Philosophical Basis for Growth
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Transcript of Philosophical Basis for Growth
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Bonds That Bind: A PRODUCT SPACE APPROACH TO SOME INDUSTRIAL
POLICIES BEFORE THE WTO
Wouter P.F. Schmit JongbloedColumbia Law School
IPD/JICA Workshop June 5-6, 2014
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Philosophical Basis for Growth
• 1. American Revolution: Man recognizes his fellow as equals before socio-economic opportunity
• 2. French Revolution: Man recognizes his fellow as brother
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Economic Growth
• Through Efficient Resource Allocation– Static– Dynamic• Steady State Growth (balanced)• Import-Substitution-Industrialization (unbalanced)• Network (capacity proximity)
• Through Technology and Learning– Specialization– Diversification
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Product Proximity• Ricardo Hausmann & Cesar Hildalgo (2007)
• Luciano Pietronero (2012)
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“Nestedness” & the Product Space
Taking advantage of Density:
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Getting Prices “Right” and “Wrong”
Diversification: Capacity Accumulation (Coordination)
Specialization: Factor Accumulation(Rationalization)
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Country Footprints: Quality & Proximity
Fundamental Equivalence of Growth Policies:- “Catch up” or optimization growth- “Frontier” or transformative growth
Constrained Emulation:- Viability (Lin)- Proximity (Hausmann; Pietronero)
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The Market Needs Help
• Industrial policies aid technological acquisition– Growth through learning not by “primitive
accumulation” of production factors• (Schumpeter, Solow, Stiglitz & Greenwald)
– Current international regulatory framework non-conducive:• Intellectual Property (TRIPS)• Industrial Policy (GATT / WTO)• Regional and Bilateral Treaties (FTAs & BITs)
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Curious Case of Export Restrictions
• WTO Legal (Art. XI GATT)– “No prohibitions or restrictions other than duties,
taxes or other charges,[…], shall be instituted or maintained […] on the importation […] or on the exportation […] of any product .”
– Exceptions in Article XI & XX GATT minimalized.• Restrictive Case Law• Accession Protocol: China, Russia, Vietnam, etc.• Regional and Bilateral Agreements (EU – Morocco)
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Economic Effect of Restricting Exports
• Static:– Distortion resource allocation (Lerner Symmetry)
• But;– 1. Unused market power (optimal tariff; inverse demand elasticity)– 2. External price volatility (investment disincentive; immature financial markets)– 3. Tariff threat (Voluntary export restraints – illegal; Safeguards Agreement)– 4. Domestic Redistribution (Uncertainty, Windfall, Peronism)
• Dynamic: - Balanced growth;
• Terms of Trade adjust to compensate over medium term• Resource misallocation (suboptimal production/consumption sets)• Institutional degradation (protection for sale)
- Unbalanced growth;• Tariff Jumping;• Big Push;• Infant Industry.
- Network growth; it depends (!)
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Differentiate WTO Case Law:Contextual Applicability Accession Protocol
• WTO: Functional v. Aspirational (Broude)– Anachronistic: IADB; IMF; WB– Political economy emphasizes frontier growth: Getting prices “right” and “wrong”
• Subsidies for R&D are “non-actionable” (8.2(a) SCM Agreement)• Strong international Intellectual property protection
• Product Space country footprint should define:– “Developmental” v. “Commercial”
• Drafting History GATT / WTO Applicability Accession Protocol– Working group – Static distortion to international resource allocation
• Downstream effect:– China Raw Materials (coke, bauxite, magnesium, zinc, yellow phospherus)
• NOTE: Product Space core: Metal Products, Chemistry, Machine products
– China Rare Earth (rare earths, tungsten and molybdenum)• NOTE: Green technology, fuel cells, smart bombs, electric cars
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Time to let go…J
Johan Cornz. Tromp King of Siam
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While in Over-Time…
• The World Trade Organization is Retrenching:
– Dominant Supply Chains– Surge of Mega-Regionals– Embattled Multilateralism
Fit within my framework? New data!