Friday, May 04, 2007

When You Assume

A great post on Dani Rodrik's blog, cautioning economists (and our students) against a reflexive belief in the benefits of trade liberalization. He usefully reminds us that our results depend on a number of assumptions, which may not always be valid. He writes:
Well I really, really did not want to do this--because it is a curmudgeonly thing to do--but having wandered (without professional license) into the politics of trade policy, I cannot avoid the economics. Especially since so many of the comments around my recent posts leave the impression that the economics of trade liberalization is cut-and-dried, with only politicians and ignoramuses standing in the way....

So here is a straightforward economics question: under what conditions will trade liberalization enhance economic performance?

If you answered "under any and all," you flunk. Here is the correct answer...
Rodrik then ennumerates nine caveats (read them!). The broader point:
The point is that unconditional supporters of free trade take a whole lot for granted. Our professional training prepares us to be analysts who can make contingent statements. Policy A is good if conditions X, Y, and Z are in place. Rule-of-thumb economists sweep all the caveats under the rug, and in the end, are not true to their training.


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