Kerala 2005 - of Planning Commission

CHAPTER 8
LOOKING AHEAD: POSSIBILITIES AND STRATEGIES
131
2.4 Understanding the Distinction between
Traded and Non-traded Sectors
In our search for a broad strategy for further economic
development, it is important to understand the difference
between what is called ‘traded’ (or sometimes tradeable)
goods and services and ‘non-traded’ (or sometimes ‘nontradeable’)
goods and services. The former refers to those
goods and services that can be easily produced elsewhere
and hence procured from outside the region while the
latter refers to those goods and services which cannot be
easily competed away. Given the pace of technological
change, this distinction is becoming increasingly blurred
but it is quite relevant in a number of economic activities.
In a context of increasing economic liberalisation, regions
with higher competitive advantages tend to attract more
and more of traded goods. For example, manufactured
products without much local specificity move to those
regions where these can be produced cost-effectively. In
this sense, a whole range of manufacturing activities in
Kerala find it difficult to sustain their operations. If they have
to be retained, the answer lies in technological change and
innovation. An analysis of the rates of return reveals that
in a number of industries, Kerala compares poorly with its
neighbouring States. 7
An exception to this rule may be found in industries, which
are performing reasonably well for some location-specific
reasons or some other advantages. Take the case of ayurveda
pharmaceutical and related health products industry. The
growth of this industry can be attributed to the specific
advantage of traditional knowledge and a brand value that
has been acquired over time. Same is the case with the food
processing industry for which consumer preference in the
form of taste is an important determinant of demand. This
industry has also done well as a result of a growing market
abroad arising out of migration of people from the State.
In this sense, some manufactured products may be treated
as ‘non-tradeables’ if they have some specific advantage
arising out of location, knowledge, etc.
Construction is an important non-traded activity in the
secondary sector. This sector has also registered impressive
growth during the last one-and-a-half decades. However,
its linkages via demand for inputs are spread over both
traded and non-traded sectors.
We have seen in the last chapter that the leading sector
in the Kerala economy is the service sector, with the
highest rates of growth in many of its sub-sectors. Services
in general come under the category of non-traded items
because they all have some location specificity and hence
cannot be easily transplanted elsewhere. This, in general,
explains the reasons for the high growth of such services as
transport, communications, banking and related financial
sector activities, health, education and certainly tourism.
To this, should be added the growth of what may be called
‘creative industries’, which usually caters to the demand
for ‘cultural’ consumption. Examples are the fast-growing
activities such as the visual media (TV channels, cinema,
music industry, etc.), publishing activity, performing arts,
festivals, etc.
Such an analytical distinction between traded and nontraded
activities points to the need for special attention
to the development of non-traded activities in Kerala,
with emphasis on quality, product differentiation and
development of ‘niche’ markets. If Kerala wants to take
on the challenge of competition in a context of economic
liberalisation, then it has to chalk out a long-term policy
on technological change and innovation that will include
competition in traded items.
2.5 'High Road' and 'Low Road' to
Economic Development
In development economics literature, a distinction is
often made between the ‘high road’ and the ‘low road’
to economic development based on the experience
of several countries. The low road is referred to a path
whereby accumulation takes place by labour-intensive
industries taking advantage of the availability of a large
7 Background paper by K. Pushpangadan.