One+Economics,+Many+Recipes+Globalization,+Institutions,+and+Economic+Growth

Chapter 1 i) Neoclassical economic analysis is a lot more flexible than its practitioners in the policy domain have generally given credit for. ii) Igniting economic growth and sustaining that are two different enterprises. iii) If Martians decide to visit the Earth, they will most probably be interested in understanding our economy.  - Growth strategies: economic policies and institutional arrangements aimed at achieving economic convergence with the living standards prevailing in advanced countries (p.15)    - These strategies/policies tend to be context specific.    - Washington Consensus vs. Augmented Washington Consensus (see the table on p.17)    o Good behavior for promoting economic growth    § More or less, they are both about privatization, flexible markets, being open to trade, loving neo-con policies etc.    o Augmented version came to address the institutional transformation needs.    § So, good governance, WTO disciplines, financial codes, central banks, loving neo-con institutions etc.    - China actually took a very different approach at the end of 1970s. Instead of selling out everything, they marginally liberalized the agriculture. Japan was another anomaly. - Coming back to flexibility understanding, there is only a weak correspondence between higher order principles of neo-classical economics and policy recommendations. Neo-classical economics provides only a framework. It is up to the policy makers to shape the actual steps (the last two sentences are my comments – efe) - These universal principles are not operational. (see table 1.5,1.6,1.7 pp.32-34 to see the micro/macro-economic and social policy reflections) - Four stylized facts about growth o In practice, growth spurts are associated with a narrow range of policy reforms. o The policy reforms that are associated with these growth transitions typically combine elements of orthodoxy with unorthodox institutional practices. o Institutional innovations do not travel well. o Sustaining growth is more difficult than igniting it, and requires more extensive institutional reform. - A growth strategy should have (i) short term kick start strategy and (ii) medium to long term sustaining strategy. - (i): The strategy changes whether there is a government failure or a market failure. Let’s look at local circumstances. Diagnostic framework, and then decide on policy. - (ii): High-quality institutions. ** One Economics Many Recipes: Globalization, Institutions and Economic Growth ** ** by Dani Rodrik ** Summary by Annie Gillman, 11/24/10 Chapter 2: Here he argues against the “one size fits all” model of reforms to promote growth, and also suggests than rather than the way to prioritize which distortions (meaning things that make your resource use inefficient, and thus impede growth) to address is to figure out which of these are serving as constraints on effective policymaking. He offers a “diagnostic” tree that one can supposedly use to figure out where the problem is. Framework:  · Linking binding constraints to traditional economic model  o Distortions create inefficient use of a country’s resources  o Policymakers are restrained by typical economic restraints, but also by these distortions  o (There is a very complicated economic model in this section with lots of strange symbols--I didn’t find it to add anything, so you might skip).  · Ways of eliminating these distortions  o Eliminate all distortions (this is technically correct by impossible)  o Do as much as you can (this is faulty in economic logic--things can backfire and it’s not like any reform is good reform)  o Second best, partial reform (it’s hard to figure out beforehand which reforms to prioritize)  o Go for the largest distortion (also problematic)  o GO for the Most Binding restraints (YAY! This is the winner according to Rodrik!) Decision tree and evidence needed to move along the “nodes” of the tree:  · There are sets of typical restraints that affect growth that you can use in “growth diagnostics” exercise to triage the problem  o High cost of financing domestic investment  o Low private return to domestic invesment  o (Worth looking at the tree on pg 66) Case study comparisons: El Salvador and Brazil (both slow growth)  · He identifies the problem in both countries as poor education and poor savings and investment rates (which have different impacts and causes in both cases)  · He says that the problems were misdiagnosed in Washington consensus model that was concerned w/ high taxation, macro stability, etc <span style="background: none repeat scroll 0% 0% white; margin: 0.1pt 0in 0.1pt 1in; text-indent: -0.25in;"> · He then looks at the Dominican Republic and talks about how once you unleash the constraint on growth, you still have to carry out the institutional reforms or your county will sail and then crash Chapter 3: The puzzle: Countries which took the bitter medicine of Washington Consensus policies are doing poorly in terms of growth (Latin America) and those that charted their own course to some extent are doing well (Asia). Does this mean that we as economists can’t really design good growth strategies? No, Rodrik happily concludes! (phew! good news for development economists--you still have a job). We just need to use Rodrik’s three step-process. <span style="background: none repeat scroll 0% 0% white; margin: 0.1pt 0in 0.1pt 1in; text-indent: -0.25in;"> · Growth diagnostics--as noted in previous chapter (use the tree!). Also, he notes that each of the “diseases” manifests in certain “symptoms” so we can identify what the problem is. <span style="background: none repeat scroll 0% 0% white; margin: 0.1pt 0in 0.1pt 1in; text-indent: -0.25in;"> · Policy design--”policy targeting” or first-best is: target the response as closely as possible on the source of the distortion. Actually, however, this is sometimes not the way to go, and you have to be creative and unconventional sometimes going for second-best solutions (be imaginative and look for “homegrown solutions” he says.) This is good, because it warns multilateral development institutions to stay out of domestic “policy space.” <span style="background: none repeat scroll 0% 0% white; margin: 0.1pt 0in 0.1pt 1in; text-indent: -0.25in;"> · Institutional reform--This is key for //sustaining// growth once you’ve got things moving (remember poor Dominican Republic in last chapter). Institutions are needed primarily to: <span style="background: none repeat scroll 0% 0% white; margin: 0.1pt 0in 0.1pt 1.5in; text-indent: -0.25in;"> o Ensure productive dynamism over time <span style="background: none repeat scroll 0% 0% white; margin: 0.1pt 0in 0.1pt 1.5in; text-indent: -0.25in;"> o Deal with conflict--principally, respond to external shocks.
