MATTHEWS: What was the debate about import substitution like at this point, in the late 1950s/early 1960s?
KRUEGER: The whole profession believed in import substitution. Almost without question. Even Gottfried Haberler, in his lectures in 1959, said that, of course, infant industry substitution by the developing countries was acceptable. Go back and look at the Cairo lectures. It’s in there.
MATTHEWS: Would you say that was how you were thinking about import substitution at the time?
KRUEGER: It didn’t quite ring true. More than that, just seeing how import substitution was working made me skeptical. Lawyers who do trade law are more pro free trade than economists, because they know how badly protection works. A distorted economy is terrible. Not just a little bad—import substitution probably cut growth rates in half of what they could have been.
Here is the entire dialogue.
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