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Leading Dragon Phenomenon: New Opportunities for Catch-up in Low-Income Countries

Author

Listed:
  • Vandana Chandra

    () (Senior Economist at the World Bank)

  • Justin Yifu Lin

    () (founding Director and Professor of the China Centre for Economic Research at Peking University)

  • Yan Wang

    () (Visiting Professor at George Washington University)

Abstract

Modern economic development is accompanied by the structural transformation from an agrarian to an industrial economy. Since the 18th century, all countries that industrialized successfully have followed their comparative advantages and leveraged the latecomer advantage, including emerging market economies such as the People's Republic of China (PRC), India, and Indonesia. The current view is that Chinese dominance in manufacturing hinders poor countries from developing similar industries. We argue that rising labor cost is causing the PRC to graduate from labor-intensive to more capital-intensive and technology-intensive industries. This will result in the relocation of low-skill manufacturing jobs to other low-wage countries. This process, which we call the “leading dragon phenomenon,” offers an unprecedented opportunity to low-income countries. Such economies can seize this opportunity by attracting the rising outward foreign direct investment flowing from Brazil, the PRC, India, and Indonesia into the manufacturing sectors. All low-income countries can compete for the jobs spillover from the PRC and other emerging economies, but the winner must implement credible economic development strategies that are consistent with its comparative advantage. © 2013 Asian Development Bank and Asian Development Bank Institute.

Suggested Citation

  • Vandana Chandra & Justin Yifu Lin & Yan Wang, 2013. "Leading Dragon Phenomenon: New Opportunities for Catch-up in Low-Income Countries," Asian Development Review, MIT Press, vol. 30(1), pages 52-84, March.
  • Handle: RePEc:tpr:adbadr:v:30:y:2013:i:1:p:52-84
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Justin Yifu LIN & Yan WANG, 2015. "China’s Contribution to Development Cooperation: Ideas, Opportunities and Finances," Working Papers P119, FERDI.
    2. Lin, Justin Yifu & Wang, Yan, 2014. "China-Africa co-operation in structural transformation: Ideas, opportunities, and finances," WIDER Working Paper Series 046, World Institute for Development Economic Research (UNU-WIDER).
    3. repec:ocp:dbbook:9-789954-971727 is not listed on IDEAS
    4. Philip Schellekens, 2013. "A Changing China : Implications for Developing Countries," World Bank Other Operational Studies 16115, The World Bank.

    More about this item

    Keywords

    structural transformation; Asia; Africa; People’s Republic of China; flying geese;

    JEL classification:

    • B10 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - General
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O25 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Industrial Policy

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