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Measuring trade policy intervention : a cross-country index of relative price dispersion

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  • Aitken, Brian J.

Abstract

In the debate about the relationship between trade policy and growth, various measures for trade intervention have been used. The author presents a new measure based on a country's relative price structure and the structure of relative world prices. This measure, he argues, conforms more closely than existing measures to the concept of trade intervention. The relationship between openness and trade liberalization is more complicated than is often believed. Whether a country intervenes does not tell the whole story about its trade policy, and misses an essential aspect of intervention: which goods are favored by subsidies and which are protected by tariffs. The debate has been confused by the failure to distinguish between trade intervention and outward orientation. Trade intervention implies policies that distort the flow or pattern of trade; outward orientation implies incentives to export that are greater than incentives for import substitution. The two may be related but a heavily interventionist policy could be outwardly oriented. The index of relative price dispersion that the author develops has the advantage that it is objective, measures intervention in both exports and imports, is comparable across countries, and is independent of fluctuations in exchange rates caused by macroeconomic mismanagement.

Suggested Citation

  • Aitken, Brian J., 1992. "Measuring trade policy intervention : a cross-country index of relative price dispersion," Policy Research Working Paper Series 838, The World Bank.
    • Handle: RePEc:wbk:wbrwps:838
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    References listed on IDEAS

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    1. J. Bradford De Long & Lawrence H. Summers, 1991. "Equipment Investment and Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(2), pages 445-502.
    2. Edwards, Sebastian, 1989. "Openness, outward orientation, trade liberalization, and economic performance in developing countries," Policy Research Working Paper Series 191, The World Bank.
    3. World Bank, 1987. "World Development Report 1987," World Bank Publications - Books, The World Bank Group, number 5970.
    4. Helleiner, G. K., 1990. "Trade strategy in medium-term adjustment," World Development, Elsevier, vol. 18(6), pages 879-897, June.
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    Cited by:

    1. Roberto Álvarez & Matías Braun, 2006. "Trade Liberalization, Price Distortions, and Resource Reallocation," Working Papers Central Bank of Chile 374, Central Bank of Chile.
    2. Pritchett, Lant, 1996. "Measuring outward orientation in LDCs: Can it be done?," Journal of Development Economics, Elsevier, vol. 49(2), pages 307-335, May.

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