Naomi Klein must really dislike international commerce:

Cheap oil, the lubricant of quick, inexpensive transportation links across the world, may not return anytime soon, upsetting the logic of diffuse global supply chains that treat geography as a footnote in the pursuit of lower wages… [A footnote? Sheesh, this is the newspaper that employs Tom Friedman, huh?]

“If we think about the Wal-Mart model, it is incredibly fuel-intensive at every stage, and at every one of those stages we are now seeing an inflation of the costs for boats, trucks, cars,” said Naomi Klein, the author of The Shock Doctrine: The Rise of Disaster Capitalism. “That is necessarily leading to a rethinking of this emissions-intensive model, whether the increased interest in growing foods locally, producing locally or shopping locally, and I think that’s great.”

Oil scarcity takes a chunk out of humanity’s production possibilities frontier, and Ms Klein cheers.

[Perhaps Klein is happy because she’s worried about global warming, rather than cheering for the ‘buy local’ movement. In that case, the NYT‘s quotation wasn’t very helpful. But these high oil prices are a symptom of increased demand, not reduced supply, so they are hardly evidence that the world is reducing emissions.]

Defending the $1 trillion estimate of American gains from globalisation he produced with co-authors, Gary Hufbauer writes:

Dani Rodrik took us to task for exaggerating the benefits of globalization. Professor Rodrik long ago established his reputation as a globalization skeptic; today he is the favorite Harvard economist among the backlash crowd. In 1997, Rodrik voiced a critical note in a book published by the Institute for International Economics, Has Globalization Gone Too Far? Two years later, Francisco Rodríguez and Rodrik (1999) [JD: link added] notched their academic guns against Jeffrey Sachs and Andrew Warner (1995), questioning the benefits of liberal trade policy for developing countries. As targets of Rodrik’s latest outburst, we share good company.

Who scored that fight in favor of Sachs & Warner?

Romain Wacziarg & Karen Horn Welch didn’t [UPDATE 1: See Wacziarg’s comments below.]:

Our cross-sectional results confirm recent criticisms of the SW findings by showing that they were sensitive to the chosen openness classification in the 1970-1989 period, and that they no longer hold for the 1990s. In the 1990s, a vast ma jority of the countries in our sample are classified as open, and a simple dichotomous indicator of openness no longer discriminates between slow and fast growing countries. Our findings suggest that researchers should exercise caution when using simple dichotomous policy indicators such as the SW dummy.

Gordon Hanson and Ann Harrison didn’t:

Although these studies typically show a positive relationship between trade reform and productivity growth, most are plagued by serious econometric and data problems. To illustrate the problems with this literature, we examine a popular measure of openness recently introduced by Sachs and Warner (1995). The evidence presented in this paper shows that their measure fails to establish a robust link between more open trade policies and long run growth…

Clearly, however, the Sachs and Warner measure captures many other aspects of openness than pure trade policy… The coefficients on all five factors which were used to construct the Sachs and Warner (“SW”) openness measure are reported in column (2). Out of all the five factors, only one is significant: whether or not the country had a socialist economic system. The results in column (2) seem to suggest that the factor driving statistical significance behind the composite measure is the market structure of the economy, not its trade policy orientation.

Sachs & Warner (1995) has nothing to do with the present Hufbauer et al. vs Rodrik debate, but I don’t think Rodrik did badly in that fight.

UPDATE 1: Romain Wacziarg comments below, noting that his paper actually debunks SW’s measure cross-sectionally but supports the SW dummy and growth relationship in a panel data, fixed effects setting. Admittedly, this boosts Sachs & Warner’s policy conclusion, but I don’t think it vindicates them from Rodrik & Rodriguez’s criticisms. Indeed, Wacziarg & Welch’s write: “We revisited the evidence on the cross-country effects of SW’s simple dichotomous indicator of outward orientation on economic growth, confirming the pitfalls of this indicator first underlined by RR.”

My point is not that the profession scores the debate in favor of Dani Rodrik in terms of policy conclusions (he makes his living as a dissenter), but that Rodriguez and Rodrik were right to argue that Sachs & Warner’s 1995 paper was not econometrically robust. Since no one seems to have refuted RR’s criticisms of the original article, it seems odd for Gary Hufbauer to invoke Sachs & Warner when facing a methodological criticism from Dani Rodrik.

UPDATE 2: Romain Wacziarg writes:

The cross-sectional part surely was fragile, due to the coarseness of the cross-sectional dummy variable. But they [Sachs and Warner] also had a couple of longitudinal regression of the kind
that Karen Welch and I ran more systematically. Those stand up well to the update, and to the Rodriguez and Rodrik critique.

RR did have good points on the methodology, and it’s a good thing to force the profession to work harder. But they also had a substantive point to make about the literature, which was that the growth gains from trade were either zero or not very large. Here I have to part ways with them. I still read the preponderance of the empirical evidence as supportive of large positive effects of openness.

I tend to agree with Prof Wacziarg on the substantive issues, but I’m still less fond of the Sachs & Warner index methodologically. Trade openness is dichotomous, really? Call me an Anderson & Neary kinda guy.

