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Richard E. Baldwin

Richard E. Baldwin. Import substituting industrialisation. Infant industry argument Explain Tariff = auto-financed industrial subsidy N. Atlantic experience & history Mkt failure justifications Why private sector doesn’t do it? Capital mkt failures

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Richard E. Baldwin

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  1. Richard E. Baldwin

  2. Import substituting industrialisation • Infant industry argument • Explain • Tariff = auto-financed industrial subsidy • N. Atlantic experience & history • Mkt failure justifications • Why private sector doesn’t do it? • Capital mkt failures • Appropriability problems (spillovers &/or external IRS)

  3. Import substituting industrialisation • GATT’s ‘permission’ • Enabling clause (i.e. disabling clause) • 1970s thinking, UNCTAD, etc.

  4. Why it failed in most instances? • Underlying assumptions were false in most cases. • Lack of c.a. in protected industry • Tangle of disadvantages; lack of experience & scale only one. • Problems • 1. Picking future winners • 2. Infants that don’t grow up • 3. Defining success: prod’n vs development

  5. Dualism • Dual economy: advanced/modern sector & poor/traditional ag in rural areas. • Why big wage differential? • Firms sharing gains from protection and market power with the workers. • Import substitution policies create industry that can only sell locally and mkt power of these firms so they limit output & employment, but share the profits with the workers. • Firms ensuring loyalty an high quality of workers. • Sign of inefficient mkts.

  6. HPAEs • 4 tigers’ success challenged the import-substitution model of development. • Korea’s case. • Dangers of cultural explanations. • Trade policy not very free (ex. H.K.) but freer than most developing nations. • Correlation & causality; openness & growth. • Recall: Doctors & dysentery parable. • High savings rate; good general education. • Still a mystery.

  7. END

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