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31. Transforming India: Compared with the average rate of growth of 6 percent per annum since the late 1980s, India has been growing at 8 percent per annum in the last three years. Is this a shift in the trend growth rate or an unusually strong upswing in the business cycle? Much of the evidence points to the former as the answer. Assuming this to be the case, India still faces an enormous challenge of transformation with 77 percent of the workforce in the rural areas, 59 percent engaged in farming. A unique feature of India's growth has been virtually no increase in the share of manufacturing in the GDP since 1991. fast growing sectors in India remain either capital intensive or skilled-labor intensive. If India is to transform itself from a primarily rural, farm economy to a modern one, it must bring about policy changes necessary for the growth of the unskilled-labor-intensive industry. This requires, most importantly, the reform of labor laws and building of infrastructure, especially power. 30. Trade and Foreign Investment: Comparing India and China: The paper offers a comprehensive review of the history of opening of the trade and foreign investment regimes by India and China beginning in the late 1970s. It also compares the performance of the external sectors of the two countries. A key conclusion is that the two countries are so far in different leagues in so far as the performance of the external sector is concerned. Journalists, economists and policy analysts are justifiably impressed with the phenomenal success of the Indian IT sector. But even this performance fades in comparison to several of the leading exports of China. I show that in terms of policies, India is almost as open as China but the response to its opening up has been far more muted. I trace this muted response to the domestic policy regime, which has hampered the growth of the unskilled-labor-intensive industry in India. I conclude that two key reforms--power and labor market flexibility--are essential if India is to become a major force in the world markets. 29. Liberalizing Trade in the Developing Countries: Published in Foreign Policy (September/October 2005). I critically examine the case against liberalization by developing countries made by many NGOs and some trade skeptics and argue why they do no favor to these countries. 28. Reforming the Top Civil Service: I offer a systematic analysis of the ills of the top civil service in India and suggest how it should be reformed. The key element in the reform is the exposure of the service to competition by introducing systematic lateral entry. I draw upon the the British and New Zealand experiences in this area. [The article was published in Yojana, a publication of the Planning Commission brought out in 14 Indian languages.] 27. Why Agreement in Agriculture is within Reach: Longer version of the article published in the Foreign Affairs, special issue entitled Free Trade? in December 4002. The article shows that the trade distorting subsidies have substantially declined in recent years and that a mutually beneficial agreement is within the reach of the negotiating countries. 26. An Overview of the WTO: The paper offers a detailed overview of the workings of the WTO history, functions and agreements.
25.
Testimony to the U.S.- China
Economic and Security Review Commission's hearing on the panel "China and the
Future of Globalization." Several fallacious arguments against free
trade were made in the debate on outsourcing that raged during the last U.S.
presidential election.I consider
and reject four of these arguments: (i) the conventional case for free trade
does not apply to outsourcing; (ii) productivity gains abroad in the goods
exported by us undermine the case for free trade; (iii) the free flow of many
factors internationally renders the principle of comparative advantage and the
associated gains from trade invalid; and (iv) soon all jobs will be outsourced to China and India. 24. Agricultural Liberalization and the Developing Countries: Debunking the Fallacies: Today, agriculture remains the most distorted sector of the world economy. Therefore, agricultural liberalization in the Doha negotiations is rightly the top priority. Because many of the potential exporters of agricultural products happen to be developing countries and many potential importers developed countries, liberalization in this area has an obvious North-South dimension. But beyond this simple generalization, the public-policy discourse remains fogged by a number of fallacies that have been embraced by the leadership of the World Bank, IMF, OECD, Oxfam and the leading academic critics of globalization alike. This paper identifies six such fallacies and offers evidence and analysis to debunk them: (1) Agricultural border protection and subsidies are largely a developed-country phenomenon. (2) Developed-country agricultural subsidies and protection hurt the poorest developing countries most. (3) Developed-country subsidies and protection hurt the poor, rural households in the poorest countries. (4) Developed-country agricultural protection and subsidies constitute the principal barrier to the development of the poorest developing countries. (5) Agricultural protection reflects double standard and hypocrisy on the part of the developed countries. (6) What the donor countries give with one hand (aid), they take away with the other (farm subsidies). 23. Think Again: International Trade: (Foreign Policy, November/December, 2003) Why have disagreements between rich and poor nations stalled the global trading system? Because vapid debates over "fair trade" obscure some inconvenient facts: First, notwithstanding their demands for equity, poor countries are more protectionist than advanced economies. Second, if rich nations cut their self-defeating agricultural subsidies, their own publics would benefit, but consumers in many poor countries would not. Finally, despite criticisms to the contrary, the WTO can help promote economic development in low-income countries—but only if rich nations let the global body do its job. 22. The Miracles of Globalization: Free Trade's Proponents Strike Back: (Foreign Affairs, September-October 2004). Review Essay on Why Globalization Works by Martin Wolf. Having lost some ground in the 1990s, today, advocates of globalization are gaining the upper hand again. Bhagwati's strikingly successful defense of open markets in his recent book In Defense of Globalization has been bolstered by another influential pro-globalization voice, that of Martin Wolf of the Financial Times. His ambitious new book, Why Globalization Works, offers a patient and persuasive refutation of many of the arguments most frequently marshaled by critics of trade liberalization. 21.
