The Trade-And-Aid Myth

History suggests that internal economic policies fight poverty best

| August 18, 2005

G8 nations talk as if the pairing of free trade and aid is the key to economic salvation for every country struggling with the realities of poverty. But providing aid, relieving debt, and increasing developing countries' access to privileged markets are not the answers to lessening economic hardship, Dani Rodrik argues on As the cases of Vietnam and Mexico demonstrate, it's internal policies that do the most to boost economies.

Vietnam hasn't received any economic favors from the West. It couldn't borrow from the International Monetary Fund or the World Bank. And though the United States lifted its embargo on the country in 1994, Vietnam still isn't part of the World Trade Organization. Mexico, on the other hand, has fostered close economic ties with the United States in the form of the North American Free Trade Agreement, US investment, and the ability for Mexican citizens to work across the border. While the economy of Vietnam grew annually at 5.6 percent per capita between its 1988 reforms and 1995 (and has grown 4.5 percent annually since then), Mexico's economy has inched along with a growth rate of 1 percent per capita since signing NAFTA in 1992.

A broader global trend illustrates that, as with Vietnam and Mexico, the countries that institute strong economic development programs internally succeed in improving economic growth and alleviating poverty. South Korea, China, and India all pulled their economies up by their bootstraps, according to Rodrik, and all three have flourishing economies today.

Rather than continuing to focus on opening market access to cultivate trade and providing aid to developing countries, the economically powerful should, Rodrik claims, work at making it easier for individual nations to improve their own economic development policies. He urges rich countries to help this process by sharing financial information, expanding the ability for citizens of developing nations to work abroad, and loosening WTO regulations.
-- Rose Miller

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