Trade and Industrial Policy Reform in Developing Countries: A Review of Recent Theory and Evidence

Abstract

This paper reviews recent theory and evidence on trade and industrial policy reform in developing counn-ies.First, the theoretical and empirical basis of the rationales for policy reform are discussed.Next, two sources of heterodoxy are identified and evaluated: (a) the East Asian experience with interventionist indosrrial policies; (b) recent models of imperfect competition.The survey then turns on strategic issoes in reform, and discusses the theory of piecemeal reform, tax or tariff uniformity, credibility, political economy, and interactions with stabilization policy.The penultimate section reviews the available evidence on the consequences of recent policy reform.