This study revisits the debate on trade reform in Latin America, focusing specifically on what combinations of conditions were necessary and sufficient for very rapid trade liberalization. It departs significantly from two types of studies that have been previously used to examine Latin American trade reform: (1) those using large samples and linear statistics to test the mean effects of variables on levels of trade protection and (2) those isolating necessary conditions for rapid reform but using a small number of case studies. Using fuzzy-set qualitative comparative analysis and short case studies, the study considers trade policy in sixty-one administrations. It finds that a key motivating factor for rapid trade opening is potential resistance from protected industry; it further identifies several other important enabling conditions, such as hyperinflation, devaluation, and an unconstrained executive. In combination, these enabling conditions are sufficient to account for a high percentage of rapid reform episodes.
Samuel Morley , Roberto Machado, and Stefano Pettinato, "Indexes of Structural Reform in Latin America," ECLAC, Serie Reformas Economicas12 (1999): 1-36. The Morley, Machado, and Pettinato commercial index is a composite score that is based on the average tariff level and dispersion for each year in question. The period of change that defines a rapid liberalization is shortened to two years in order to allow for individual administrations to be used as the units of analysis. Although import tariffs are by no means the sole policy involved in whether a country engages in an import-substituting strategy or an export-led growth strategy, they are indisputably a primary element and, as such, a reasonable proxy for overall policy changes. See Stephen D. Krasner, "State Power and the Structure of International Trade," World Politics 28, no. 3 (July 1976): 317-47; Andrew Schrank and Marcus Kurtz, "Credit Where Credit Is Due: Open Economy Industrial Policy in Latin America and the Caribbean," Politics & Society 33, no. 4 (December 2005): 671-702.
2.
In contrast to studies that look at year to year change, such as Glen Biglaiser and Greg Brown, "The Determinants of Economic Liberalization in Latin America" Political Research Quarterly58, no. 4 (December 2005): 671-80.
3.
Sarah M. Brooks and Marcus Kurtz, "Capital, Trade, and the Political Economics of Reform," American Journal of Political Science51, no. 4 (October 2007 ): 703-20.
4.
Charles Ragin, The Comparative Method: Moving Beyond Qualitative and Quantitative Strategies (Berkeley: University of California Press, 1987); Charles Ragin, Fuzzy-Set Social Science (Chicago: University of Chicago Press, 2000); Charles Ragin, Redesigning Social Inquiry: Fuzzy Sets and Beyond (Chicago: University of Chicago Press, 2008); Gary Goertz and Harvey Starr, Necessary Conditions: Theory, Methodology, and Applications (Lanham, MD: Rowman & Littlefield, 2003).
5.
John Sheahan, "Market Oriented Economic Policies and Political Repression in Latin America," Economic Development and Cultural Change 28, no. 2 (January 1980): 267-91; Thomas Skidmore, "The Politics of Economic Stabilization in Postwar Latin America," in Authoritarianism and Corporatism in Latin America, ed. James Malloy (Pittsburgh: University of Pittsburgh Press, 1977), 149-90; Barbara Geddes, "Building ‘State’ Autonomy in Brazil, 1930-1964," Comparative Politics 22, no. 2 (January 1990): 217-35; Kurt Weyland, The Politics of Market Reform in Fragile Democracies: Argentina, Brazil, Peru, and Venezuela (Princeton, NJ: Princeton University Press, 2004).
6.
Ragin, Fuzzy-Set Social Science; Ragin, Redesigning Social Inquiry.
7.
Ragin, Redesigning Social Inquiry.
8.
Claudio Cioffi-Revilla and Harvey Starr, "Opportunity, Willingness, and Political Uncertainty: Theoretical Foundations of Politics," in Necessary Conditions: Theory, Methodology, and Applications, ed. Gary Goertz and Harvey Starr (Lanham, MD: Rowman & Littlefield, 2001), 225-48.
9.
Goertz and Starr, Necessary Conditions.
10.
See Jagdish Bhagwati, "Fair Trade, Reciprocity, and Harmonization: The Novel Challenge to the Theory and Policy of Free Trade," in Protectionism and World Welfare, ed. Dominick Salvatore ( Cambridge, UK: Cambridge University Press, 1993), 17-53.
