2007 Vol. 1 Num. 1 - GCG: Revista de Globalización, Competitividad ...

The Challenge of the Knowledge Economy for Latin America
24 promote their industries and services are now not allowed under WTO rules1. Moreover,
stronger enforceable sanctions against piracy of intellectual property through the TRIPS mechanism
of the WTO now exist. As a result, it is now much harder for developing countries
to use some of the policies that helped some countries acquire more advanced technology
as part of their development strategy.
The challenge for developing countries is therefore to determine how best to be open to
international competition while at the same time nurturing the development of their own
production capabilities. If they liberalize too early, they run the risk of having their domestic
industries wiped out by well established and stronger foreign competitors.
2.4 Increasing Globalization
The reduction in communication and transportation costs combined with trade liberalization
has led to a dramatic expansion of trade. Imports and exports as a share of global GDP
have increased from 40 per cent in 1990 to 57 per cent in 2005. In addition, the reduction of
communications cost and the spread of the mass media have virtually created a “real time
world”, where events that happen in one place are instantly known worldwide.
The implication of this increased globalization for countries is that they are more exposed to
everything that is happening worldwide. It also means that everything happens faster, so in
addition to facing more competition, they have to develop greater capability than before to
respond rapidly and adequately to new threats and opportunities
3. Major Global Restructuring
Because of the speed up in the generation and dissemination of knowledge, reduction in
tariff and non-tariff barriers, and greater integration of the through trade, the global system
is in a constant state of restructuring. Three major forces are speeding up this process of
constant restructuring. The first is the unbundling of production and services. The second is
the doubling of the global labor force, and the third is the increasing role of the multinational
corporation.
3.1 The Two Unbundlings
The reduction in transportation and communication costs combined with the digitalization
of information has led to the physical disintegration of production. Because of lower transactions
costs, different components of a final product are now manufactured in several
different countries2.
1. See Chang (2002) for a good development of this argument.
2. For a good exposition on modular production as applied to electronics see Sturgeon (2002).
GCG GEORGETOWN UNIVERSITY - UNIVERSIA 2007 VOL. 1 NUM. 1