 * - Dani Rodrik, **** One Economics, Many Recipes: Globalization, Institutions, and Economic Growth **** (Princeton University Press, 2008). **
 * Summary Efe **
 * Main point: **

Rodrik Chapter 4 Summary – Industrial Policy By Eddy Intro: Chapter answers question of what kinds of institutions best enable developing economies to diversify the productive structure. --- 2 failed expectations: Solely market led & solely government driven --- Actually need both for development to occur!!! This chapter focuses on policies of economic restructuring. Its objective is to develop a framework for conducting industrial policy that maximises growth and minimises risk of waste and rent-seeking. We need an unconventional approach to industrial policy --- need to focus on getting the policy process right not just outcomes. The government has a role to play in the private sector, although there will always be some programs that fail. 2 Major Problems with industrial policy: 1) Government is not omniscient; and 2) it is open to corruption and rent-seeking. 3 Elements of Industrial Architecture 1) Political leadership 2) coordination and deliberation councils 3) mechanisms of transparency and accountability 10 Design Principals for industrial Policy  1) Incentives only for “new” activities 2) Clear benchmarks to determine success and failure 3) Sun-set clause 4) Target activities not sectors 5) activities must have a clear potential of spill-over 6) responsible agencies must have demonstrated competency 7) Implementing agencies must be monitored closely 8) agencies must maintain channels with private sector 9) picking losers will occur 10) activities must have the capacity to renew themselves Illustrative range of incentive programs 1) Subsidize “self-discovery” 2) developing mechanisms for higher-risk financing 3) internalizing coordination externalities 4) public funded R&D 5) subsidized general technical training 6) take advantage of nationals abroad Industrial Policy: “The rumours of my death have been greatly exaggerated” Two principal methods of government intervention: Export processing zones and incentives for direct foreign investment Conclusion: Markets can fail both when governments do too much and too little Industrial policy is all about delivering public goods!

