Policy makers in the developing world are grappling with new dilemmas created by openness to trade and capital flows. What role, if any, remains for the state in promoting industrialization? Does openness worsen inequality, and if so, what can be done about it? What is the best way to handle turbulence from the world economy, especially the fickleness of international capital flows?

In The New Global Economy and Developing Countries Dani Rodrik argues that successful integration into the world economy requires a complementary set of policies and institutions at home. Policy...