ECONOMIC GROWTH CENTER
                                
                        YALE UNIVERSITY
                                
                                
                        P.O. Box 208269
               New Haven, Connecticut 06520-8269
                                
                                
                                
                                
                                
                CENTER DISCUSSION PAPER NO. 806
                                
                                
                                
              OUTWARD-ORIENTATION AND DEVELOPMENT:
                    ARE REVISIONISTS RIGHT?
                                
                                
                                
                        T. N. Srinivasan
                        Yale University
                                
                        Jagdish Bhagwati
                      Columbia University
                                
                                
                                
                                
                                
                         September 1999


     


Note: Center Discussion Papers are preliminary materials circulated to stimulate discussions and
      critical comments.




  OUTWARD-ORIENTATION AND DEVELOPMENT:  ARE REVISIONISTS RIGHT?
            T. N. Srinivasan          Jagdish Bhagwati
             Yale University         Columbia University


                             Abstract

     The costs of import substitution (IS) as a strategy for 
industrialization, which was deemed synonymous with economic
development by many development economists of the fifties and
sixties, were shown to be substantial in the influential and
nuanced studies of the seventies and eighties under the auspices of
OECD, NBER and World Bank.  These studies played a critical role in
shifting policies in several developing countries away from the IS
strategy.
     Recently there has been a proliferation of cross country
regressions as a methodology of analysis of issues relating to
growth, trade and other issues.  Both proponents (e.g. Sachs and
Warner (1995)) and opponents (Rodriguez and Rodrik (1999)) of the
view that openness to trade is linked to higher growth have relied
on such regressions.  The paper systematically reviews the
theoretical and empirical studies on such linkage.  It rejects the
cross-country regression methodology for reasons of their weak
theoretical foundation, poor quality of their data base and  their
inappropriate econometric methodologies.  It argues that the most
compelling evidence on this issue can come only from careful case
studies of policy regimes of individual entries such as those of
OECD, NBER and World Bank.  It concludes that the virtues of
openness established in these nuanced in-depth studies remain
unrefuted.
Key Words:  Developing Countries, Economic Development, Economic
Growth, International Trade, Openness, Import Substitution, Export
Promotion, Cross-Country Regressions

JEL Classification Codes:  E13, F11, F14, F43, 041, 057