HIST363: Global Perspectives on Industrialization

Non-Technical Summary

Policy makers in many developing countries are concerned about continuing dependence on exports of resource-based products. Concerns about such dependence arise from a number of factors including concerns about: adverse trends in the terms of trade for commodities; the perceived volatility in their prices; the possibility of lower rates of productivity growth in resource production; and incentives for rent-seeking.

Frequently, this concern manifests itself in policy approaches that are either ineffective in reducing resource dependence, or unhelpful to economic development. Approaches that are likely to be ineffective include exhortations to the private sector to diversify their export mix. Proposals that are likely to be unhelpful include the provision of protection to import-competing industries.

The first part of the paper identifies policies that can both contribute to economic development and to reduction in resource dependence. These include: (i) accumulation of capital and skills; (ii) changes in protection policy, particularly reductions in the burden of protection on exporters; (iii) differential rates of technical change; and (iv) declines in transport costs. Then, the paper examines recent changes in developing country policies, and their environment, and export outcomes.

There has been a dramatic change in the composition of developing country exports since the mid-1960s. The share of manufactures in has risen from around 15 percent to over 80 percent, with a corresponding reduction in the importance of agricultural and mineral resource-based products. This is shown to reflect changes in the volumes of exports, rather than changes in relative prices.

Possible contributors to this development are identified as higher rates of accumulation of physical capital in many developing countries than in the industrial countries; and higher rates of growth in education per worker in all developing regions. Another fundamental change that appears likely to have contributed to this transformation is the dramatic reduction in developing-country trade barriers. Tariffs, non-tariff barriers, and exchange rate overvaluation have all been reduced dramatically. This has greatly reduced the burden imposed by protection on export-oriented manufactures. The role of technological change is less clear. The evidence suggests that, if anything, technical change has been more rapid in agriculture than in manufactures, a factor that would be expected to retard reductions in dependence on agricultural exports. Clearly, however, reductions in transport costs have contributed to the development of global production sharing models that have increased developing countries' ability to participate in manufactures trade.