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Rich Trades, Scarce Capabilities: Industrial Development Revisited

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  • John Sutton
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    Abstract

    What economic mechanisms underlie the polarization of the world economy into the 'high wage' industrialized countries and the less developed 'low wage' countries? Should we expect the two groups to converge over time, or to diverge? What economic mechanisms come into play as LDCs attempt to 'catch up'? How does the current liberalisation of world trade, or 'globalisation', impinge on these countries, and how does it affect the prospects for 'convergence'?In this paper, I bring together two recent economic literatures which have developed independently of each other over the past decade. The first if the 'Geography and Trade' literature, which has cast new light on how the dichotomy between 'rich' and 'poor' countries evolves. The second literature is the modern 'market structure' literature, which examines how global industries may of necessity be dominated by a relatively small number of leading producers.At the heart of this discussion is what I shall label 'scarce capabilities': just as the Golden Age of the Dutch republic was founded on the establishment of its dominance of the 'rich trades' (the maritime sea-routes to the Indies and Carribean), so the wealth of modern industrialized economies rests on the network of firms that enjoy 'scarce capabilities', the rent from which manifests itself primarily in the form of high real wages in their domestic labour markets. How this comes about, and how it persists, is my central theme.

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    Bibliographic Info

    Paper provided by Suntory and Toyota International Centres for Economics and Related Disciplines, LSE in its series STICERD - Economics of Industry Papers with number 28.

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    Date of creation: Sep 2001
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    Handle: RePEc:cep:stieip:28

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    Web page: http://sticerd.lse.ac.uk/_new/publications/default.asp

    Related research

    Keywords: Globalization; scarce capabilities; geography and trade.;

    References

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    1. Jian Tong, 1999. "Quality Competition, Market Structure and Endogenous Growth," STICERD - Economics of Industry Papers 25, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    2. John Sutton, 2001. "The Variance of Firm Growth Rates: The Scaling Puzzle," STICERD - Economics of Industry Papers 27, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    3. S. Baranzoni & P. Bianchi & L. Lambertini, 2000. "Market Structure," Working Papers 368, Dipartimento Scienze Economiche, Universita' di Bologna.
    4. Maria Letizia Giorgetti, 2001. "Quantile regression in lower bound estimation," LSE Research Online Documents on Economics 6746, London School of Economics and Political Science, LSE Library.
    5. Patrick Walsh, 1991. "A general framework for analysing endogenous trade divergences," LSE Research Online Documents on Economics 6780, London School of Economics and Political Science, LSE Library.
    6. Ellingsen, T., 1990. "A Model of Countertrade," Papers 14-90, Norwegian School of Economics and Business Administration-.
    7. Buzzacchi, Luigi & Valletti, Tommaso M., 2006. "Firm size distribution: Testing the "independent submarkets model" in the Italian motor insurance industry," International Journal of Industrial Organization, Elsevier, vol. 24(4), pages 809-834, July.
    8. Mark Schankerman, 1991. "Revisions of Investment Plans and the Stock Market Rate of Return," STICERD - Economics of Industry Papers 05, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    9. John Sutton, 1996. "Gibrats Legacy," STICERD - Economics of Industry Papers 14, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    10. Maija Halonen, 1994. "Endogenous industry structure in vertical duopoly," LSE Research Online Documents on Economics 6776, London School of Economics and Political Science, LSE Library.
    11. Maria Letizia Giorgetti, 2001. "Quantile Regression in Lower Bound Estimation," STICERD - Economics of Industry Papers 29, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    12. Jian Tong, 2000. "Submarkets, Shakeouts and Industry Life-Cycle," STICERD - Economics of Industry Papers 26, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    13. Harald Gruber, 1990. "Product Innovation and Persistence of Leadership: Theory with Evidence from the Semiconductor Industry," STICERD - Economics of Industry Papers 02, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    14. John Sutton, 1995. "One Smart Agent," STICERD - Economics of Industry Papers 08, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    15. Alison Oldale, 1998. "Local Bus Deregulation and Timetable Instability," STICERD - Economics of Industry Papers 21, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
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    Cited by:
    1. Diego Puga & Daniel Trefler, 2009. "Wake up and smell the ginseng: International trade and the rise of incremental innovation in low-wage countries," Working Papers 2009-01, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales.
    2. Felipe, Jesus & Kumar, Utsav & Abdon, Arnelyn, 2014. "How rich countries became rich and why poor countries remain poor: It's the economic structure…duh!," Japan and the World Economy, Elsevier, vol. 29(C), pages 46-58.

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