Richard Hooley

Prema‐chandra Athukorala.Trade Policy Issues in Asian Development. New York: Routledge, 1999. Pp. xvi+244.

Economists agree that an export-oriented trade policy promotes growth. However, there remain a number of specific areas where the appropriate trade policies are still under debate. This is a collection of case studies dealing with some of these policy issues. In each study, the particular policy issue is stated clearly, the analysis is conducted with rigor, and, where appropriate, sophisticated econometric tools are employed. In the Sri Lanka study, the importance of foreign direct investment (FDI) is emphasized, including that from other Asian countries such as Korea and Taiwan. The point is made that specific incentives, such as tax holidays and so on, are not highly effective in attracting FDI. The most effective policy is creating an investment climate conducive to exploiting the country’s comparative advantage. The Indonesian study comes down hard on government policies to promote linkages (e.g., domestic input requirements) in the expansion of manufactured exports. Attempts to create linkages through policy intervention are likely to be ineffective, and possibly counterproductive, by applying a brake to export growth. There is an engaging analysis of the impact of trade expansion on Indian saving and investment levels. The data show substantial increases in corporate and household financial saving but a large decrease in household tangible saving, which has the effect of reducing the overall domestic saving rate. Athukorala goes on to suggest that this may result from a statistical glitch in the data. So in the end we are left uncertain whether trade expansion was favorable to saving and investment behavior in India. One of the Malaysian chapters focuses on the equity impact of export expansion. Data are assembled to show a reduction in the absolute poverty level and an improvement in income distribution, leading to the conclusion that Malaysia has dodged Kuznets’s inverted U-curve. Perhaps, but the data used to demonstrate this conclusion relate to improved income distribution by ethnic classifications, not by income size. Similarly, Athukorala’s claim