Let Openness Work: The New Global Economy and Developing Countries

Author: (USA) Rodrik
Publisher:
Publish Date: 2000-10-01
Features: The process of global economic integration has significantly altered the environment in which most countries consider their economic development policies. The purpose of international economic integration has become more evident than ever before. Indeed, in many so-called "emerging" economies, the traditional focus on industrialization and poverty issues has been pushed aside by the pursuit of "international competitiveness." Opening up to the global economy can become a source of many economic interests; the import of investment goods and intermediate products that cannot be obtained domestically at the same low prices, the transfer of ideas, technologies, and foreign savings from more developed countries, and the ability to help poor countries bypass some traditional obstacles to rapid growth. However, these are only potential benefits, and they can only be fully realized when complementary domestic policies and institutions exist. The claims of proponents of international economic integration are often exaggerated or entirely wrong. The countries that have performed better since the post-war period are those that have been able to formulate domestic investment strategies to accelerate economic growth and those with appropriate institutions to deal with external shocks, rather than those that rely on reducing trade and capital flow barriers. The evidence over the past 20 years is quite clear; the countries that have grown the fastest since the mid-1970s are those that have allocated a larger share of their GDP to investment and maintained macroeconomic stability. The correlation between growth rates and openness indicators—represented by tariff levels, non-tariff barriers, or controls on capital flows—is at most weak. Therefore, policymakers should focus on the fundamental drivers of economic growth—such as investment, macroeconomic stability, human capital, and good governance—rather than allowing international economic integration to dominate their thinking on development issues.