Thread by @D_A_Irwin

Why was there was so much trade liberalization in pivotal decade of 1985-95 - creating globalized world of today? Thread on new paper 1/7

As @AdamPosen points out, the open trading system is eroding today . . . but how did we get that unique historical period from 1990-c.2010 when globalization was at its apogee? 2/7
foreignaffairs.com/articles/world…

I focus mainly on developing countries (not OECD, not ex-Comecon) - huge burst of trade reform in '85-'95 whereas there was very little in 1970s-early 80s 3/7

Key point: many import controls were imposed for balance of payments reasons, aiming to protect scarce FX reserves and maintain fixed ER. Protection to domestic industries was a byproduct of this (i.e., controls supported by producer interest groups but not demanded by them). 4/7

Abundance of FX in 1970s meant reform unnecessary. Shortage of FX in 1980s and failure of import restrictions to overcome FX scarcity led to focus on export promotion - earning more FX instead of rationing it 5/7

This required devaluations to eliminate black market premia on exchange rate, which alleviated BOP problems. More flexible exchange rates allowed import controls to be relaxed. Thus, instead of using trade policy for payments balance, countries started using the exchange rate 6/7

Changing ideas about exchange rate & trade regime - along with economists in govt positions - were key to the historic policy shift, democracy also. Special interests hardly played a role. An amazing story in retrospect! 7/7
Ungated version here: sites.dartmouth.edu/dirwin/files/2…