Trade policy in developing countries.

By Edward F. Buffie.

Cambridge, UK: Cambridge University Press, 2001. Pp. vi, 400. $27.95 (paperback).

This is a very interesting and useful text for the "post-Seattle" discussion of trade policies in developing countries. If the protests associated with the World Trade Organization (WTO)

meetings there have taught us anything, it is that a very vocal opposition has emerged to the concept of trade liberalization among developing countries. The dichotomy in debate is stark: The proponents of trade liberalization speak of the static gains from trade and the power of markets in enticing disciplined economic activity, while the opponents decry the profits accruing to the rich at the expense of the poor that this liberalization will facilitate. The beliefs on both sides are passionate and strongly held, but the grounding in economic theory is limited. Professor Buffie has taken on the task of analyzing the theoretical costs and benefits of trade liberalization in this monograph. As he puts it, "It can be said with some assurance that extreme protectionist policies are economically harmful. But the case for free tra de is not airtight, and there is no general theoretical presumption that the market failures common in LDCs (less developed countries) favor an export-oriented rather than an import-substituting trade strategy" (p. 5). He succeeds handsomely in illuminating these questions with a logic embedded in theory. Let me begin with a disclaimer. Buffie and I seem to have a similar way of framing research questions, and thus I am willing to accept a number of maintained hypotheses in his work to which others might object. These include the following:

(i) modeling of economic activity as the outcome of optimizing behavior,

(ii) a presumption that developing countries are characterized to a greater extent than developed countries by certain forms of market failure,

(iii) a presumption that mathematical modeling can be used to represent the economic interactions of individuals in developing countries, and

(iv) the absence of explicit exploitation of developing countries by developed countries in the international marketplace.

If your own beliefs run counter to these, then Buffie's logic--and my review--will leave you dissatisfied.

Buffie sets an ambitious agenda in this monograph. He analyzes a number of specific policy questions and does so within a consistent theoretical framework that is both intertemporal in nature and has sufficient complexity to capture the features he associates with developing countries. As he says, "I am trying to sell not only a particular set of conclusions but also a general approach to the analysis of policy issues" (p. 3).