Tuesday, June 22, 2010

(Update) A Perverse Reform Outcome

Bill Easterly a development economist who uses empirical reasoning to refute much of the prevailing wisdom in economic circles debunks the argument of Rodrik (based on an IADB report) regarding the perverse contribution of structural adjustments in Latin America to productivity growth in the decades that followed reform.

He does so in passing as he makes a "clumsy" sports analogy between the World Cup and economic competition among nations. His claim is that in such a tournament type setting, skill trumps luck. The analogy is clumsy in the sense that the length of time covered in the analysis plays a part in determining whether developing the "right" skills in soccer (analogous to developing the "right" policies and institutions) pays off in the end.

Easterly claims that the IADB report's time periods were too short. He means that randomness or "luck" may have played a part in making it appear that the Washington Consensus failed to deliver productivity improvements in the Latin American region. In stating this, Easterly implies that a different time horizon in the report would have revealed the long-term impacts of import substitution policies on the (under)performance of economies in the region.

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