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Philosophical Basis for Growth

Bonds That Bind: A Product Space Approach to Some Industrial Policies Before the WTO Wouter P.F. Schmit Jongbloed Columbia Law School IPD/JICA Workshop June 5-6, 2014. Philosophical Basis for Growth.

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Philosophical Basis for Growth

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  1. Bonds That Bind: A Product Space Approach to Some Industrial Policies Before the WTOWouter P.F. Schmit JongbloedColumbia Law SchoolIPD/JICA Workshop June 5-6, 2014

  2. Philosophical Basis for Growth • 1. American Revolution: Man recognizes his fellow as equals before socio-economic opportunity • 2. French Revolution: Man recognizes his fellow as brother

  3. Economic Growth • Through Efficient Resource Allocation • Static • Dynamic • Steady State Growth (balanced) • Import-Substitution-Industrialization (unbalanced) • Network (capacity proximity) • Through Technology and Learning • Specialization • Diversification

  4. Product Proximity • Ricardo Hausmann& Cesar Hildalgo (2007) • Luciano Pietronero (2012)

  5. “Nestedness” & the Product Space Taking advantage of Density:

  6. Getting Prices “Right” and “Wrong” Diversification: Capacity Accumulation (Coordination) Specialization: Factor Accumulation (Rationalization)

  7. Country Footprints: Quality & Proximity • Fundamental Equivalence of Growth Policies: • “Catch up” or optimization growth • “Frontier” or transformative growth • Constrained Emulation: • Viability (Lin) • Proximity (Hausmann; Pietronero)

  8. The Market Needs Help • Industrial policies aid technological acquisition • Growth through learning not by “primitive accumulation” of production factors • (Schumpeter, Solow, Stiglitz & Greenwald) • Current international regulatory framework non-conducive: • Intellectual Property (TRIPS) • Industrial Policy (GATT / WTO) • Regional and Bilateral Treaties (FTAs & BITs)

  9. Curious Case of Export Restrictions • WTO Legal (Art. XI GATT) • “No prohibitions or restrictions other than duties, taxes or other charges,[…], shall be instituted or maintained […] on the importation […] or on the exportation […] of any product .” • Exceptions in Article XI & XX GATT minimalized. • Restrictive Case Law • Accession Protocol: China, Russia, Vietnam, etc. • Regional and Bilateral Agreements (EU – Morocco)

  10. Economic Effect of Restricting Exports • Static: • Distortion resource allocation (Lerner Symmetry) • But; • 1. Unused market power (optimal tariff; inverse demand elasticity) • 2. External price volatility (investment disincentive; immature financial markets) • 3. Tariff threat (Voluntary export restraints – illegal; Safeguards Agreement) • 4. Domestic Redistribution (Uncertainty, Windfall, Peronism) • Dynamic: - Balanced growth; • Terms of Trade adjust to compensate over medium term • Resource misallocation (suboptimal production/consumption sets) • Institutional degradation (protection for sale) - Unbalanced growth; • Tariff Jumping; • Big Push; • Infant Industry. - Network growth; it depends (!)

  11. Differentiate WTO Case Law:Contextual Applicability Accession Protocol • WTO: Functional v. Aspirational (Broude) • Anachronistic: IADB; IMF; WB • Political economy emphasizes frontier growth: Getting prices “right” and “wrong” • Subsidies for R&D are “non-actionable” (8.2(a) SCM Agreement) • Strong international Intellectual property protection • Product Space country footprint should define: • “Developmental” v. “Commercial” • Drafting History GATT / WTO Applicability Accession Protocol • Working group • Static distortion to international resource allocation • Downstream effect: • China Raw Materials (coke, bauxite, magnesium, zinc, yellow phospherus) • NOTE: Product Space core: Metal Products, Chemistry, Machine products • China Rare Earth (rare earths, tungsten and molybdenum) • NOTE: Green technology, fuel cells, smart bombs, electric cars

  12. Time to let go…J Johan Cornz. Tromp King of Siam

  13. While in Over-Time… • The World Trade Organization is Retrenching: • Dominant Supply Chains • Surge of Mega-Regionals • Embattled Multilateralism Fit within my framework? New data!

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