Is the Washington Consensus Dead? Growth, Openness, and the Great Liberalization, 1970s-2000s

Antoni Estevadeordal, Alan M. Taylor

NBER Working Paper No. 14264
Issued in August 2008
NBER Program(s):   EFG   IFM   ITI

According to the Washington Consensus, developing countries? growth would benefit from a reduction in tariffs and other barriers to trade. But a backlash against this view now suggests that trade policies have little or no impact on growth. If "getting policies right" is wrong or infeasible, this leaves only the more tenuous objective of "getting institutions right" (Easterly 2005, Rodrik 2006). However, the empirical basis for judging recent trade reforms is weak. Econometrics are mostly ad hoc; results are typically not judged against models; trade policies are poorly measured (or not measured at all, as when trade volumes are spuriously used); and the most influential studies in the literature are based on pre-1990 experience (which predates the "Great Liberalization" in developing countries which followed the GATT Uruguay Round). We address all of these concerns -- by using a model-based analysis which highlights tariffs on capital and intermediate goods; by compiling new disaggregated tariff measures to empirically test the model; and by employing a treatment-and-control empirical analysis of pre- versus post-1990 performance of liberalizing and nonliberalizing countries. We find evidence that a specific treatment, liberalizing tariffs on imported capital and intermediate goods, did lead to faster GDP growth, and by a margin consistent with theory (about 1 percentage point per annum). Endogeneity problems are considered and other observations are consistent with the proposed mechanism: changes to other tariffs, e.g. on consumption goods, though collinear with general tariffs reforms, are more weakly correlated with growth outcomes; and the treatment and control groups display different behavior of investment prices and quantities, and capital flows.

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Document Object Identifier (DOI): 10.3386/w14264

Published: December 2013, Vol. 95, No. 5, Pages 1669-1690 Posted Online December 20, 2013. (doi:10.1162/REST_a_00358) © 2013 The President and Fellows of Harvard College and the Massachusetts Institute of Technology Is the Washington Consensus Dead? Growth, Openness, and the Great Liberalization, 1970s–2000s Antoni Estevadeordal Inter-American Development Bank Alan M. Taylor University of California, Davis, NBER, and CEPR

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