SHRUTI RAJAGOPALAN: Welcome to Ideas of India, where we examine the academic ideas that can propel India forward. My name is Shruti Rajagopalan, and I am a senior research fellow at the Mercatus Center at George Mason University. […]
Today my guest is Douglas Irwin, who is the John French Professor of Economics at Dartmouth College. He is the author of dozens of books and papers, most recently, Clashing over Commerce, which is a magisterial history of US trade policy. We spoke about India’s liberalization moment in 1991, the five phases of globalization, British repeal of Corn laws, premature deindustrialization, the relevance of the WTO, absolute versus comparative advantage, the future Argentina, and much more.
RAJAGOPALAN: I think of this group of trade economists, especially the four of them, their ideas first percolated into the East and Southeast Asian countries. They had some impact on India for sure though not as much as one would like. And after 1990s, African countries started unilaterally liberalizing very much based on the Asian experience, but one group, which somehow never quite took their lessons and ran with it is the Latin American countries. Was it just a different set of problems or something was lost in translation? Because there was another group of economists who were the Chicago Monetarists who did have some penetration or impact in the Latin American countries. What’s going on there?
IRWIN: There’s a great deal of diversity across Latin America. Chile is an example where the reform stuck. Now, albeit they were introduced in the Pinochet dictatorship, but they survived the transition to democracy. The center-left governments that took over once Pinochet left, they had some appreciation for the economic model that they inherited. Chile had done pretty well with it towards the tail end of the Pinochet regime. Obviously, some big crises early on.
If you talk to Alejandro Foxley, who’s the first finance minister under democracy, he wanted to run fiscal surpluses to show markets that they were committed to not the excesses of the past. They reduced tariffs. They want to double down commit themselves to keeping the open economy model. Then the question is, why haven’t other countries in Latin America seen the benefits? Some have and some haven’t. Argentina, just to pick another big country has had cycles, and there’s a whole political dysfunction in Argentina
There’s been this pendulum swinging back and forth with Argentina. They were liberalizing in the ‘90s, then they closed up a little bit in the 2000s, and now maybe they’re moving in a different direction again. Peru’s an interesting case. Because once again, they opened up in around 1991.
RAJAGOPALAN: Had shock therapy.
IRWIN: Had shock therapy. That has stuck as well. Even though there’s continued political dysfunction in Peru, the economy’s done pretty well and the open economy model is pretty much entrenched. Colombia also a country that was never quite as closed as some of the others but opened up also in 1991. When I say opened up, getting realistic exchange rates, getting rid of quantitative restrictions on trade, getting rid of import licensing. Even if the tariffs are relatively high, getting rid of those other things really goes a long way to open up the economy. Columbia’s kept the open economy model. Then we can go to Brazil, another big country, which supposedly opened up in the early ‘90s, but there’s still a lot of non-tariff barriers and what have you.
RAJAGOPALAN: They’re like India.
IRWIN: A little bit.
RAJAGOPALAN: They opened up, but they still have lots of restrictions. We don’t quite get captured in the trade liberalization obvious model or laundry list.
IRWIN: That’s a great way of putting it because what you don’t see when they liberalize is you don’t see imports as a share of GDP going up a lot, whereas you do see that in some of the other countries. I’d say there was a Latin American reform moment early 1990s. Once again, not uniform, very imperfect, but they did try to move in a different direction and shed the Raúl Prebisch dependency theory import substitution policies that had really doubled down on in the 1950s and ‘60s and into the ‘70s.
