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Trade & Development Series No. 31
Does Trade Openness Favour or Hinder Industrialization and Development?
By Mehdi Shafaeddin

Publisher: TWN (ISBN: 983-2729-75-0)
Year: 2006   No. of pages: 84

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US$8.00 for Third World countries
RM10.00 for Malaysia
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About the Book

The purpose of this study is to examine whether free trade helps or hinders industrialization and development. The author argues that there is neither a theoretical justification nor historical and empirical evidence to support what he refers to as the “trade liberalization hypothesis” (TLH). The theory behind the TLH is the doctrine of comparative cost advantage, which cannot be used as a guide to catching up and achieving dynamic comparative advantage, which is a policy-based effort. Almost all successful industrializers went through a long period of selective infant-industry protection before subjecting their industries to trade liberalization gradually. The forced trade liberalization imposed on the Third World during the colonial era led to their de-industrialization, specialization in primary commodities and underdevelopment. On the basis of an empirical study of a sample of developing countries which have undertaken trade liberalization during the last quarter of a century and a case study of Mexico, which has been a champion of liberalization, the author also concludes: that trade liberalization is essential when an industry reaches a certain level of maturity, provided it is undertaken selectively and gradually; that the way it is recommended by neo-liberals under the label of the “Washington Consensus” is, however, a recipe for destruction of industries which are at their early stages of infancy or development; that if, through the Doha Round of WTO trade negotiations, developing countries submit to the developed countries by accepting the latter’s proposal for drastic tariff cuts based on the “Swiss formula” with a low coefficient of 10 and binding their tariff lines at low levels, it would be at the cost of halting their industrialization process; and that the low-income countries and others at early stages of industrialization, in particular, will be trapped in the production and export of primary commodities, simple processing and at best assembly operations and/or other simple labour-intensive industries.

Finally, the author raises the need for a different framework of industrial and trade policies, which would require a radical change in the international trade rules which are not conducive to industrialization and development. In working to bring about such a framework, developing countries should not be worried, he emphasizes, about being “blamed” for defending their policy autonomy in order to enhance their development.

ABOUT THE AUTHOR

MEHDI SHAFAEDDIN is a development economist affiliated to the Institute of Economic Research, University of Neuchatel, Switzerland. He is the former head of the Macroeconomics and Development Policies Branch, Globalization and Development Strategies Division of the United Nations Conference on Trade and Development (UNCTAD), and the author of Trade Policy at the Crossroads: The Recent Experience of Developing Countries (Macmillan, 2005) as well as a number of articles on trade, industrial and development policies. He can be contacted at MShafaM@netscape.net.

Contents

1         Introduction    

2      Features of the Trade Liberalization Hypothesis    

3      The Role of Trade in Development: Conceptual Issues

4      Is the Trade Liberalization Hypothesis Theoretically Justified?

5      Evidence from History

6      Recent Trade Liberalization

7      Mexico’s Experience

8        Liberalization Helps Industries That Are Near the Stage of Maturity

9      Summary and Conclusions

Endnotes

Bibliography                

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