Bryan Caplan  

The Sachs-Warner Conditions

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I've long been a fan of Sachs and Warner's 1995 "Economic Convergence and Economic Polices."  Key result: Non-idiotic economic policies are a sufficient condition for economic convergence.  They operationalize idiotic policies as follows:
We then establish two basic subsets of "appropriate" policies: one set related to property rights and one set related to integration of the economy in international trade. All countries that pass both sets of criteria are considered to be countries that have pursued appropriate policies during the observation period. We call these the "qualifying" countries. Countries that fail at least one test are "non-qualifying."
The property rights part:
With regard to the property rights test, a country is non-qualifying (i.e. judged to have inappropriate policies) if it is characterized by at least one of the following three conditions:
(1) a socialist economic structure, according to the list of countries in Kornai (1993);

(2) extreme domestic unrest, caused by revolutions, coups, chronic civil unrest, or a prolonged war with a foreign country that is fought on domestic territory;

(3) extreme deprivation of civil or political rights, according to the Freedom House index, reported in McMillan, et. al. (1994);
The openness part:
Specifically, a country fails the openness test as a result of any of the following criteria (with details in the Appendix) :

(1) a very high proportion of imports covered by quota restrictions, according to the index prepared by Lee (1993);

(2) for Sub-Saharan Africa, a high proportion of exports covered by state export monopolies and state-set prices, according to an index in the World Bank (1993);

(3) a socialist economic structure, according to the list of countries in Kornai (1993);

(4) a black-market premium over the official exchange rate of 20 percent or more, on average, either for the decade of the 1970s or the decade of the 1980s (or both).
I wish I knew how well their results hold up for the last 20 years.  Anyone?




COMMENTS (5 to date)
david writes:

I'm not sure "extreme domestic unrest" is a coherently understood as a policy choice per se.

I am curious why nationalized primary exports is only applied to Sub-Saharan Africa, too. It smells of data mining. Fn15 in the paper is... unconvincing. If what matters is the "side" of trade quotas, then this should be made explicit, no? And Saudi Arabia, Oman, the UAE, Bahrain, and Kuwait are conveniently dropped from the data set as well (pp6).

And the joint criteria are acknowledged to be virtually identical; only Haiti and Thailand fail one but not the other. It's an overfitting fest.

And for all that, seven developing countries defy the criteria and obtain 'convergent' growth, (Botswana, Cape Verde, Hungary, Tunisia, Lesotho, Thailand, and the PRC), and only twelve developing countries qualify the criteria and obtain convergent growth (Cyprus, Indonesia, Jordan, South Korea, Malaysia, Malta, Mauritius, Morocco, Portugal, Singapore, Taiwan, and Yemen). Asserting that these are comparable groups strains credibility.

I don't know how you would test whether the results hold for later data. What would be the analogue of the Socialist Country dummy?

E. Harding writes:

Mexico hasn't converged anywhere over the past thirty-five years and I think has all these.

mico writes:

How important is international trade really?

For instance are there any countries with excellent internal property rights but strong protectionism, and do they do badly?

I absolutely expect protectionism to be damaging but if we look at a country like Australia which has a robust free market but a "natural tariff" (I.e
it's really far away from anywhere), it's been consistently rich. So it probably isn't very damaging.

Amelanchier writes:

New Zealand is even farther away from anywhere, and indeed its GDP per capita is substantially lower than would be predicted given its policies. See Tyler on this.

mico writes:

Maybe, but New Zealand isn't Burundi. It isn't even Bulgaria which is in the world's largest trade zone.

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