The Muddles over Outsourcing: (with
Jagdish Bhagwati and T. N. Srinivasan--forthcoming in
the Journal of Economic Perspectives) Critics have
muddled the public debate over outsourcing by using the term
interchangeably to refer to altogether different phenomena such as
on-line purchase of services, direct foreign investment and, sometimes,
all imports. We define outsourcing explicitly as the services trade at arm's
length (the so-called Mode 1 services in the WTO terminology), conducted
principally via the electronic mediums such as the telephone, fax and
Internet. Under this
definition, the total number of the U.S. jobs outsourced annually is
minuscule and is expected to remain so over the next decade, even on a
gross basis (i.e., without adjusting for the jobs in-sourced from the
U.S.). The fears that offshore outsourcing will lead to high-value jobs
being replaced by low-value jobs down the road are also argued here to
be implausible in view of several qualitative arguments to the contrary.
We also demonstrate that offshore outsourcing of Mode 1 services raises
no new analytical issues, contrary to what many fear. Thus, it leads to gains from trade (with the standard caveats
applicable to conventional trade in goods) and, in specific cases, to
income-distribution effects. 19. India’s Trade Reform: Progress, Impact and Future Strategy: I offer a comprehensive analysis of India's trade policy, particularly since 1991, and its impact on the economy. I provide evidence showing that trade liberalization has had a major impact on the quality and availability of goods and on services growth. The evidence on productivity growth in the industrial sector varies across studies, however. I also explain why India lags behind China and what India must do to catch up. The strategy for future liberalization, including a possible U.S.-India free trade area, is discussed. 18. India in the 1980s and 1990s: A Triumph of Reforms: [Substantially revised version of "India in the 1980s: Weak Reforms, Fragile Growth"] Bradford DeLong and Dani Rodrik have argued that reforms in India cannot be credited with higher growth because growth rate had crossed the 5 percent mark in the 1980s, well before the launch of the July 1991 reforms. This is wrong reading of the Indian experience for two reasons. First, liberalization was already under way during the 1980s and it played a crucial role in stimulating growth during that decade. Second, growth in the 1980s was fragile and unsustainable. The more systematic and systemic reforms of the 1990s, discussed in detail in this paper, gave rise to more sustainable growth. The paper concludes with a discussion of why the growth rate in India nevertheless continues to trail that of China. 17. Aid through Trade: An Effective Option? (Forthcoming in a volume to be published by the Center for Global Development). I examine the scope for and desirability of the U.S. assistance to the poor countries through three separate trade policy measures: one-way trade preferences as, for example, under the Generalized System of Preferences; bilateral trade preferences as under free trade area arrangements as under the U.S.-Jordan Free Trade Agreement; and multilateral trade liberalization as under the Uruguay Round Agreement. My principal conclusion is that of these three forms of market access, only the last one is both desirable and feasible. I also argue that further opening of developed country markets, no matter what form it takes, can help the poor countries only in a limited way. Despite all the rhetoric and assertions to the contrary, the bitter and sad truth is that even if developed countries were to open their markets fully without asking for reciprocal liberalization and without any side conditions, few poor countries will succeed in achieving significant growth and poverty reduction purely as a consequence of this opening up. The explanation for the poor growth performance of many poor countries is to be found not in the barriers to their exports in the rich countries--though these barriers do impose a burden on them--but in their own domestic policies and political environment that governs the internal investment climate. 