Globalisation, Economic Policy and Convergence

Abstract

A NUMBER of recent contributions to the growth literature have emphasised the positive role played by the forces of globalisation in enabling poor countries to converge on the living standards of rich ones. These include Sachs and Warner (1995), Aziz and Wescott (1997), IMF (1997), World Bank (1997), Dollar and Burnside (1997), Edwards (1998) and Collier and Dollar (1999) and their general message is well captured by Sachs and Warner’s claim (1995, p. 3) that ‘open economies converge, and closed ones do not.’ In other words, if developing countries were to adopt a consistent policy package conducive to the preservation of an open economy, that would, according to all the authors cited above, at least be a necessary condition for convergence. There is some disagreement within the Washington consensus concerning exactly what the ingredients of this consistent policy package are, with Sachs and Warner laying primary emphasis on measures of trade policy openness, Collier and Dollar (1999) examining a broader range of policy instruments including social policy measures, and Aziz and Wescott (1997, p. 18) arguing that what matters is complementarity, with three separate elements needed in combination: ‘trade openness, macro stability, and a relatively low degree of government involvement in economic activity’. The IMF’s World Economic Outlook for May 1997 seeks to summarise the state of play by arguing that: