The New Global Economy and Developing Countries: Making Openness Work

by Dani Rodrik

The new book that's sparked discussion both in Washington and European financial capitals

Policy makers in the developing world are grappling with new dilemmas created by openness to trade and capital flows. What role, if any, remains for the state in promoting industrialization? Does openness worsen inequality, and if so, what can be done about it? What is the best way to handle turbulence from the world economy, especially the...

• Format: Paperback
• Language: English
• ISBN: 156517027X
• ISBN13: 9781565170278
• Release Date: February 1999
• Publisher: Overseas Development Council
• Length: 180 Pages
• Weight: 0.66 lbs.
• Dimensions: 0.5" x 6.1" x 9.2"

Customer Reviews

Lessons for Policy Makers

In this book, Danny Rodrik offers some valuable guidance for policy-makers. They should focus on the fundamentals of economic growth - investment, macro-economic stability, human resources and good governance - and not let international economic integration dominate their thinking. The potential benefits of openness will only be realised when "complementary policies and institutions are in place domestically". An important result from his analysis is that a strong, participatory, democracy is good for growth. This is very much in line with Barro's "Determinants of Economic Growth" (1998).The resoning is that a country with a strong democracy will be better at resolving the social conflicts emerging from external economic shocks, and therefore benefit from greater macroeconomic stability. In order to increase the effectiveness of dealing with shocks, the channels to which non-elites can make themselves heard, and participate, in policy making needs to be improved. Otherwise dissatisfaction will lead to social unrest.To play the role of honest broker, the state needs to perceived as competent and free of corruption.Two policy areas are identified as being central to achieving long-term growth and making openness work: A domestic investment strategy; the strengthening of domestic institutions of conflict management. Many of his findings offer support for much of current policy thinking on development. The importance of political freedom, security of person, and the need for a reasonable degree of macroeconomic stability is widely recognised. Good governance has moved firmly up the list of priorities. Also, attempts are being made to try and increase the widespread "ownership" of reforms through e.g. the Comprehensive Development Framework of the World Bank. However, there are several important areas where Rodrik's analysis requires further consideration: · Developing countries, in devising a domestic investment strategy, are better advised to look at ways of reducing risk and improving their credibility in the eyes of domestic and foreign investors, rather than following Rodrik's suggestion to improve investment returns through e.g. investment subsidies. (see Moran (1998) "Foreign Direct Investment and Development"). · The strong link between good governance and openness is very important and needs greater attention. Red tape and corruption are strongly correlated. Trade restrictions nearly always introduce distortions, caused by "rent seeking" activities, and create vested interest groups. · As he suggests, all countries are able to improve their "fundamentals". But it is also true that different regions are likely to benefit from integration - in terms of both growth and poverty reduction - to very different extents. · Rodrik suggests that Africa is not "different". He is right in so far as domestic factors - stability and security - are central to its success. But sub Saharan Africa is different

Insights into making 'globalization'work for poor countries

Like clothes, economic development policies are subject to the trends of fashion. This book examines the current development fad, "openness," and critiques it as a flawed economic model when applied simplistically to developing countries. The author, Dani Rodrik, professor of international political economy at Harvard, is no enemy of an open world economy, but he argues that its boosters greatly oversell its virtues and neglect its vices. He contends that too many governments and their policy advisors are fixated on openness --the unrestricted flow of goods, services, and capital across borders--as an end in itself. The dangers to this approach, he warns, are that: 1) openness alone is an unreliable mechanism to generate and sustain economic growth; 2) it tends to widen income and wealth inequalities within both developed and developing countries; and 3) it exposes countries to external shocks that can trigger domestic conflicts and political upheavals. A developing country can gain much from openness to trade and investment, he agrees, but it must also do much in actively "making openness work"--the theme of the book. The minuses of openness may outweigh the pluses if a country fails to develop its own internal "complementary policies and institutions." What kind of policies and institutions? He cites these as among the most important: "participatory institutions, civil and political liberties, free labor unions, non-corrupt bureaucracies, high-quality independent judiciaries, and mechanisms of social insurance such as social safety nets." He offers specific evidence on how such institutions are valuable to developing countries for coping with turbulence in the world economy and for countering the widening of inequality that openness often brings. For most economists Rodrik is heretical because he debunks the "free market religion" and derides "knee-jerk globalizers," though only in passing. This is far from a diatribe against globalization. Instead, the book presents a detailed factual case for openness as "part of a development strategy," rather than a substitute for one. His forceful advice to governments and policy advisers: "Stop thinking of international economic integration as an end itself. Developing nations have to engage the world economy on their own terms, not on terms set by global markets or multilateral institutions." A valuable chapter of the book is one titled "Is Africa Is Different?" Rodrik answers No; openness can work its wonders there but (as anywhere) definitely not if applied simplistically. Rodrik slips into jargon from time to time, but you can still benefit from reading his book even if you don't have a degree in economics. --Robert A. Senser, editor of the Website Human Rights for Workers