16. Trade and Food Security: Conceptualizing the Linkages: How will the liberalization of trade in agriculture including food impact developing countries? To answer, we must distinguish between importers and exporters of the products as also between liberalization in the developed and developing countries. The paper makes these distinctions and outlines a conceptual framework within which to address the question. It also offers a simple model within which the impact of the liberalization on the poor can be analyzed. The paper argues that since the removal of domestic and export subsidies on agricultural goods will raise the prices these products, the large majority of the least developed countries, which are net agricultural importers, will lose from the change. This is in contrast to the claims by many senior World Bank officials and NGOs such as Oxfam that blame agricultural protectionism in the OECD countries as the principal barrier to growth in the least developed countries today. 15. Miracles and Debacles: Do Free-trade Skeptics have a Case?: [Revised March 2004] Evidence gives developing countries little reason to prefer protection over free trade. Trade has been an integral part of all growth miracles (defined ass countries that have grown at 3 percent or more in per-capita terms on a sustained basis) during the last 40 years. At the same time, there is no evidence linking the debacles (defined as countries that experiences a decline in the per-capita income on a sustained basis) to trade. Nor has trade contributed to increased poverty; on the contrary, openness and growth are invariably accompanied by a reduction in poverty. Even the assertions by the World Bank that globalization-driven fast growth during the 1990s has not served the poor well, leaving the absolute number of the poor unchanged at 1.2 billion are based on faulty evidence. 14. EU Preferential Trade Policies and Developing Countries: (World Economy, Vol. 25, No.10, November 2002, pp. 1415-32) In this paper, I offer an overview and qualitative assessment of the EC preferential trade arrangements with developing countries. My main conclusion is that beyond the obvious rent transfers accompanying such preferences, a definite positive impact of these arrangements on developing countries cannot be detected. To some degree, given the multi-layered European arrangements, it is not entirely clear what these preferences have meant: preferences to one set of developing countries may have come at the expense of another. The preferences may have also reduced pressures for trade liberalization within the preference-receiving countries thereby undermining the internal policy reform that could have promoted faster expansion of trade and possibly growth. Therefore, on balance, developing countries as a group will benefit more from a less discriminatory approach centered on the forthcoming Doha Round with the least developed countries assisted through direct aid. 13. Developing Countries at Doha: A Political Economy Analysis: (World Economy, Vol. 25, No. 9, September 2002, pp. 1205-33) The paper offers a comprehensive analysis of what developing countries accomplished and failed to accomplish and why. Among the questions addressed are: Did developing countries get shortchanged in the Uruguay Round and if yes in what way? Does the Doha outcome reverse this? Is the success in the area of intellectual property rights truly as major as has been made out in the media? Why do so many developing countries oppose the Singapore issues? Why do developing countries have very limited bargaining power? How can they improve upon it? And what are the implications of China joining the WTO? 12. India at Doha: Retrospect and Prospect: (Economic and Political Weekly, January 26, 2002). With the Doha dust settled, it is a good time to reflect on what has been achieved, how it was achieved, what was India’s role, how this role was perceived and why? It is also a good time to draw lessons from the experience since we must get down to the business of developing positions on the negotiations to which we have committed ourselves along with other WTO members in Doha. 11. Wanted: Jubilee 2010 Against Protectionism: (with Jagdish Bhagwati) (A shorter version published in the Financial Times) The recent castigation of rich-country protectionism by the heads of international agencies and in the media, while welcome, is little more than a reiteration of the obvious. But unaccompanied by a simultaneous focus on the protectionism of the poor countries, it has led to an encouragement of a number of fallacies that pose serious threat to the making of good trade policy in the poor countries. It also raises the important question: what can we do to effectively begin to dismantle this protectionism? We bring to light the fallacies and suggest a Jubilee 2010 movement to end protectionism in the rich countries. 