Post 2015: Global Action for an Inclusive and Sustainable Future

CHApTER EIgHT
Trade and
investment
policies in
isolation do
not necessarily
incentivise
structural
transformation.
They need to be
embedded within
a development
strategy.
142
Stiglitz, 2008; rodrik, 2010). It is wiser to think in
terms of adopting a wide selection, or many recipes,
of trade and investment policies on a country- and
objective-specific basis (rodrik, 2008).
the debate on what kinds of trade and investment
policies produce structural transformation of the
economy has re-emerged in light of contemporary
experience of economic development (lin and
monga, 2011; lin and chang, 2009). this debate
now includes reviewing the concept of ‘comparative
advantage’ and trade policies before concluding
whether countries should pursue or alter their
assumed comparative advantages.
three prominent economists expanded the
dominant view on comparative advantage: Eli
Heckscher, bertil ohlin and paul Samuelson
(Samuelson, 1948). For them, the differences in
comparative advantage between countries are
due to their factor endowments. Hence, countries
should specialise in the production of and trade
in goods that use factors that are in relative
abundance (e.g. labour). David ricardo, the original
proponent of the concept, theorised it in terms of
differences in labour hours taken to produce the
same thing, which in turn depended on differences
in technological capability (Evans, 1976). Hence,
improving technological capabilities becomes
an important policy objective for increasing
productive capacity, the outcome of which would
alter a country’s comparative advantage and set it
on a dynamic development path.
the rapid growth of East asia in the latter part
of the 20th century, and the contemporary growth
of emerging economies, underlines the role of
technology in achieving structural economic
transformation. From exporting human hair
in 1963, 93 South Korea is now at the forefront
EuropEan rEport on DEvElopmEnt 2013
of technology (Kuznets, 1988; amsden, 1989).
Singapore, which was a lIc, has also achieved
remarkable transformation (Yew, 2000). While
it does not produce oil, it has one of the world’s
largest petroleum refineries. bangladesh, an lDc,
is currently achieving rapid growth in building
ships for export (Ethirajan, 2012).
these examples suggest that it matters not only
what a country exports, but also how it does so.
moving on from the debate of the early 1990s, in
which trade liberalisation was assumed to drive
growth, this causal relationship has been redefined
in recent years, with trade–growth increasingly
discussed in terms of a growth–trade nexus. GDp
and per capita income, as aggregate measures, are
considered to encapsulate new trade aspects. 94 the
more recent debate on trade and growth at the level
of the firm (excluding discussion of ‘zero’ trade
flows) not only argues that the most productive
firms within an industry focus on exports, but also
that they are likely to have been the most productive
within an industry before exporting, i.e. exporters
self-select into markets. this is because established
patterns of specialisation may persist even if these
run counter to comparative advantages.
the role of the state is also being considered anew
and industrial policy is back on the agenda, but in a
more nuanced way (Krugman and obstfeld, 2000;
Krugman, 1984). rather than viewing the state
as solely responsible for engineering structural
transformation, its role is increasingly seen in terms
of correcting market imperfections and overcoming
market failures. States that do this are described as
‘developmental states’ (Woo-cumings, 1999; te
velde, 2010). a developmental state can be seen as
having a growth-enhancing governance capacity
that can achieve and sustain high investment as well
as the ability to implement policies that encourage
93 Human hair was South Korea’s third-largest export in 1963 (noland, 2005). also, South Korea’s remarkable improvements on human development
indicators were facilitated by increasing productive capacity, economic productivity and high rates of economic growth (lee, 1997).
94 as noted by lall et al. (2005:6): ’the [product] sophistication measure is an amalgam of these influences and not a specific technological measure.’
this paragraph is adapted from Keane (2010).