11.
Rudiger Dornbusch , "The Case for Trade Liberalization in Developing Countries," Journal of Economic Perspectives6, no. 1 (Winter 1992 ): 73-74.
12.
Dani Rodrik, "The Rush to Free Trade in the Developing World: Why so Late? Why Now? Will It Last?" in Voting for Reform: Democracy, Political Liberalization, and Economic Adjustment, ed. Stephan Haggard and Steven B. Webb ( Oxford, UK: Oxford University Press, 1994), 61-88.
13.
Rodrik, "Rush to Free Trade ," 66.
14.
Raquel Fernandez and Dani Rodrik, "Resistance to Reform: Status Quo Bias in the Presence of Individual-Specific Uncertainty," American Economic Review81, no. 5 (December 1991): 1146-55.
15.
Ibid.
16.
See Paul Pierson , Politics in Time: History, Institutions, and Social Analysis (Princeton, NJ: Princeton University Press, 2004).
17.
Rodrik, "Rush to Free Trade ," 69.
18.
Stephan Haggard and Steven B.Webb, Voting for Reform: Democracy, Political Liberalization, and Economic Reform (Washington, DC: World Bank, 1994), 22.
19.
Dornbusch, "Case for Trade Liberalization," 81.
20.
Gérard Roland, Transition and Economics: Politics, Markets, and Firms (Cambridge, MA: MIT Press , 2000).
21.
Cioffi-Revilla and Starr, "Opportunity, Willingness, and Political Uncertainty," 225.
22.
See Sheahan, "Market Oriented Economic Policies"; and Skidmore, "Politics of Economic Stabilization "
23.
George Tsebelis , "Veto-Players and Law Production in Parliamentary Democracies: An Empirical Analysis," American Political Science Review93, no. 3 (August, 1999): 591-608.
24.
Susan Stokes , Mandates and Democracy: Neoliberalism by Surprise in Latin America (Cambridge, UK: Cambridge University Press, 2001).
25.
Ibid.
26.
Rodrik, "Rush to Free Trade "
27.
Dornbusch, "Case for Trade Liberalization"
28.
Weyland, Politics of Market Reform. In brief, Weyland’s argument is based on prospect theory, in which conditions affect the risk acceptance or risk aversion of particular actors. In his formulation, populations in the "domain of losses," or suffering economic hardship, are more likely to be acceptant of large, potentially risky policy changes than those in the "domain of gains," which tend to be risk averse. Finally, hyperinflation is the condition that places the broadest swath of a population in the domain of loss, rendering opposition to radical policy change thin.
29.
Brooks and Kurtz, "Capital, Trade."
30.
Robert H. Bates and Anne O. Krueger, Political and Economic Interactions in Economic Policy Reform ( New York: Blackwell, 1993), 454.
31.
Dornbusch, "Case for Trade Liberalization," 76; Brooks and Kurtz, "Capital, Trade," argue on the other hand that trade liberalization should not be tied to slow growth crises, but to situations in which GDP growth is strong enough to help compensate affected sector (as with Rodrik, "Rush to Free Trade").
32.
Dornbusch, "Case for Trade Liberalization"
33.
Ragin, Fuzzy-Set Social Science, 39; Ragin, Redesigning Social Inquiry.
34.
See also Goertz and Starr, Necessary Conditions; Ragin, Fuzzy-Set Social Science.
35.
Ragin, Fuzzy-Set Social Science; Ragin, Redesigning Social Inquiry.
36.
Goertz and Starr, Necessary Conditions; an example of such a study is Aaron Katz, Matthias Vom Hau , and James Mahoney, "Explaining the Great Reversal in Spanish America: Fuzzy-Set Analysis Versus Regression Analysis," Sociological Methods and Research33, no. 4 (May 2005): 539-73.
37.
Katz, Vom Hau, and Mahoney, "Explaining the Great Reversal," 569.
38.
Ragin, Redesigning Social Inquiry, chap. 4-5; for methods of calibration, see also Jay Verkuilen, "Assigning Membership in a Fuzzy-Set Analysis," Sociological Methods and Research 33, no. 4 (May 2005): 462-96.
