Major Arguments in the book

Major Arguments in the book

Dani Rodrik authored the book One Economics Many Recipes in 2007. Dani Rodrik was born in Istanbul, Turkey, in 1958. He is a Turkish economist and a professor at the John F. Kennedy School of Government at Harvard University, where he teaches international political economy. Before his current position at Harvard, Rodrik taught at Princeton University.

Major Arguments in the book

The book’s major argument is that the government has a significant role in the stimulation of economic development other than establishing an effective functioning of markets. Thus, Rodrik states that economists’ main role is to highlight problems in the economy while political leaders are instrumental in solving the highlighted issues. He further highlights that one hundred dollar bills are common in stagnant countries with limited reforms. However, these hundred dollar bills can facilitate economic growth just as they have in countries such as Vietnam, India, and China. On the other hand, market failures such as coordination failures and informational spillovers cannot be separated from economic development’s structural transformation process. Thus, the structural transformation process and reforms call for proactive strategies to jump-start growth in the economy and sustain a productive dynamism.

Moreover, Rodrik also states that developing countries might desire to seek integration or import protection in conjunction with other countries through heterodox policies like export-processing zones and subsidies. He argues that the in-depth economic integration established through the past years may harm emerging countries by reducing the policy space. However, he continues to outline that a world trade Organization (WTO) that is development-friendly can allow improved access to the market and enable countries to establish appropriate economic development strategies. Hence, this concept should also be introduced to affluent countries to enable them to handle “divergence in national norms and preferences

and for dealing

with uncertainty and changing circumstances.” (p.205). Consequently, Rodrick proposes the broadening of the Agreement on Safeguards in the WTO to make space for an escape clause action embedded within a wider range of circumstances and in locations that go outside of the trade.

The Main Concept Used in the Book

The book’s main concept is that economic globalization is a concept that has not been fully grasped by people. As much as economic globalization is a lucrative aspect for third-world countries, it requires pursuing policies that are curated to local political and economic realities instead of following international globalization guidelines. Rodrik’s book depicts how successful nations develop their unique strategies and what other nations can emulate from them. The book also shows that globalization is the main driver of the economy in developing nations. For it to be beneficial towards developing nations, they must adhere to a set of universal rules established by organizations such as the WTO. Nonetheless, Rodrick highlights that globalization does not favor the emerging countries since the international rules only strain their economy. Notably, emerging countries should focus on their economy and ignore global rules as they are better off without globalization. Rodrik also depicts in his book that the emerging nations achieve economic growth and success by not emulating the techniques of the first-world countries but through solving the issues ailing their economy.

The Research Method of the Book

Rodrik applies the methodology of binding constraints in his book. In this case, the method proposes the evaluation of peculiar behaviors and shadow prices on economic agents. Also, the methodology proposed by Rodrik involves the employment of a decision tree whereby an economic analyst can recognize major problems such as poor accessibility to funds or low social funds. The decision tree also enables the analyst to maneuver to the next branch and identify strong constraints to be compliant to policy. Moreover, the policy should fight the constraints instead of automatically adhering to a set of established reforms for all nations. Furthermore, Rodrik argues that if a similar binding constraint such as limited credit access, is shared by two nations, the difference between the two nations and political constraints reflects the necessity of different solutions. For instance, if a nation encounters a shortage of credit, it results in skyrocketing interest rates. Simultaneously, if there is a shortage in human capital, then the premium of skills increases and if the taxes are very high then informality becomes common in a country.

As much as this methodology is sensible, it becomes difficult to apply it in reality. The main problem is that there are aspects that are controlled by markets hence with the lack of markets results in the inability to include shadow prices such as infrastructure and regulation. More so, the methodology aimed at avoiding quantitative measures and businessmen surveys. Thus, Rodrik’s methodology of binding constraints cannot be depicted in inflated shadow prices. Also the methodology is shortcoming since if the measures of a certain constraint are disputed, whereby the high taxes ae moderate and the finance cost is low, then it would be concluded that the binding constraint is linked to coordination externalities or market failures.

Contextualizing the book

Ideally, Rodrick’s book has string and different points that form an insightful perspective in globalization and development. The book involves years of very influential, in-depth and creative academic research as well as first-hand experience in advising governments and multilateral institutions globally. The book reflects intuitive and simple research that illustrates the arguments involved in the current development experiences. Thus with the eloquent and vivid prose of the book, the readers get a compelling view of globalization and development in the world. The book draws on sociology as an academic discipline as it involves theories behind the neoclassical policies and arguments on how these theories work better in the recent economies. More so, the book makes a significant contribution to economics as it provides insightful information that is backed up by facts and evidence from fkirst0hand experiences of the author and academic sources. The book is credible for use in both learning institutions as it provides in-depth knowledge of economic development and globalization throughout the world. It is a great handbook for economists in the career world. It helps them understand different aspects of the economy and aids them in navigating both low and high economic times.

Personal Understanding and Summary of the Book

Rodrik’s book is a phenomenal piece that starts by interpreting the orthodox meaning of growth that is sound money and free markets. The first message that is derived from the book is that that growth and development are a result of a contingent connection between policy implications and the economic environment. The second chapter of the book is based on the diagnostics of growth and a development of a strategy that identifies policy priorities that are founded o neoclassical economies. Hence, in this case many recipes for the economy are explained both technically and through the use of examples form different nations. The author provides three theories that propel growth that includes financing accumulation cost, private appropriability and returns to accumulation. In this chapter, the author uses Brazil as a main example to illustrate a binding constraint in their economy whereby the urgency to borrow funds from abroad and the perception of a nation being on the edge of being bankrupt creates a huge dependency on external help. The message that the author tries to put across is that nations need to focus on the main cause of economic underperformance. However, the book does not define the role of economists and the role they may play in establishing growth strategies of economies.

