Trade Policy and Economic Development: How We Learn

Sound research has contributed immensely in shaping economic policies that are conducive to economic growth. Using trade policy as an example, this paper analyzes the role of research and identifies the types of research that inform good policy. The evolution of trade policy from its initial development to the "conventional wisdom" of the 1990s, has had an important contemporaneous impact on policy. However, misapplication of sound theoretical principles, unrealistic assumptions, and search for "negative results" are the usual pitfalls that misguide economic research. In general, empirical research that test for the presence and order of magnitude of stylized facts can be invaluable for modeling and policy formulation. On this basis, refined interpretations of existing theories to produce empirically testable propositions can greatly improve the usefulness of policy-oriented research.