Trade Policies and Developing Nations.

In this sensible book, Anne Krueger addresses the Brookings Institution's challenge to explore the tensions created by the deepening of world economic integration on the one hand, and growth of national political sovereignty on the other. In 1992, the Brookings Institution launched its "Integrating National Economies" project, a series of twenty-one studies that examine questions arising from these two conflicting forces. According to the project organizers, reduced economic distances among nations and the dismantling of restrictive trade and investment policies have led to greater world economic integration. At the same time, the world's political structure has changed markedly, particularly with a growing number of autonomous nations. The result is a mismatch between effective market boundaries and national governmental domains, where the differentiation between international and domestic policies is less clear than before. Krueger examines this mismatch as it applies to developing countries and their trade policies. The book describes how the relationship between developing countries and the world economy has evolved since the late 1940s, and it evaluates measures for deeper integration in international trade and their probable impact on developing countries.

The first of three chapters provides an excellent, thorough account of how and why developing countries shifted from an import substitution trade strategy to an outward oriented growth strategy. Such factors as the reluctance to depend on primary commodity exports and the desire to build up domestic industrial capacity explain why developing countries turned toward import substitution to begin with. However, Krueger blames import licensing and quantitative restrictions for causing foreign exchange shortages, due to the high import content of investment and production. Because governments made few attempts to create fundamental changes in economic policies, a pattern of current account crises and stabilization programs persisted until the 1980s for many developing countries. The East Asian NICs, where policy makers had already begun to shift to an export oriented industrialization strategy by the 1960s, are a prominent exception. Krueger packs much useful information into these pages and uses tables of descriptive statistics to support her arguments, although perhaps too sparingly. It would be interesting to see more detailed evidence of the "stop-go" cycle she describes, the length and magnitude of growth spurts, and the underlying trends.

Interwoven with the description of actual country experiences is an insightful account of the shift in paradigms on economic development. The discipline has moved from a focus on strong government intervention and investment in physical capital as key determinants of growth, to the belief that free markets and an outward oriented trade strategy play crucial roles in improving economic performance. Lessons from the East Asian experience and from the 1980s debt crisis helped to instigate this change in prevalent thinking. The discussion of what matters most in accelerating growth is somewhat biased given Krueger's substantial contribution to the literature on this topic, and she presents no new empirical evidence to support her claim. However, she convincingly argues that an outward oriented strategy will work best in a robust international economy that provides market access for goods from developing countries. This leads straight to the remainder of the book.

As developing countries reformed their economic policies in the 1980s and early 1990s, they also changed their role in the world trade system to that of active participants. Before the Uruguay Round, developing countries had plenty of leeway to impose trade restrictions, and they took few steps toward deeper world integration. Developing countries as a group actually became less important in world trade as they increasingly restricted imports and as developed countries liberalized their trade. Then in the 1980s developing country governments became more willing to support the open multilateral trade system, leading to full participation in the Uruguay Round negotiations. This second, chapter clearly explains the difference between the Generalized System of Preferences (GSP) and the most favored nation clause in the GATT articles, and it lucidly argues why developing countries are better off with multilateral tariff reductions instead of GSP treatment. In describing the Uruguay Round outcomes, Krueger shows that there now exist provisions for deeper integration between developed and developing countries than prevailed earlier. Krueger does caution that developing countries will incur some costs under the Uruguay Round, especially with the protection of intellectual property rights, but they will pay this price if they can gain greater access to developed country markets.

The final chapter examines proposals for even deeper integration and their potential effect on developing countries. It considers whether developing countries are even capable of entering into arrangements for deeper integration, and it discusses measures (namely labor standards and links between trade and environmental regulation) that would reduce or eliminate the gains for developing countries from trade in a more integrated world economy. The chapter offers a simple rule of thumb: countries that have already undergone extensive policy reform and have achieved ten or more years of steady growth are ready for deeper integration. However, as Dani Rodrik points out in his comment, this suggestion would preclude those developing countries just beginning their reform process from enjoying the strong signal of a credible regime change that deeper integration would provide. Krueger minces no words in her message that most calls for international labor and environmental standards, in the name of deeper integration and improved efficiency of the global economy, are thinly disguised protectionist clamors by producers in developed countries for a more level playing field. Her main concern is that the imposition of some deeper integration measures by developed countries will deprive developing countries of their comparative advantage and will hamper their prospects for growth.

In sum, Krueger has written a provoking analysis on how developing country trade strategies have evolved and how developing countries can contribute toward - and be affected by - deeper integration in international trade. While the reader may quibble with the presentation of some arguments, it is difficult to disagree with Krueger's broad conclusions, particularly the argument that a healthy and growing world economy is crucial to the growth prospects of developing countries as they undertake policy reform.

Yana van der Meulen Rodgers The College of William and Mary