Further, Rodrick explores industrial policy in the next chapters whereby he comes up with various strategies such as the stick and carrot strategies while focusing on the Schumpeterian and Keynesian policies that are established by a strong country. Thus, for the next few chapters, the author focuses on solid institutions and good governances which come off as logical topics. Rodrik tends to have a unique understanding of the aspect of democracy which is backed up by evidence that it provides enhanced economic outcomes, predictability and stability of a country’s economy. The final chapter of the book focuses participation, globalization and the sovereignty concept which are contextualized through national politics and global economics. Consequently, the strongest arguments in the book are based on a mixture of the intervention of the government to facilitate growth and establish appropriate industrial policy.

Chapter Summary

Chapter 1

• The first chapter focuses on economic growth and provides evidence on how some nations experience more rapid growth than others.
• The chapter also brings about two major arguments: the first is that the analysis of neoclassical economy has more flexibility as opposed to its practitioners within the policy domain.
• The second argument outlined in the chapter is that facilitating and sustaining economic growth are two different aspects.
• The first-order principles of economy that include sound money, appropriate incentives, market-based competition and property rights’ protection fail to describe policy packages.
• Reformers have a huge opportunity for making principle packages into institutional guidelines that are curated to the local constraints and opportunities.
• The key question in this chapter is the neoclassical economy principle applicable to solve the economy constraints for third world countries?

Chapter 2

• The chapter is co-authored by Andres Velasco and Ricardo Hausmann and is mainly focuses on the igniting growth in the economy.
• It provides a framework for pinpointing binding constraints in growth so as the reform strategies may be instrumental in area with the significant impact.
• It also highlights a diagnostic analysis that starts by identifying the aspects that provide major constraints. It goes further to identify finer stages of resolution that ensure the set of binding constraints are narrowed down and are compliant to policy.
• The key question in this chapter is whether the decision tree is applicable in reality and whether it can solve all binding constraints.

Chapter 3

• The chapter is short and mainly focuses on the main themes presented in chapter one and two, thus it provides a wider vision for developing growth strategies.
• It also emphasizes on three stages which include growth diagnostics analysis, policy design and institutionalization of the policy and diagnostic design activities.
• The key question in this chapter is that are growth diagnostics applicable for all countries?

Chapter 4

• The chapter focuses on institutions whereby it presents the theme of productive vitality.
• It also queries on the type of institutions that are applicable in developing nations to broaden their productive structures to sustain growth in the economy in the long run.
• In this chapter, Rodrik argues that the basis of development in any country is structural change such that industrial policy is accountable for stimulating entrepreneurship and investments.
• Mainly, the chapter describes the features of institutions required for the establishment of industrial policy,
• The key question in the chapter is whether there are standard industrial policy structures that can facilitate growth all countries.

Chapter 5

• In particular, the chapter focuses on market-supporting institutions which ensure the success of the economy ultimately.
• It begins with an institution typology that allow for adequate performance of markets, hence the it emphasizes on the vitality of local knowledge and describes the perspective that an institution building strategy should not overly emphasize on the blueprints of best-practice.
• Rodrik argues that political systems participating in institution development are the most effective method of aggregating and processing local knowledge.
• The chapter concludes by providing an array of evidence that illustrates that participatory democracies facilitate growth.
• The key question is how would institutions be designed based on the local needs and knowledge

Chapter 6

• Ideally, the chapter provides an overview of the major controversies and issues that spring up from the large overflow of literature on institutions throughout the years.
• Rodrik queries that if people focused more on institutions, as the main determinant of growth in the long run then would economic policies lack significance?
• The author goes ahead to ask whether property rights are crucial and if it implies that developing nations out to engage the regimes of property rights that emanate from Europe and United Nations. All the answers to each of these questions, the author concludes, is no.
• The key question in this chapter is whether the development of institutions is affected by the geography of a nation.

Chapter 7

• The chapter pinpoints the main problem in the global economy as the struggle between the global nature of various markets today in services, capital and goods and the national nature of nearly all the institutions that support them.
• Rodrick insists that if economic globalization needs to be advanced then the democracy or nation-state must be dropped.
• Also, democracy wants to be deepened then the deep integration of nation-state must be sacrificed.
• Ultimately, the author highlights that through the design of effective institutions of the global governance of the economy then most of the economic globalization benefits can be retained while providing national democracies with room for addressing domestic objectives.
• The key question in this chapter is that can appropriate institutions and national democracies co-exist simultaneously to ensure economic globalization.

Chapter 8

• This chapter basically provides the impact of the ideas and reasoning provided for the regime of international trade.
• Rodrik argues that WTO had the main goal of enabling nations to fight poverty instead of maximizing the trade volume but is seems that the agenda of this organization has changed overtime.
• The main challenge in the long run is looking for ways to make a network of global regulations of trade that are in line with growth needs.
• The author concludes by highlighting that developing nations could not be disadvantaged by indulging in market access in place of ensuring they can attain essential policy tools.
• The key question in this chapter is that do developing countries benefit from the WTO policies

Chapter 9

• This is the final chapter whereby all the main themes of the book are brought together.
• It also links the connection between globalization and economic growth.
• The book concludes by providing a proposal that if the negotiators of global trade are deliberate about facilitating globalization for developing nations, then they should focus on developing a program for temporary work permits that pave way for unskilled labor to get employment in rich countries
• The key question in this chapter is whether providing employment alone will help in globalization in developing countries.