Finance and Competitiveness in Developing Countries

By José María Fanelli; Rohinton Medhora | Go to book overview

9

Trade openness, industrial changeand economic development

Paolo Guerrieri


1.Introduction

This chapter analyzes the relationship between trade openness, the industrialization process and economic development. An evolutionist-structuralist approach, based on the more prominent and recent theoretical and empirical studies on the role of technology in international trade and economic growth, is used here. It stresses the importance of dynamic efficiency, technical infrastructure and the generation and diffusion of technology to achieving long-term growth. In this framework technological change and capability are considered key factors driving countries' trade specializations and economic performances.

Section 2 of the chapter surveys the most significant developments in the economic literature on trade openness and growth performances both at the theoretical and empirical levels. Section 3 analyzes the development experiences of three groups of countries in Latin America, East Asia and Mediterranean. Even though very different one to another, they have all been characterized by trade liberalization processes over the past two decades. A highly disaggregated analysis of trade specialization patterns of each individual economy is carried out in this section, emphasizing industrial changes and the main inter-industry linkages at each country level. Section 4 provides some interpretation of the main linkages between trade openness, industrialization and economic growth performance, drawing out some policy implications of our findings. A final section summarizes the main conclusions.


2.A survey of the literature on trade and growth performance

The economic literature on the influence of trade openness and liberalization on the industrialization and development process has been recently enriched by many contributions. Significant relationships between key variables, such as trade performance, international specialization and long-run growth, have been defined and/or redefined and new policy implications have also been offered. A few of them are outlined here.

As is well known, in the standard neoclassical model trade openness and liberalization produce substantial benefits in terms of a more efficient static

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