Free Trade and Prosperity

Description

Arguments against free trade and in favor of protection have a long history when it comes to developing countries, and it is rather surprising that similar assertions have gained increasing appeal in developed countries, including the United States and Great Britain, given the clear benefits openness brings. The benefits are especially great for emerging markets.
Free Trade and Prosperity offers the first full-scale defense of pro-free-trade policies with developing countries at its center. Arvind Panagariya, a professor at Columbia University and former top economic advisor to the government of India, supplies a historically informed analysis of many longstanding but flawed arguments for protection. He starts with an insightful overview of the positive case for free trade, and then closely examines the various contentions of protectionists. One is that “infant” industries need time to grow and become competitive, and thus should be sheltered. Others are that emerging markets are especially prone to coordination failures, they are in need of diversification of production structure, and that they suffer from capital-market imperfections. The panoply of protectionist arguments, including those for import substitution industrialization, fails when subject to close logical and empirical scrutiny. It does so because the costs of protection far outweigh the benefits.
Free trade and outward-oriented policies are preconditions to both sustained rapid growth and poverty alleviation in developing countries. Panagariya provides compelling evidence demonstrating the failures of protectionism and the promise of free trade, including through detailed case studies of successful countries such as Singapore, Taiwan, South Korea, China, and India. Low or declining barriers to trade and high or rising shares of trade in total income have been key elements in sustained rapid growth and poverty alleviation in these countries and many others.
Free trade is like oxygen: the benefits are ubiquitous and not noticed until they are no longer there. This important book is an essential reminder of the costs of protectionism.

About the Author
Arvind Panagariya is Professor of Economics and the Jagdish Bhagwati Professor of Indian Political Economy at Columbia University, USA. From January 2015 to August 2017, he served as the first Vice Chairman of the NITI Aayog, Government of India in the rank of a Cabinet Minister. Previously he was Chief Economist of the Asian Development Bank. He is the author of India: The Emerging Giant (OUP 2008), and his columns have appeared in the Financial Times, Wall Street Journal, and India Today.

Reviews

‘This is the first comprehensive and compelling statement of the case for free trade with developing countries at its centre. Arvind Panagariya’s brilliant book deploys trade theory and a wealth of recent empirical evidence. Particularly timely in the current context of global trade wars and the recent, unfortunate reversal of India’s journey towards free trade policies. Compulsory reading for all serious scholars and policymakers.’—Shankar Acharya, former Chief Economic Adviser to the Government of India
‘Armed with powerful analysis, Professor Panagariya unambiguously demonstrates the strategic importance of open trade policies in promoting accelerated economy-wide growth as well as poverty reduction on a sustainable basis. This book is indeed in the best traditions of scholarship in the field of political economy and in current turbulent times it will be a lodestar and a “must read” for the scholars, analysts and policymakers of both emerging markets and the OECD economies.’—Vijay Kelkar, Chairman, National Institute of Public Finance and Policy, New Delhi, India
‘Written in the fashion of a true argumentative Indian, this is a very timely, closely argued and persuasive tour de force on the singular role of free trade in promoting growth and employment as countries seek to ascend the ladder of development. This passionate plea for free trade by Arvind Panagariya, based on a scholarly rendition of theory, history and evidence, should be a must-read for economists and policymakers alike in both developing and advanced countries since the forces of protectionism threaten the global trading order everywhere once again.’—Rakesh Mohan, Senior Fellow, Jackson Institute for Global Affairs, Yale University, USA, and Distinguished Fellow, Brookings India
‘In this important book, Arvind Panagariya shows—in a clear and accessible way—how freer trade in developing countries has helped them to flourish. Wading into controversial territory in dealing with the Asian Tigers and others, Panagariya takes on critics and makes the case that trade, not industrial policy, is responsible for their success. Highly recommended!’—Douglas Irwin, Dartmouth College, author of Clashing over Commerce: A History of U.S. Trade Policy
‘As protectionism is becoming fashionable again, the battles that were waged successfully by free traders against the protectionists of yesterday must be fought again. Panagariya's brilliant book does precisely that. It shows up the intellectual bankruptcy of the new protectionists' myriad assaults on free trade, using impeccable logic and convincing evidence. It is a tour d'horizon and a tour de force.’—Jagdish Bhagwati, author of In Defense of Globalization
‘Professor Panagariya has produced an extremely thorough and comprehensive treatment of the role of trade in developing countries. In addition to showing that low and declining protection is conducive to growth and poverty reduction, he also addresses critics of this conclusion and counters their arguments. I expect he will convince many people with this eminently readable book.’—Alan Deardorff, University of Michigan
‘This authoritative book brilliantly combines theoretical arguments with a thorough reading of the historical experience to argue the merits of a unilaterally liberal trade regime for developing countries, as a driver of growth and poverty reduction. It is essential reading, especially in these uncertain times when ill-guided populism and anti-trade sentiment threaten to derail globalization altogether (rather than to improve upon it) and forfeit its many gains.’—Pravin Krishna, Chung Ju Yung Distinguished Professor of International Economics, Johns Hopkins University

Table of contents

Background and Acknowledgments
Preface
1. Setting the Stage
PART I WHY FREE TRADE MATTERS
2. The Positive Case for Trade Openness
3. The Mirage of Infant Industry Protection
4. Other Common Arguments for Protection
PART II TRADE, GROWTH, POVERTY, AND INEQUALITY
5. Trade Openness, Growth, and Poverty: Exposing the Critics’ Specious Arguments
6. Trade Openness and Growth: The Empirical Evidence
7. Trade Openness and Poverty: The Empirical Evidence
8. Trade Openness and Inequality
PART III MIRACLES OF YESTERYEAR
9. The Uncontroversial Cases of Hong Kong and Singapore
10. Taiwan: An Early Triumph of Outward Orientation
11. South Korea: From Basket Case to Upper Middle Income
PART IV MIRACLES OF TODAY
12. India: From Near Autarky to Near Free Trade
13. China: From Isolation to Global Dominance
14. Other Success Stories in Asia, Africa, and Latin America
15. In Conclusion
Appendix 1: Comparative Advantage and the Gains from Trade Under Scale Economies
Appendix 2: There Is No Logical Case for Infant Industry Protection
Appendix 3: Measuring Inequality: The Gini Coefficient References
Index