International trade policies, industrialization, and economic development

Abstract

During the 1950s and 1960s, most developing nations, particularly the larger ones, strongly opted for a policy of import substitution industrialization (ISI). This was based on heavy protection and generally led to very inefficient industries. Since the early 1970s, an increasing number of developing countries deregulated their economies and liberalized trade, and this stimulated efficiency and growth. Some developing nations also tried strategic trade policies and to endogenize growth (as postulated by endogenous growth theory), but with only limited success. It seems impossible and inconsistent under the new international trade rules, however, for other developing countries to duplicate the East Asia “miracle,” which was based on strong government support for domestic industry while stimulating competition and efficiency among domestic firms. The successful completion of the Uruguay Round is expected to greatly benefit developing countries through continued deregulation and increased access to developed-country markets.

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