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Rich Trades, Scarce Capabilities: Industrial Development Revisited

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  • John Sutton

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.

Suggested Citation

  • John Sutton, 2001. "Rich Trades, Scarce Capabilities: Industrial Development Revisited," STICERD - Economics of Industry Papers 28, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  • Handle: RePEc:cep:stieip:28
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    File URL: http://sticerd.lse.ac.uk/dps/ei/EI28.pdf
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    References listed on IDEAS

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    12. Tong, Jian, 2000. "Submarkets, shakeouts and industry life-cycle," LSE Research Online Documents on Economics 6747, London School of Economics and Political Science, LSE Library.
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    14. S. Baranzoni & P. Bianchi & L. Lambertini, 2000. "Multiproduct Firms, Product Differentiation, and Market Structure," Working Papers 368, Dipartimento Scienze Economiche, Universita' di Bologna.
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    Cited by:

    1. Benno Ferrarini & Pasquale Scaramozzino, 2015. "The Product Space Revisited: China's Trade Profile," The World Economy, Wiley Blackwell, vol. 38(9), pages 1368-1386, September.
    2. Puga, Diego & Trefler, Daniel, 2010. "Wake up and smell the ginseng: International trade and the rise of incremental innovation in low-wage countries," Journal of Development Economics, Elsevier, vol. 91(1), pages 64-76, January.
    3. Ferrarini, Benno & Scaramozzino, Pasquale, 2016. "Production complexity, adaptability and economic growth," Structural Change and Economic Dynamics, Elsevier, vol. 37(C), pages 52-61.
    4. 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.
    5. Tseng, Eric & Sheldon, Ian, 2015. "Quality Upgrading, Trade, and Market Structure in Food Processing Industries," Proceedings Issues, 2014: Trade and Societal Well-Being, December 13-15, 2015, Clearwater Beach, Florida 229237, International Agricultural Trade Research Consortium.
    6. Ge, Ying & Lai, Huiwen & Zhu, Susan Chun, 2015. "Multinational price premium," Journal of Development Economics, Elsevier, vol. 115(C), pages 181-199.
    7. Tseng, Eric & Sheldon, Ian, 2015. "Food Processing Firms, Input Quality Upgrading and Trade," 2015 Allied Social Science Association (ASSA) Annual Meeting, January 3-5, 2015, Boston, Massachusetts 189696, Agricultural and Applied Economics Association.

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