Doug Irwin of Dartmouth gave a really informative talk at the Hoover Economic Policy Working Group, based on his paper The Trade Reform Wave 1985-1995, AER May 2022. Embed (hopefully) below, or go to the link here.
Why no reform in 1970s? “foreign exchange reserves kill the will to reform”
Why reform in 1980s?
Era of scarce foreign exchange – all three BOP shocks.
Goal: increase foreign exchange earnings by increasing exports.
Learning from experience – cost of import controls, benefit of exports
Shift from import repression to export promotion to overcome foreign exchange shortage
Michael Bruno (World Bank): “We did more for Kenya by cutting off aid for one year than by giving them aid for the previous three decades”
Aid lets a country put off reform.
I asked one question, about the importance of an open capital account. That also used to be gospel, now under debate. Doug's answer was interesting: In these cases, a free currency market was crucial, but free capital markets less so.