVENTIONIST

They look at the East Asian model and see them doing both Arguing that it leads to short cuts Opponents could only say that it was not

transferable They “concluded that social institutions play

a vital complementary role to public policies”

SIX LESSONS FROM EAST ASIA

Lesson one Failures

Lesson two Don’t kick them out, improve their capacity!

Lesson three Context matters

LESSONS CONTINUED…

Lesson four Incentives

Lesson five Governance

Lesson six Accountability

FINANCIAL LIBERALIZATION

According to Prasad, Rogoff, Wei, and Kose Financial integration is not a necessary condition

for achieving a high growth rate Example - China and India

Financial integration is not a sufficient condition for a fast economic growth rate

FINAL THOUGHTS ON THE WC

Williams Views - Success Vs. The Authors (amongst many others) views -

South Korea, Indonesia, Thailand

HOW TO HELP POOR COUNTRIESNancy Birdsall, Dani Rodrik,

& Arvind Subramanian

FROM THE INSIDE OUT

History Economic Institutions

Political Institutions

Economic Success or

Failure

MARKET ACCESS

Agriculture

Reducing subsidies & protection

Consumers and

taxpayers gain

Increase in world prices

Net exporters

gain

Developing countries

Might help rural poor Will hurt urban poor

MARKET ACCESS

Increased reductions of trade barriers will mean taking away access to markets by doing away with preferential trade agreements and leaving developing countries to compete with other developing countries.

SHOW ME THE MONEY

What are the central recommendation in regards to aid made by developing countries?

SHOW ME THE MONEY

What are the central recommendation in regards to aid made by developing countries?

More AIDBetter

Management

Less Corruption

SHOW ME THE MONEY

AID

Specific objective

Entails policy advice

Open Dialogue

Entails compromising

Can it create key

institutions and

long-term economic

health?

BURDENS

-TRIPS

-Not enough space to craft their own economic policies

-Meeting demands before accession into the WTO

POSITIVE STEPS

-Taking action against corrupt leaders-Assisting with R&D-Enhancing global labor majority-Prevention and resolution of conflicts and

humanitarian crises-Stopping arms sales-Stopping illegal trade (diamonds, drugs,

humans)-Reforming international economic institutions

POSITIVE STEPS

-Taking action against corrupt leaders-Assisting R&D-Enhancing global labor majority-Prevention and resolution of conflicts and

humanitarian crises-Stopping arms sales-Stopping illegal trade (diamonds, drugs,

human)-Reforming international economic institutions

Can you think of

other creative

steps?

ACTIVITY TIME!!!!!!!!!!

Haiti

Brazil

Sudan

Kazakhstan

Definitely

Mmm, Sometimes

Not in your life

Countries Categories

WASHINGTON CONSENSUS Maintenance of public exchange rate Privatization Macroeconomic stability Reforming tax systems Trade liberalization Liberalization of interest rates Deregulation Property rights Reordering public expenditures Liberalization of FDI