In order to achieve economic development, here understood as GDP growth, it is often suggested that developing countries would only need to ensure free trade and good institutions. Nevertheless countries pursuing institutional quality and trade openness, namely in Latin America, have failed to achieve sustainable economic development. Meanwhile others, namely in South and East Asia, have achieved remarkable economic growth rates, without functioning markets and property rights in place.
The questions I try to answer are: How can a theoretical framework be designed to explain the mentioned inefficiencies of the laisez-faire equilibrium in comparison to a socially optimal situation? Can it be argued that the above mentioned diverging growth success of different developing countries has been due to varying quality of chosen policy options? Do, by their enhancement, Rodrik and Hausmann explain the seemingly anomalies within the established theory on development economics?
Table of Contents
1. Introduction
2.1 Model and empirics on development, investment and learning
2.1.1 1st Model – theoretical part
2.1.2 1ST Evidence – empirical part
2.2 Model and empirics on development, specialisation and trade
2.2.1 2ND Model – theoretical part
2.2.2 2ND Evidence – empirical part
3. Conclusion
Objectives & Research Themes
The work examines the relationship between specialisation patterns, economic policy, and sustainable GDP growth, specifically evaluating the theoretical frameworks proposed by Rodrik, Hausmann, and Hwang regarding self-discovery and the impact of exports on development.
- The role of self-discovery processes in economic development.
- Market failures in the form of underinvestment in discovery and over-diversification.
- The link between export specialisation patterns and economic growth.
- Critique of empirical methodologies used to correlate export baskets with productivity.
- Policy implications for stimulating entrepreneurship in developing economies.
Excerpt from the Book
1. Introduction
In order to achieve economic development, here understood as GDP growth, it is often suggested that developing countries would only need to ensure free trade and good institutions. Good institutions shall guarantee for efficient technology adaption and enact property right laws. Free trade shall enable countries to fully enjoy the gains from trade. Nevertheless countries pursuing institutional quality and trade openness, namely in Latin America, have failed to achieve sustainable economic development. Meanwhile others, namely in South and East Asia, have achieved remarkable economic growth rates, without functioning markets and property rights in place (Hausmann/Rodrik 2003, p.607).
Recent literature on development economics tries to explain that diverging performance. It picks up the simple fact that developing countries, more precisely their entrepreneurs, first and foremost need to find out what sectors, goods and technologies to specialise in. This inherently bears the question of in how many sectors, goods and technologies to engage, so the optimal degree of diversification.
In the 1st paper, Dani Rodrik and Ricardo Hausmann try to shed light onto that issue. They focus on how to stimulate this discovery-process. Their work is based on some assumptions. After the discovery process entrepreneurs may learn from each other. The private rent to a discovery is smaller than the social rent. That is why policy needs to internalise some of the rent back to the investor. This can potentially be achieved by hampering imitated entry into the newly discovered market. Nevertheless governments in developing countries need to act in a balanced way, as that exclusivity always comes along with social costs. Rodrik and Hausmann consider different policy options in order to address those problems.
Summary of Chapters
1. Introduction: Outlines the research gap regarding diverging economic growth patterns and introduces the focus on Hausmann and Rodrik’s theories on self-discovery and specialisation.
2.1 Model and empirics on development, investment and learning: Analyzes the theoretical framework of market inefficiencies regarding discovery investment and evaluates empirical evidence on production uncertainty.
2.1.1 1st Model – theoretical part: Details the three-period model of discovery, monopoly, and free entry to explain investment behavior in modern versus traditional sectors.
2.1.2 1ST Evidence – empirical part: Discusses the empirical validity of uncertainty about production patterns and technology adoption through trade statistics and case studies.
2.2 Model and empirics on development, specialisation and trade: Extends the framework to include human capital and the growth implications of specialising in high-productivity goods.
2.2.1 2ND Model – theoretical part: Explores the link between specialisation patterns and economic growth, assuming production indeterminacy and externalities.
2.2.2 2ND Evidence – empirical part: Critically evaluates the EXPY and PRODY indices as measures for productivity and their correlation with GDP growth.
3. Conclusion: Summarizes the findings, noting that the thesis that export structures drive growth remains empirically tenuous due to methodological limitations.
Keywords
Economic Development, GDP Growth, Self-discovery, Production Indeterminacy, Specialisation Patterns, EXPY, PRODY, Human Capital, Trade Policy, Investment, Market Failure, Domestic Imitation, Economic Growth, Industrial Policy, Export Statistics.
Frequently Asked Questions
What is the primary focus of this work?
The work focuses on explaining why some developing countries achieve higher growth than others by analyzing the roles of industrial specialisation, cost discovery, and government intervention.
What are the central themes discussed?
The central themes include the mechanism of self-discovery, the impact of positive externalities on investment, and the relationship between a country's export basket and its GDP growth.
What is the core research objective?
The objective is to evaluate whether designing economic policy around specific specialisation patterns can successfully foster economic development, as proposed by Hausmann, Rodrik, and Hwang.
Which methodologies are employed in the study?
The study primarily utilizes a critical theoretical review of general equilibrium models and an analysis of the empirical regression results used by the original authors to justify their theories.
What is covered in the main body of the text?
The main body examines two major theoretical papers, detailing the mathematical assumptions of their models and critically reviewing their empirical evidence based on trade indices like PRODY and EXPY.
Which keywords best describe this research?
Key terms include economic development, self-discovery, production indeterminacy, specialisation, investment, and trade policy.
How does the author view the 'small economy' assumption in the models?
The author argues that the 'small economy' assumption is problematic in a globalized world, as it fails to account for the impact of multiple countries attempting to specialize in the same high-productivity goods simultaneously.
Why does the author express skepticism toward the EXPY index?
The author is skeptical because the EXPY index is constructed using GDP data, potentially leading to endogeneity bias where the index simply reflects a country's initial wealth rather than its causal growth potential.
What is the significance of the 1st model in the context of the work?
The 1st model is significant for identifying that market equilibria often lead to underinvestment in new discoveries and excessive diversification, justifying the need for strategic government intervention.
- Citation du texte
- Michael Boehl (Auteur), 2008, Development and Trade. The Role of Learning, Investment and Technology, Munich, GRIN Verlag, https://www.grin.com/document/352635
