As trade agreements have evolved and gone beyond import tariffs and quotas into regulatory rules and harmonization, they have become more difficult to fit into received economic theory. Nevertheless, most economists continue to regard trade agreements such as the Trans Pacific Partnership (TPP) favorably. The default view seems to be that these arrangements get us closer to free trade by reducing transaction costs associated with regulatory differences or explicit protectionism. An alternative perspective is that trade agreements are the result of rent-seeking, self-interested behavior on the part of politically well-connected firms – international banks, pharmaceutical companies, multinational firms. They may result in freer, mutually beneficial trade, through exchange of market access. But they are as likely to produce purely redistributive outcomes under the guise of “freer trade.”
We develop a conceptual framework to highlight the role of ideas as a catalyst for policy and institutional change. We make an explicit distinction between ideas and vested interests and show how they feed into each other. In doing so the paper integrates the Keynes-Hayek perspective on the importance of ideas with the currently more fashionable Stigler-Becker (in-terests only) approach to political economy. We distinguish between two kinds of ideational politics – the battle among different worldviews on the efficacy of policy (worldview politics) versus the politics of victimhood, pride and identity (identity politics). Political entrepreneurs discover identity and policy ‘memes’ (narratives, cues, framing) that shift beliefs about how the world works or a person’s belief of who he is (i.e. identity). Our framework identifies a complementarity between worldview politics and identity politics and illustrates how they may reinforce each other. In particular, an increase in identity polarization may be associated with a shift in views about how the world works. Furthermore, an increase in income inequality is likely to result in a greater incidence of ideational politics. Finally, we show how ideas may not just constrain, but also ‘bite’ the interests that helped propagate them in the first instance.
Populism may seem like it has come out of nowhere, but it has been on the rise for a while. I argue that economic history and economic theory both provide ample grounds for anticipating that advanced stages of economic globalization would produce a political backlash. While the backlash may have been predictable, the specific form it took was less so. I distinguish between left-wing and right-wing variants of populism, which differ with respect to the societal cleavages that populist politicians highlight. The first has been predominant in Latin America, and the second in Europe. I argue that these different reactions are related to the relative salience of different types of globalization shocks.
Developing countries made considerable gains during the first decade of the 21st century. Their economies grew at unprecedented rates, resulting in large reductions in extreme poverty and a significant expansion of the middle class. But more recently that progress has slowed with an economic environment of lackluster global trade, not enough jobs coupled with skills mismatches, continued globalization and technological change, greater income inequality, unprecedented population aging in richer countries, and youth bulges in the poorer ones. This essay examines how seven key countries fared from 1990-2010 in their development quest. The sample includes seven developing countries—Botswana, Ghana, Nigeria, Zambia, India, Vietnam and Brazil —all of which experienced rapid growth in recent years, but for different reasons. The patterns of growth are analyzed in each of these countries using a unifying framework which draws a distinction between the “structural transformation” and “fundamentals” challenge in growth. Out of these seven countries, the traditional path to rapid growth of export oriented industrialization only played a significant role in Vietnam.
The bulk of global inequality is accounted for by income differences across countries rather than within countries. Expanding trade with China has aggravated inequality in some advanced economies, while ameliorating global inequality. But the “China shock” is receding and other low-income countries are unlikely to replicate China’s export-oriented industrialization experience. Relaxing restrictions on cross-border labor mobility might have an even stronger positive effect on global inequality. However it also raises a similar tension. While there would likely be adverse effects on low-skill workers in the advanced economies, international labor mobility has some advantages compared to further liberalizing international trade in goods. I argue that none of the contending perspectives -- national-egalitarian, cosmopolitan, utilitarian -- provides on its own an adequate frame for evaluating the consequences.
SSA has grown rapidly over the last decade, but a curious feature of this growth was that it was accompanied by little structural change towards non-traditional tradables (such as manufactures). Now that China, the advanced economies, and most emerging markets are all slowing down, the question whether Africa’s high growth can be sustained looms larger. This article looks at this question from the lens of modern growth theory, paying particular attention to structural issues that are crucial for low-income countries. It comes down on the pessimistic side, due to what appear to be poor prospects for industrialization. This article also considers alternative models of growth, based on services instead of manufactures.