39.
Verkuilen, " Assigning Membership," 481; Ragin, Fuzzy-Set Social Science.
40.
Morley, Machado, and Pettinato, "Indexes of Structural Reform." A number of critics have taken issue with the Morley et al. index for being a poor representation of the experience of consumers and producers in the countries in question. For instance, it may overstate the degree to which the domestic economy is affected by tariff changes that remove redundant protections, but the effective rate remains high enough to be prohibitive. That said, the index is broadly used and is generally accepted as a useful, if imperfect, measurement; more importantly, though, the scores for rapidly liberalizing administrations that are drawn from the index line up well with historical accounts of the importance of the changes in tariff policy.
41.
Argentina, Bolivia , Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay, and Venezuela .The Central American countries are excluded from the current analysis because of the possibility of complicating factors created by the Central American Common Market (CACM). The CACM was formed in 1960 and took steps to establish a common external tariff (CET). Although the CET was never fully in place and the CACM had completely unraveled by the 1980s, the cases are excluded here because of the potential for trade policy to have been shaped in part by regional rather than domestic politics. Talks to restart the CACM began in the early 1990s. David O’Connor, Encyclopedia of the Global Economy: A Guide for Students and Researchers ( Westport, CT: Greenwood, 2005).
42.
A complete set of raw scores and the calibration calculations are provided at the author’s personal Web site, www.unm.edu/~ssamford.
43.
The calibration of data and the analysis of necessary and sufficient conditions were completed with Charles Ragin’s software for fuzzy-set qualitative comparative analysis (fsQCA), available at http://www.u.arizona.edu/~cragin/fsQCA.
44.
Monty Marshall, Keith Jaggers, and Ted Robert Gurr , "Polity IV Dataset," 2004, http://www.cidcm.umd.edu/polity/.
45.
As an exception, the level of executive constraints for Peru’s Fujimori is taken from 1992, the year of his "self coup," which was undertaken largely in response to opposition to his reform in congress. See discussion of Peru liberalization below.
46.
Stokes, Mandates and Democracy.
47.
George Downs, "The Rational Deterrence Debate," World Politics 41, no. 2 (April 1989): 225-37, cited in Gary Goertz, "Assessing the Trivialness, Relevance and Relative Importance of Necessary or Sufficient Conditions in Social Science," Studies in Comparative International Development 41, no. 2 (June 2006): 88-109.
48.
Ragin, Redesigning Social Inquiry, 44.
49.
The concept of coverage is equivalent to Goertz’s measurement of "triviality" of necessary conditions, which is calculated slightly differently. Goertz has developed measures of triviality (T) intended to identify the relative triviality of necessary conditions. Goertz’s calculation of triviality measures the distance each case’s membership in the independent set (xi) falls from one, standardized by the difference between its membership in the dependent set (yi) and one. The overall triviality score is an average of this relationship across the cases: TN = (1/n)Σ[(1-xi)/(1- yi)]. See Goertz, "Assessing the Trivialness" and Bear Braumoeller and Gary Goertz, "The Methodology of Necessary Conditions," American Journal of Political Science 44, no. 4 (October 2000): 844-58. Ragin’s measure of coverage gives more weight to cases with higher fuzzy-set scores (i.e., stronger examples of the phenomenon in question), and as the more conservative of the two, Ragin’s measurement is used in this study.
50.
The coverage of sufficient conditions is calculated with Σ[min(xi,yi)]/ Σ(yi). Rather than having established cutoffs, the interpretation of coverage scores is generally treated comparatively. For example, the coverage score of .35 falls well below 1, indicating simply that while generally necessary the condition of hyperinflation is far from being a sufficient condition.
51.
Ragin, Fuzzy-Set Social Science.
52.
Ragin, Redesigning Social Inquiry. For the assessment of individual necessary conditions, Ragin suggests a .65 consistency cutoff, while for the truth table assessment of sufficient conditions he suggests no lower than .75.
53.
Again, the reduction of combinations of sufficient conditions is completed with Ragin’s fsQCA software.
54.
