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Endogenous Technological Capability,Trade Policy and Coordination Failure: A Reconsideration of Economic Take-Off(s)

Economic development may feature entry into high-tech industries (�high-tech industrialization�), or expansion along low-tech trajectories (�low-tech industrialization�). By endogenizing technological capability within a coordination failure framework, we uncover mechanisms that help explain the differences between these types of industrialization. The process of development is characterized through a sequence of take-offs. In the first instance, an �industrial take-off� triggers industrialization. Subsequently, a �technological take-off� activates investment in technological capability. If wages rise too rapidly after crossing the industrial take-off, the economy misses a window of opportunity, and the technological take-off is bypassed. In this case, industrialization proceeds without entry into high-tech industries, and the economy ends up with lower income than otherwise. Trade policy is an effective instrument to trigger industrialization.

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Paper provided by School of Economics, University of Queensland, Australia in its series MRG Discussion Paper Series with number 1306.

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Handle: RePEc:qld:uqmrg6:13
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