10. The Millennium Round and Developing Countries: Negotiating Strategies and Areas of Benefits: (UNCTAD and Center for International Development, G-24 Discussion Papers Series, No. 1, March 2000) Written prior to the WTO conference in Seattle, this paper identifies negotiating strategies and areas of benefits from a new multilateral round of trade negotiations for developing countries. The areas covered in the paper include trade liberalization, multilateral agreement on investment, dispute settlement, anti-dumping, and labor and environmental standards. Now that a new round has been launched as a result of the November 2001 WTO Ministerial Conference in Doha, insights offered in the paper are doubly relevant to developing countries. 9. E-commerce, WTO and Developing Countries: (World Economy 23, No. 8, August 2000, 959-978) Electronic commerce offers unprecedented opportunities to both developing and developed countries. In the short run, the gains are likely to be concentrated in developed countries but, in the long run, developing countries have more to benefit. This is because, in the short run, developing countries lack the infrastructure necessary to take full advantage of Internet. But in the long run, they can leap frog, skipping some of the stages in the development of information technology through which developed countries have had to pass. developing countries such as India that have the capacity to export skilled services through Internet should aggressively negotiate market access with developed countries in the future WTO negotiations. This involves negotiations on two fronts. One, they should seek liberalization by developed countries in sectors in which they have comparative advantage. And two, they should seek recognition of their education, qualifications, requirements met, or licenses or certificates granted in the markets of other countries. 8. TRIPs and the WTO: An Uneasy Marriage: (In Bhagwati, J., ed., The Next Negotiating Round: Examining the Agenda for Seattle, Proceedings of the Conference held at Columbia University, July 23-24, 1999, 291-102, chapter 11) I argue that the inclusion of Intellectual property rights (IPR) into the WTO cannot be defended in the manner we defend trade liberalization. The latter is a win-win change whereas the former involves a redistribution of income from the poor to rich countries. I offer some simple economics of the extension of developed country IPR standards to developing countries. 7. Trade Labor Link: A Post Seattle Analysis: (In Drabek, Zdenek, Globalization under Threat, Cheltenham, U.K.: Edward Elgar 101-123). The demand for a WTO working party on labour standards by the US at Seattle returned the contentious issue of the link between trade and labour standards to the center stage of multilateral trade negotiations. This paper offers a detailed and systematic analysis of the subject. I begin first by dissecting the intellectual case for the link. I then describe the so-called 'core' ILO Conventions. In section 4, I identify the sources of pressures for higher labour standards that led to the failure in Seattle as also the pressure being exerted within the current system on some developing countries to raise labour standards to preserve their privileges under the Generalized System of Preferences. 6. Labor Standards and Trade Sanctions: Right End Wrong Means: (Forthcoming in Devashish Mitra and Rana Hasan, ed., volume to be published by North Holland). The paper recognizes the importance of promoting higher labor standards faster but rejects the idea of linking them with market access via the WTO instrumentality. It then considers alternative instruments such as ILO, socio-labels, education and trade liberalization. 5.
