HIST363: Global Perspectives on Industrialization

This paper examines the options for policy makers interested in reducing the potential adverse consequences of dependence on resource-based products. It argues that any such action should follow a careful examination of the nature of the problems created by resource dependence. If the conclusion is that economic output should be restructured to reduce resource dependence, then appropriate policy responses are likely to involve: (i) increasing accumulation of the types of physical and human capital needed in the manufactures and service activities most appropriate to the country's comparative advantage; (ii) developing a trade regime that allows the emergence of new export activities as comparative advantage shifts; (iii) promoting technological change in manufactures and services; and (iv) reducing the transport and communication costs that can pose particular barriers to exports of manufactures and services.

Over recent decades, developing countries have greatly diversified their exports, to the point where manufactures account for over 80 percent of developing country merchandise exports. While declines in commodity prices have played a role in this change, it appears that there have been other contributing factors - in particular, relatively rapid accumulation of human and physical capital in developing countries, and a dramatic shift towards more open trade regimes. Biases in technical change do not appear to have played a major role in this transformation. If anything, increased productivity in developing country agriculture has tended to increase the share of agriculture in individual developing countries, although it has inhibited continuing to rely on agricultural exports by putting downward pressure on world agricultural prices.

Declines in communication costs have unambiguously helped developing countries participate more fully in global manufacturing production. Reductions in air transport costs have been helpful to developing countries, while linger freight rates actually increased in the period up to 1983 before beginning to decline. Policy action at the national level, and potentially through the GATS has an important role to play in reducing transport and communication costs.