Trade Policies and Developing Nations.

• Author: Rodgers, Yana van der Meulen

In this sensible book, Anne Krueger addresses the Brookings Institution's challenge to explore the tensions created by the deepening of world economic integration on the one hand, and growth of national political sovereignty on the other. In 1992, the Brookings Institution launched its "Integrating National Economies" project, a series of twenty-one studies that examine questions arising from these two conflicting forces. According to the project organizers, reduced economic distances among nations and the dismantling of restrictive trade and investment policies have led to greater world economic integration. At the same time, the world's political structure has changed markedly, particularly with a growing number of autonomous nations. The result is a mismatch between effective market boundaries and national governmental domains, where the differentiation between international and domestic policies is less clear than before. Krueger examines this mismatch as it applies to developing countries and their trade policies. The book describes how the relationship between developing countries and the world economy has evolved since the late 1940s, and it evaluates measures for deeper integration in international trade and their probable impact on developing countries.

The first of three chapters provides an excellent, thorough account of how and why developing countries shifted from an import substitution trade strategy to an outward oriented growth strategy. Such factors as the reluctance to depend on primary commodity exports and the desire to build up domestic industrial capacity explain why developing countries turned toward import substitution to begin with. However, Krueger blames import licensing and quantitative restrictions for causing foreign exchange shortages, due to the high import content of investment and production. Because governments made few attempts to create fundamental changes in economic policies, a pattern of current account crises and stabilization programs persisted until the 1980s for many developing countries. The East Asian NICs, where policy makers had already begun to shift to an export oriented industrialization strategy by the 1960s, are a prominent exception. Krueger packs much useful information into these pages and uses tables of descriptive statistics to support her arguments, although perhaps too sparingly. It would be interesting to see more detailed evidence of the "stop-go" cycle she describes, the length...