ABSTRACT
The debate on trade policy reforms in developing countries is far from settled. While there is a growing consensus in the economic profession that old-style interventionist import-substitution policies have ‘misfired’, there is no agreement on the appropriate way forward. The mainstream policy advocacy in the neo-classical tradition of development economics sees the removal of government in direct production activities and shifting towards market forces as the appropriate strategy for achieving rapid, robust and equitable growth (Little 1982, Bhagwati 1993b, Krueger 1997). The economists of structuralist persuasion are, however, less sanguine about the desirability of such marketoriented reforms (Helleiner 1992 and 1994, Rodrik 1992, Taylor 1988). Based on the widespread failure of market-oriented policy reforms in many developing countries, they argue for activist and selective public policies tailored to the circumstances of each individual country, while eschewing indiscriminate state intervention. Apart from stressing the potential adverse effects in the short run if weak domestic industry is exposed to foreign competition, the structuralists draw upon the conventional economic arguments for selective intervention on grounds of learning by doing and dynamic economies of scale achievable in the context of a protected domestic market. The mainstream economists counter the structuralist critique by arguing that reforms failed in many developing countries not because of an inherent deficiency of the market paradigm but because of the partial and half-hearted nature of reform process.
