Import liberalization and industrial performance: The conceptual underpinnings

Import liberalization is a centrepiece of conventional approaches to policy reform and structural adjustment. Despite substantial criticism of the effects of liberalization, the underlying economic reasoning is widely accepted. This article examines the ways in which different schools of thought analyse the effect of 'opening up' the economy on industrial development, and contrasts neoclassical and evolutionary approaches. Different conceptualizations of 'market failure' emerge as the focal point for differences in discussing the role and scope of government intervention, with a convergence between the information-economics and firm-level evolutionary approaches (particularly the 'technological capabilities' approach). The empirical literature and its interpretation by different schools are reviewed, demonstrating how policy recommendations are strongly affected by the particular theory that informs the analysis of market failure and efficiency. It is concluded that empirically oriented micro-level approaches are the most promising in guiding policy decisions.