Waylaid Dialectic

June 21, 2010

Import Substitution vs the Washington Consensus

Filed under: Trade — terence @ 1:09 pm
Tags: ,

…and required Monday reading

Dani Rodrik examines some evidence on the ‘Latin American Question’: Import Substitution vs the Washington Consensus

For all its faults, IS [Import Substitution] promoted rapid structural change.  Labor moved from agriculture to industry, and within industry from lower-productivity activities to higher-productivity ones.  So much for the inherent inefficiency of IS policies!

Under WC [Washington Consensus], firms and industries were able to accomplish a comparable rate of productivity growth, but they did so by shedding (rather than hiring) labor.  The displaced labor went not to higher-productivity activities, but to less productive lines of work such as informality and various services.  In other words, the WC ended up promoting the wrong kind of structural change.

[Update: William Easterly uses football to argue that Rodrik is seeing patterns when, in reality, randomness prevails. I’m not convinced: distinct trends in 15 year continent wide averages being based too shorter time frame? Please. That’s like saying the Great Depression was nothing more than a series of unrelated random downturns in a whole heap of countries, by coincidence at the same time. On the other hand, Ted in comments, offers a more plausible rejoinder to Rodrik: that the Washington Consensus didn’t start at one particular moment and wasn’t one particular thing. Also Bill Easterly’s subsequent comment that import substitution arguably deserves some blame for the debt crisis (i.e. it’s high levels of growth were borrowed not owned) seems plausible to me.]

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