Technically this makes it ‘an insufficient but necessary part of a condition which is itself unnecessary but sufficient for the result,’ or an INUS condition. James Mahoney, Erin Kimball, and Kendra L. Koivu, "The Logic of Historical Explanation in the Social Sciences," Comparative Political Studies42, no. 1 (January 2009): 125.
55.
Martin H. J. Finch, The Political Economy of Uruguay since 1870 (New York: St. Martin’s, 1982).
56.
Jaime Mezzera and Jaime de Melo, "Adjustments by Industrial Firms in Uruguay during 1974-82," in Scrambling for Survival: How Firms Adjusted to the Recent Reforms in Argentina, Chile, and Uruguay, ed. Vittorio Corbo and Jaime de Melo ( Washington, DC: World Bank, 1985 ), 157.
57.
Finch, Political Economy of Uruguay.
58.
Hector Schamis , "Reconceptualizing Latin American Authoritarianism in the 1970s: From Bureaucratic Authoritarianism to Neoconservatism," Comparative Politics23, no. 2 (January 1991): 201-20; John Sheahan, Patterns of Development in Latin America: Poverty, Repression, and Economic Strategy (Princeton, NJ: Princeton University Press, 1987).
59.
Mezzera and de Melo, "Adjustments by Industrial Firms"; Edgardo Favaro and Pablo T. Spiller, "The Trade Liberalization Experiment of 1974-1982," in Liberalizing Foreign Trade: The Experience of Argentina, Chile, and Uruguay, ed. Demetris Papageorgiou, Michael Michaely , and Armeane M. Choski ( Cambridge, MA: Basil Blackwell, 1991), 321-406.
60.
Mezzera and de Melo, "Adjustments by Industrial Firms"; Finch, Political Economy of Uruguay.
61.
Finch, Political Economy of Uruguay, 272.
62.
Mezzera and de Melo, "Adjustments by Industrial Firms," 193.
63.
Teichman argues that the Mexican government preferred quota protections to very elevated tariffs, an element that Morley, Machado, and Pettinato’s index does not capture. Judith A. Teichman, The Politics of Freeing Markets in Latin America: Chile, Argentina, and Mexico (Chapel Hill: University of North Carolina Press, 2001). This suggests that the trade opening was more radical than indicated by the de la Madrid administration’s fuzzy-set score, given in Table 2.
64.
Ibid.
65.
Ibid.
66.
World Bank, World Development Indicators database, 2007 http://databank.worldbank .org/ddp/home.do; Teichman, Politics of Freeing Markets.
67.
Blanca Heredia , "Contested State: The Politics of Trade Liberalization in Mexico" (PhD diss., Columbia University, 1996), 153.
68.
Heredia, " Contested State"; Teichman, Politics of Freeing Markets.
69.
Heredia, "Contested State "
70.
Ibid.; Patrick Cronin, "Explaining Free Trade: Mexico, 1985-1988 ," Latin American Politics and Society45, no. 4 (December 2003): 63-95.
71.
Heredia, "Contested State ," 40.
72.
Ibid.
73.
Nora Lustig, Mexico: The Remaking of an Economy (Washington, DC: Brookings Institution, 1998).
Carol Wise, "The Politics of Peruvian Economic Reform: Overcoming the Legacies of State-Led Development," Journal of Interamerican Studies and World Affairs36, no. 1 (Spring 1994): 82.
78.
Ila M. Semenick Alam and Andrew Morrison, "Trade Reform Dynamics and Technical Efficiency: The Peruvian Experience," World Bank Economic Review14, no. 2 (May 2000): 311.
79.
Semenick and Morrison, "Trade Reform Dynamics."
80.
Stokes, Mandates and Democracy.
81.
Susan Stokes , "Democratic Accountability and Policy Change: Economic Policy in Fujimori’s Peru," Comparative Politics29, no. 2 (January 1997): 209-26.
82.
Ibid.
83.
Semenick and Morrison, "Trade Reform Dynamics"
84.
Weyland, Politics of Market Reform; Efraín Gonzales de Olarte, "Economic Stabilization and Structural Adjustment under Fujimori," Journal of Interamerican Studies and World Affairs32, no. 2 (Summer 1993): 51-80.
