Free Trade and Inclusive Development

By Suranjana Nabar-Bhaduri

One of the central elements in the development of any country is the creation of economic activities that transform the production structure by significantly increasing labor productivity, or the amount of production per worker. By helping to absorb more people into quality employment, the creation of such activities helps to generate a more inclusive and sustainable path of long-run economic growth. While economists and policy-makers accept the necessity of this transformation, there are differing views on the policies that developing countries should follow to achieve this transformation.

Many Western countries and institutions, such as the International Monetary Fund (IMF) and the World Bank, argue that minimizing the role of the State in economic activity, and opening up the economy to external markets is vital to achieving this transformation. But other economists (e.g., Prebisch 1959, Cimoli and Correa 2002, and Ocampo 2005) stress that active industrial and employment generation policies are also essential ingredients for this transformation, and that it is necessary to complement liberalization with such policies.

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Alice H. Amsden and Asian Development

Professor Amsden, author of Asia's Next Giant: South Korea and Late Industrialization (1989), has passed away. Her contributions to the understanding of the Asian late development experience were essential to debunk the neoliberal views, already dominant by the late 1980s, according to which the export-led experience in Asia was market driven, in contrast with the State-led Import Substitution Industrialization (ISI) in Latin America. She argued that South Korea actually distorted prices (with tariffs, quotas and credit subsidies), that is, got prices wrong, and growth did not result from efficient allocation of resources by market forces. Further, the state intervened directly in production, as a banker and did active industrial policy picking up winners and promoting the consolidation of big national groups, the chaebols.

Following Gerschenkron, who had argued about the advantages of backwardness, she suggested that some of the characteristics of South Korean growth resulted from its late development. For her the two main characteristics that explained South Korean success were the greater discipline exerted by the state on the national conglomerates, forcing them to export, and the Schumpeterian drive for innovation that that processed sparked.

She published several other important works, including The Rise of the Rest. Her views on economic development will certainly remain influential for a long while.