Ela Rossmiller __Chapter 5: Institutions for High-Quality Growth__ Overview: Markets need to be supported by non-market institutions if economic growth is to be sustained. is chapter addresses 3 questions: Which institutions are the most important for supporting economic growth? How can they be acquired? What impact does the metainstitution of democracy have on economic growth? The summary will address each question in turn. 1. Which institutions are the most important for supporting economic growth? a. Property rights: Entrepreneurs need control over the returns from their accumulation and innovation or else they have no incentive to accumulate and innovate. “Control” doesn’t necessarily have to be ownership, as evidenced by Chinese township and village enterprises (TVEs). b. Regulatory Institutions c. Institutions for Macroeconomic Centralization: This most often, but not always, refers to a central bank which acts as a “lender of last resort” to ward off economic crises. d. Institutions for social insurance: These come in many varieties and are usually embedded in a larger system. Market reforms must be careful not to inadvertently remove or subvert these institutions. e. Institutions of Conflict Management: Social conflict is bad for economic development. Conflict management institutions can mean, for example, rule of law, strong judicial system, democratic institutions, independent trade unions, institutionalized minority representation, social partnerships, and social insurance. 2. How can good institutions be acquired? a. Blue-print approach: Borrow institutions from a neighboring country with a more advanced economy (e.g. Implement the “Washington Consensus”). Top-down approach. b. Experimentation approach: Draw upon local knowledge, experience, and experimentation. Grassroots approach. c. The author argues that the experimentation approach will yield better results but admits some exceptions to the rule. 3. What is the impact of the metainstitution of democracy on economic growth? a. Democracy is good for economic development. This is evidenced by several large-N regressions demonstrating that: i. Although there is only a weak relationship between democracy and growth, democratic countries experience less variance, i.e. their economic growth is more reliable. ii. Democracies experience lower volatility in economic growth. iii. Democracies are more resilient to economic decline stemming from ethnic and linguistic fragmentation because they are better at managing social conflict. iv. Democracies are more resilient to external shocks. v. Democracies are associated with better wages for workers. b. If policy-makers are going to impose any institution, it should be democracy. __Chapter 6: Getting Institutions Right__ This section offers some final thoughts on institutional reform for economic growth. · Rodrik offers a new interpretation of the results of Acemoglu, Johnson, and Robinson’s comparative study of former colonies. He points out that the variance in wealth among countries with superficial vs. deep colonization is as great as the variance in wealth among countries that have never been colonized; therefore, the degree of colonialism does not explain wealth disparities. · There is no consensus that geography is a //primary// cause explaining income levels. · However, geography may play an //indirect// role in influencing income levels (e.g. resource endowments, transportation costs, etc.) · Institutional quality is poorly measured. It’s measured by asking investors how safe they feel investing in country X. But perceptions can be shaped by other things, and the measurement doesn’t help us understand what institutions create the sense of safety. · Institutional functions can be met through a very wide range of institutional forms. These are usually context-specific and do not adhere to ideal types or universal models. · You do not need large-scale institutional reform to //stimulate// economic growth (although you might need it to //sustain// economic growth.) Small changes can stimulate growth, particularly if these changes are the result of careful diagnostic analysis.
 * Dani Rodrik. 2007. //One Economics, Many Recipes: Globalization, Institutions, and Economic Growth.// Princeton: Princeton University Press.**

Basic argument: The dilemma is that markets are becoming global while the institutions needed to support them remain national (196). Two implications: 1. national borders restrict economic integration, which inhibits efficiency. But 2. the economic incentives to “go global” weakens national institutions, which in turn inhibits equity and legitimacy. The solution in the long run is global federalism (!). The middle-run solution is “to combine international harmonization and standard setting with generalized exit schemes, opt-outs, and escape clauses” (196). • Contrary to popular wisdom, the global economy isn’t that well integrated. even though formal barriers to trade and capital flows have gone down a lot (197). • National boundaries inhibit trade & capital flow in part because the formal or informal institutions involved in enforcing contracts are domestic. • The “trilemma”: we can’t have more than 2 of the following 3: mass politics (i.e. democracy), the nation-state, and integrated national economies (200). • Global federalism would ensure national jurisdictions don’t interfere with exchange. Politics would relocate to the global level. (201)   • Another way to achieve complete integration is to leave the nation-state as is but ensure differences among them don’t get in the way of economic transactions (the Golden Straitjacket). This diminishes the political realm. (201-02)   • 3rd option (the Bretton Woods compromise) is to give up on complete economic integration and allow countries to do as they wish as long as they removed several restrictions on trade (esp. “quantitative restrictions” though import tariffs were allowed) and did not discriminate among trade partners. This was the situation until the ‘80s and many countries developed fast. (203-04)   • The Bretton Woods compromise was abandoned in the ‘80s as pressures led to more openness, and now we’re somewhere between the 3 nodes. • Short-run solution: Generalized Opt-Out Schemes. Have rules that encourage greater convergence of policies and standards, but build in the flexibility for states to opt out for specified reasons and with specified consequences, when the international rules and standards conflict with domestic development needs. (205-11)   • Long-run solution--global