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.
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
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.
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
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.
An Overview of the WTO: The paper offers a detailed overview of
the workings of the WTO history, functions and agreements.
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.
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
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.
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.
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
Miracles and Debacles: In Defense of Trade Openness: [Includes
tables and references] The
paper argues that without trade openness, there is no sustained growth
and that trade is rarely responsible for stagnation or decline in
incomes over a
long period. (Also see #15 below).
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.
India in the 1980s and 1990s: A Triumph of Reforms: [Substantially
revised version of "India in the 1980s: Weak Reforms, Fragile
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.
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.
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
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.
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.
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?
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.
Jubilee 2010 Against Protectionism:
(with Jagdish Bhagwati) (A shorter
version published in the Financial Times)
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.
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
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.
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.
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.
Standards and Trade Sanctions: Right End Wrong Means: (Forthcoming
in Devashish Mitra and Rana Hasan, ed., volume to be published by North
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.
Trade at Border: (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, 209-223, chapter 20). This paper discusses
the desirability and feasibility of free trade in industrial and
agricultural goods by a certain date. An inventory of the existing
barriers in both developing and developed countries is taken and a case
made that the scope for a mutually beneficial bargain that brings about
free trade exists.
Approaches to Reciprocal Tariff Liberalization: (Forthcoming
in a guide for negotiations for developing countries edited by Bernard
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.
(World Economy, June 1999,
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
the Case for Export Subsidies:
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..
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
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.
WTO Trade Policy Review of India,
(World Economy, August 1999,
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
India's Economic Reforms: What has been Achieved? What Remains to
be Done? (EDRC Policy Brief No. 2, Asian Development Bank):
short paper discusses the achievements of the 1990s and the reforms
waiting to be undertaken during 2000s.
What Can We Learn From It?:
(Finance and Development,
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
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.