1. Applications of the material a. Be prepared to discuss Dornbusch’s article. He outlines examples of success in both export promotion and import substitution for particular developing countries. What are the conditions that are important to this success? (to the extent that it was discussed in class and discussion) Dornbusch said that it was important to not keep a market totally closed off but that it was bad to also suddenly open trade (liberalizing trade = open trade = no tariffs). East Germany’s industrial production fell by 50% which led to massive unemployment. Instead, he offers a general path to reform . This means moving from quotas to a uniform high tariff, and as the economy grows and doesn’t have a foreign exchange crisis, lower the tariff rate. b. Be prepared to discuss Rodrik’s concerns regarding the reality behind policy reform in developing countries in the 1980s. (to the extent that it was discussed in class and discussion) Rodrik talks about 42 countries in the 80’s that receives loans from the World Bank to
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