Brookings’ Homi Kharas says that rising food prices are a symptom of demand outstripping supply and the price system is working – today’s high prices are triggering a new wave of investment that will increase future supply and may also cause reform in some countries. He’s optimistic:

[F]or the majority of the world’s poor, to be found among the 1.7 billion rural residents of India, China and Indonesia, the dream of a “chicken in every pot” is becoming more attainable because world food supply is rising again. That is the upside for humanity from today’s high food prices.

IFPRI’s Joachim von Braun is less sanguine:

[M]arket failures and new misguided policies are likely to keep food prices high and volatile for years to come… [M]ost small farmers in developing countries are actually net buyers of food, so they feel the pinch from rising food prices.

John Parker, moderating this debate for the Economist, interprets this as:

For Mr von Braun, it is the speed, rather than the fact of the price increase that matters. Prices have risen so quickly—the food index of the Food and Agriculture Organisation (FAO) rose by 50% in the year to May 2008, he says—that people have not been able to adjust. Or rather, “adjustment” has taken the form of the poor eating less and going hungry…

The very phrase “food crisis” may predispose participants against a proposition that there is an upside to rising prices. On the other hand, it’s an ill wind that blows absolutely nobody any good; there is always some sort of upside. The question for the audience is how big, and whether it is big enough to be meaningful.

The Economist has a roster of guests that will also be participating in the debate over the next week.

Music fans have concert tour t-shirts, so why shouldn’t trade geeks?

Beata Javorcik and Gaia Narciso’s paper on “Differentiated Products and Evasion of Import Tariffs” is forthcoming in the Journal of International Economics. Here’s the abstract from an older, ungated version:

An emerging literature has demonstrated some unique characteristics of trade in
differentiated products. This paper contributes to the literature by postulating that
differentiated products may be subject to greater tariff evasion due to the difficulties associated
with assessing their quality and price. Using product-level data on trade between Germany and
10 Eastern European countries during 1992-2003, we find empirical support for this hypothesis.
We show that the trade gap, defined as the discrepancy between the value of exports reported
by Germany and the value of imports from Germany reported by the importing country, is
positively related to the level of tariff in 8 out of 10 countries. Further, we show that the
responsiveness of the trade gap to the tariff level is greater for differentiated products than for
homogenous goods. A one-percentage-point increase in the tariff rate is associated with a 0.6%
increase in the trade gap in the case of homogenous products and a 2.1% increase in the case of
differentiated products. Finally, the data indicate that greater tariff evasion observed for
differentiated products tends to take place through misrepresentation of the import prices.

The most well-known use of double-reporting in international trade to detect tax evasion is Ray Fisman and Shang-Jin Wei’s paper on “missing” trade between China and Hong Kong.

Patrick Messerlin urges trade ministers to move towards a Doha deal at tomorrow’s WTO meeting, noting that it’d be good to (1) bind industrial tariffs to create certainty for businesses considering fragmenting production processes and (2) liberalize agriculture, which will hurt some loud lobbies but help many that don’t currently benefit from the CAP.

Patrick Messerlin urges trade ministers to move towards a Doha deal at tomorrow’s WTO meeting, noting that it’d be good to (1) bind industrial tariffs to create certainty for businesses considering fragmenting production processes and (2) liberalize agriculture, which will hurt some loud lobbies but help many that don’t currently benefit from the CAP.

Patrick Messerlin urges trade ministers to move towards a Doha deal at tomorrow’s WTO meeting, noting that it’d be good to (1) bind industrial tariffs to create certainty for businesses considering fragmenting production processes and (2) liberalize agriculture, which will hurt some loud lobbies but help many that don’t currently benefit from the CAP.

Dani Rodrik says “What makes news nowadays is the growing list of mainstream economists who are questioning globalisation’s supposedly unmitigated virtues.”

Unmitigated? That’s a straw argument. When did economists start selling free lunches?

Jonathan Chait has a good dissection of how Naomi Klein went from being wrong about Starbucks and the WTO to being really wrong about Pinochet, Iraq, and ethnic conflict.

Rather than re-think the economicist premises of her recent radicalism, she set out to synthesize her old worldview with the post-9/11 world. “I felt it emotionally,” she told The New York Times, “before I understood it factually.” Doggedly connecting the dots, she discovered that the Iraq war was–guess what?–part of the same economic tissue that connected Nike and the World Trade Organization…

The Shock Doctrine has a single, uncomplicated explanation for everything that ails us. It identifies the fundamental driving force of the last three decades to be the worldwide spread of free-market absolutism as it was formulated by Milton Friedman and the department of economics at the University of Chicago…

The notion that crises create fertile terrain for political change, far from being a ghoulish doctrine unique to free-market radicals, is a banal and ideologically universal fact. (Indeed, it began its dubious modern career in the orbit of Marxism, where it was known as “sharpening the contradictions.”) Entrenched interests and public opinion tend to run against sweeping reform, good or bad, during times of peace and prosperity. Liberals could not have enacted the New Deal without the Great Depression…

She is conscientious enough to provide readers with facts that blow her thesis to smithereens, yet at the same time she is deluded enough not to notice the rubble of her thinking on the floor…

Naomi Klein’s relentless lumping together of all her ideological adversaries in the service of a monocausal theory of the world ultimately renders her analysis perfect nonsense.