The Sachs-Warner Conditions
By Bryan Caplan
I’ve long been a fan of Sachs and Warner’s 1995 “Economic Convergence and Economic Polices.” Key result: Non-idiotic economic policies are a sufficient condition for economic convergence. They operationalize idiotic policies as follows:
We then establish two basic subsets of “appropriate” policies: one set related to property rights and one set related to integration of the economy in international trade. All countries that pass both sets of criteria are considered to be countries that have pursued appropriate policies during the observation period. We call these the “qualifying” countries. Countries that fail at least one test are “non-qualifying.”
The property rights part:
With regard to the property rights test, a country is non-qualifying (i.e. judged to have inappropriate policies) if it is characterized by at least one of the following three conditions:
(1) a socialist economic structure, according to the list of countries in Kornai (1993);
(2) extreme domestic unrest, caused by revolutions, coups, chronic civil unrest, or a prolonged war with a foreign country that is fought on domestic territory;
(3) extreme deprivation of civil or political rights, according to the Freedom House index, reported in McMillan, et. al. (1994);
The openness part:
Specifically, a country fails the openness test as a result of any of the following criteria (with details in the Appendix) :
(1) a very high proportion of imports covered by quota restrictions, according to the index prepared by Lee (1993);
(2) for Sub-Saharan Africa, a high proportion of exports covered by state export monopolies and state-set prices, according to an index in the World Bank (1993);
(3) a socialist economic structure, according to the list of countries in Kornai (1993);
(4) a black-market premium over the official exchange rate of 20 percent or more, on average, either for the decade of the 1970s or the decade of the 1980s (or both).
I wish I knew how well their results hold up for the last 20 years. Anyone?