federalism? A world “in which the reach of markets, jurisdictions, and politics is truly and commensurately global” (211). This could be brought about by an alliance of convenience by those who lose from economic integration (labor & environmental interests) and those who win (exporters, multinational corporations)--the former would get a shot at international labor and environmental rules; the latter would get to operate under global standards (211). Federalism would probably entail a combination of traditional forms of governance (an elected global legislature) with regulatory institutions spanning multiple jurisdictions (211-212). • In sum, “we are nowhere near complete international economic integration, and that traveling the remaining distance will require either an expansion of our jurisdictions or a shrinking of our politics” (212). Basic argument: Trade is not an end in itself; it is a means to the end of enhanced prosperity and living standards--that is, development. Trade policies need to be reworked to put development goals first, which means that developing countries can take measure that protect development within limits (and also rich countries could protect their own labor, environmental, and safety standards). • The stated purpose of the WTO is to raise living standards and achieve sustainable growth, and expanding trade was seen as a means to this end, yet the focus has shifted to expansion of trade as if it’s the end in itself. However, this book’s alternative story of economic development “questions the centrality of trade and trade policy and emphasizes instead the critical role of domestic institutional innovations that often depart from prevailing orthodoxy” (214) and need to be country-specific (215). • Developing countries shortchange themselves by complaining about “specific asymmetries in market access”; they instead should press to put development at the top of the agenda, so they have room to pursue domestic development strategies (215). • “[T]here is no convincing evidence that trade liberalization is predictably associated with subsequent economic growth” (215-16). • Research showing simple link between liberalization and growth is flawed. Instead, growth tends to be accompanied by some protection early on followed by increasing liberalization as countries get richer (partly because employment is sheltered in the process--I didn’t fully understand how--220-221). Integration and increased trade are outcomes of growth, not causes. • “The trick in the successful cases has been to combine the opportunities offered by world markets with a domestic investment and institution-building strategy to stimulate the animal spirits of domestic entrepreneurs” (219). • To win further access to developed-country markets (when existing access is already almost as good as it can get), developing countries are subjected to requirements for institutional reform that are mainly intended to benefit and liberalize trade. Sometimes those policies improve domestic institutions too, but sometimes they do not. Development requires healthy domestic institutions (rule of law, human rights, reduced corruption) and the fostering of domestic investment. (223-25)   • An “international trade regime that puts development first”: • The least-developed countries benefitted by being “effectively exempt” from the disciplines of GATT; in the WTO similar results could be achieved by exempting poorest countries or phasing-in requirements as income increases (226-27). • Part of the goal is to preserve developing countries’ autonomy while also allowing rich countries to protect labor, environmental, and social standards at home. This can be done if the following principles apply. • Principle 1: “Trade is a means to an end, not an end in itself” (227). • Principle 2: “Trade rules have to allow for diversity in national institutions and standards” (228). • Principle 3: “Nondemocratic countries cannot count on the same trade privileges as democratic ones” (229). Countries need to either have democratic processes that go into determining exemptions from trade rules or make a development-related case for such exemption. • Principle 4: “Countries have the right to protect their own institutions and development priorities” (229). Allow countries to be exempt from, or opt out of, trade rules if doing so enables them to protect national practices that have broad popular support (230). • Principle 5: “But countries do not have the right to impose their institutional preferences on others” (232). “Unilateralism” to protect differences is OK but to impose uniformity is not OK (232-33). • Principle 6: “Other development-friendly measures”--such as restricting the use of anti-dumping measures in rich countries when the exports originate from developing countries (233). • Conclusion--not much new except: • Trade rules come from political processes where narrow interests lobby harder (234). • The Doha “development round” is mistitled--agricultural liberalization wouldn’t help most developing countries. • WTO should shift from imposing uniformity to managing institutional diversity among countries. • Globalization (in the sense of freer trade) was touted as benefiting poor countries, but it has largely failed. The 1990s saw many developing countries get worse off. (237)   • Globalizers point out that India and China, home to a large proportion of the poor, have been growing quickly. But they both achieved growth //before// adopting a lot of the policy prescriptions of the prevailing trade-liberalization orthodoxy. Same is true of other countries that have grown rapidly (238-39). Meanwhile some of the countries (like Argentina) that faithfully followed the orthodoxy got punished by a market turnabout by the end of the 1990s. • One area not yet discussed in full is opening borders to labor flows. Allowing workers from poor countries to work in rich countries for, say, three to five years would not only generate income for developing countries, but also those workers would return with “experience, entrepreneurship, investment, and work ethic” for significant spillover effects (241). • Time to “stop dressing up policies championed by special interests at home as responses to the needs of the poor in the developing world” (241-42).
 * Rodrick, //One Economics, Many Recipes//, Chapters 7-9 **
 * Summary by Suzanne **
 * Ch. 7 “Governance of Economic Globalization” **
 * Ch. 8 “The Global Governance of Trade as if Development Really Mattered” **
 * Ch. 9 “Globalization for Whom?” ** (conclusion chapter)