Competing in a Global Economy: An Empirical Study on Specialization and Trade in Manufactures

Competing in a Global Economy: An Empirical Study on Specialization and Trade in Manufactures

Competing in a Global Economy: An Empirical Study on Specialization and Trade in Manufactures

Competing in a Global Economy: An Empirical Study on Specialization and Trade in Manufactures

Synopsis

Global patterns of production and trade in manufactures have changed tremendously over the past two decades. The growth of world trade has been accompanied by a rapid increase in the number of products, suppliers and buyers involved in international markets. At the same time, the means by which manufacturers compete and collaborate have been changing. The great challenges that these developments pose for policy makers and practitioners provide the basic motive for this comprehensive assessment of the underlying forces and determinants that are reshaping the world's industrial map.

Based upon an empirical approach, the analysis is closely interwoven with key elements of economic theory. the Heckscher-Ohlin model provides the framework for most of the book's interpretation, but less formal models focusing on economies of scale, product differentiation and other aspects of imperfect competition also figure prominently. The extensive research with access to UNIDO's vast body of unpublished information and contributions from specialists, has resulted in a blend of theoretical and empirical material which yields new insights into the way firms and industries compete in international markets.

Excerpt

Interest in the determinants of specialization and trade has a long tradition among economists. The past two decades, however, have brought substantial changes in the world trading system. Theoreticians and empiricists alike have been forced to modify their methods of analysis in an effort to stay abreast of all these changes. Theoreticians, for example, have constructed more elaborate models which better represent a trading system composed of multiple buyers and sellers who may or may not operate according to competitive dicta. Empiricists have resorted to more powerful econometric tools and have made use of data sets that are far larger than those available to their predecessors. An unintended result of all these advances is that the gap between theoreticians and empiricists has widened. This book is mainly empirical in approach. However, the compilation and analysis of quantitative material is closely linked to particular elements of economic theory. A major objective is to help bridge what we believe is a widening gap between the work of the theoretician and that of the empiricist.

This particular orientation lends itself to either of two methods of presentation. One would be to begin with a complete elaboration of the theoretical framework and then move on to empirical applications or tests. We have chosen not to do this in the present case. One reason has to do with the underlying theory. Several of the relevant models are set out in a formal manner and their distinguishing features can be easily presented. Others, however, are informal and do not lend themselves to a stylized presentation. This contrast makes it difficult to summarize concisely all the theoretical features that are relevant to an empirical study. A second reason is that even the most familiar trade models become complex once they are applied in a world of higher dimensions-one populated by a large number of buyers and sellers who trade a variety of products which, in turn, are produced with several factors of production. The complexity of the underlying theory makes it difficult for the reader to assess empirical evidence when this is separated from the conceptual framework.

The Heckscher-Ohlin approach provides much of the framework for analysis in this book. Its use leads naturally to an assessment of factor abundance as a determinant of specialization and trade. But the Heckscher-Ohlin model is not intended to suggest that factor abundance is the only relevant determinant. Once

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