Free
Trade at Border 4. Alternative Approaches to Reciprocal Tariff Liberalization: (Forthcoming in a guide for negotiations for developing countries edited by Bernard Hoekman): The paper outlines various approaches to reciprocal reductions in tariffs and and their relative merits. If the objective is to achieve maximum liberalization worldwide, an across-the-board approach that lowers higher tariffs more such as that based on the Swiss formula would be the right choice. The across-the-board approach minimizes the room for successful lobbying by political powerful sectors, which often happen to be the most protected sectors in the first place. Moreover, a formula that lowers high tariffs more reduces the dispersion in tariffs and hence effective protection in all sectors. A formula approach also has the advantage that it does not tie up negotiating resource in a major way as do sector-by-sector negotiations. 3. The Regionalism Debate: An Overview: (World Economy, June 1999, 477-511) The paper offers a comprehensive review of the debate on merits and demerits of preferential trade areas and concludes against promoting such arrangements. Concepts of trade creation and trade diversion, implications for multilateral liberalization, open regionalism and deep integration are carefully discussed and critically evaluated. 2. Evaluating the Case for Export Subsidies: (Highlights of the paper covered in the Economics Focus column of the Economist, December 14, 2000. Forthcoming in David Greenaway, Reanto Flôres and Germán Calfat, ed., Essays in Honor of Mathew Tharakan; also available as Policy Research Working Paper 2276, World Bank, January 2000) With import-substitution policies having failed and discredited, there has been a shift in favor of interventions on behalf of export interests. In this paper, I argue that, upon close scrutiny, the arguments for such interventions suffer from many of the same flaws as the old arguments for import substitution.. 1. The Economics and Politics of Uniform Tariffs: Many policy economists advocate replacing a highly variegated structure of tariffs by a uniform tariff. This idea is not generally endorsed by academic economists. What are the sources of differences between these two camps and under what circumstances uniform tariffs can be justified is the subject of this paper. I conclude that the defense of a uniform-tariff regime lies in the politics of tariff making: the adoption of a uniform-tariff rule gives rise to a free-rider problem in lobbying resulting in reduced lobbying as well as a low level of protection. India 5. South Asia: Does Preferential Trade Liberalization Make Sense?: (Forthcoming: World Economy, 2003) This paper systematically analyzes the issue of trade liberalization in South Asia region and offers a qualitative assessment of alternative approaches. I compare two broad approaches to trade liberalization: nondiscriminatory and preferential. The former approach can be pursued on a unilateral basis by each country in the region, on a concerted basis by the countries in the region, or multilateral basis under the auspices of the WTO. The latter approach can take the form of crisscrossing bilateral free trade areas between various countries in the region or a region-wide free trade area. The view I take in the paper is that the move towards preferential trading is a mistake, at least from the viewpoint of India. India continues to have very high trade barriers so that the scope for trade diversion and the losses accompanying it are likely to be considerable. Business lobbies being relatively powerful in most of the countries in the region, they are likely to exploit the rules of origin and sectoral exceptions in these arrangements in ways that will maximize trade diversion and minimize trade creation. In as much as the rules of origin give bureaucrats power, employment and opportunities to share in the rents created by tariff preferences, they too will become active parties to the diversionary tactics of business lobbies. Therefore, the member countries are better advised to proceed along nondiscriminatory lines in achieving further liberalization. 4. The WTO Trade Policy Review of India, 1998: (World Economy, August 1999, 799-824) This paper offers a critical review of the WTO Trade Policy Review of India (TPRI), 1998. It concludes that TPRI not only provides a detailed and up to date discussion of India's trade policies but also offers an excellent coverage of domestic policies. The latter is especially relevant in the case of India since reforms of domestic policies there are needed as urgently as trade policies. 3. India's Economic Reforms: What has been Achieved? What Remains to be Done? (EDRC Policy Brief No. 2, Asian Development Bank): This short paper discusses the achievements of the 1990s and the reforms waiting to be undertaken during 2000s. 2. China's Export Strategy: What Can We Learn From It?: (Finance and Development, June 1995) The paper reviews the export strategy of China and suggests that the country for which the Chinese experience is most relevant is India. Both are highly populous and, by developing-country standards, large economies. They began their development process approximately at the same time and stressed self-reliance. Both relied increasingly heavily on import substitution policies and ended up with a highly capital intensive production structure. China changed course in 1979 while India continued (with modest liberalization) on the old course. In 1991, in many ways, India stood where China stood in 1979. The trade-to-GDP ratio was the same as China's in 1979. Import and investment controls were rampant and the domestic currency was overvalued. 1. The Millennium Budget: Behind its Time: (Published in the Economic and Political Weekly, March 4, 2000) The paper gives a critical assessment of the 2000-01 budget. It argues that there is no attempt by the government to use its first budget as the launch pad for a programme that would take India to its deserved status of a mature economy by the year 2010. |
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