Policy Space: What, for What, and Where?

Abstract

This article examines how developing countries can use, and enlarge, existing policy space, without opting out of international commitments. It argues that: (i) a meaningful context for policy space must extend beyond trade policy and include macroeconomic and exchange‐rate policies that will achieve developmental goals more effectively; (ii) policy space depends not only on international rules but also on the impact of international market conditions and policy decisions taken in other countries on the effectiveness of national policy instruments; and (iii) international integration affects policy space through several factors that pull in opposite directions; whether it increases or reduces policy space differs by country and type of integration.

Ruling capital: emerging markets and the reregulation of cross-border finance

“…EMDs were able to preserve such policy space at the WTO because the nature of the institution allows for consensus and, thus, interesting coalitions among EMDs have arisen (for a good discussion of policy space, see Mayer 2009). In contrast, in both FTAs and BITs between an industrialized countries and EMDs, asymmetric bargaining power and collective action problems often lead EMDs to trade away their ability to reregulate cross-border finance.…”

Global Value Chains and Deep Preferential Trade Agreements: Promoting Trade at the Cost of Domestic Policy Autonomy?

“…industrial development (Mayer 2009). Hoekman (2011) argues that industrial policy measures involve some negative side effects: they are costly, prolong the adjustment period and distort competition.…”

“…However, as argued before, doing so may come at the cost of sacrificing policy instruments for supporting domestic industries. "How to determine the right balance between maintaining flexibility in national economic policy-making and reducing it through multilateral disciplines and collective governance remains a contentious issue" (Mayer 2009). Policy-makers should therefore carefully assess the costs and benefits of PTA membership.…”

“…Whether participation is enough for capturing value and promoting economic development, or whether supportive domestic policy is needed, is not clear a priori. A combined objective therefore ought to be the ability to maintain, use and enlarge policy space without having to "opt out of international commitments" (Mayer 2009). …”

How Large or Small is the Policy Space? WTO Regime and Industrial PolicyThis is an edited version of a paper published in Seoul Journal of Economics (Lee et al. 2014). For many valuable comments and suggestions, we are grateful to Jose Antonio Ocampo, Lu Aiguo, and Victor Polterovich.

“…Th e literature on the political economy of industrial policy has described how specifi c industrial policies are oft en inconsistent with WTO rules, and how the policies that developed countries previously enjoyed have become prohibited under the WTO regime (Chang, 2002;Cimoli, Dosi, and Stiglitz, 2009;Dicaprio and Gallaher, 2006;Wade, 2003). In the meantime, Mayer (2009) and Shadlen (2005) argue that some regional integrations and bilateral approaches, such as free trade agreements (FTAs) yet enable developing countries to expand their policy space and market access to a certain degree. However, the enlargement and eff ectiveness of policy space under the FTA framework is in fact ambiguous as this bilateral framework involves much dependency on political will of the developed countries, rather than strict compliance to the mutually specifi ed and agreed rules (Ahn and Shin, 2011;Bown, 2005).…”