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Rich trades, scarce capabilities: industrial development revisited

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  • Sutton, John
Abstract
What economic mechanisms underlie the polarisation of the world economy into the ‘high wage’ industrialised 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 is 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 the Caribbean), so the wealth of modern industrialised 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

  • Sutton, John, 2001. "Rich trades, scarce capabilities: industrial development revisited," LSE Research Online Documents on Economics 2037, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:2037
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    References listed on IDEAS

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    1. repec:lic:licosd:24609 is not listed on IDEAS
    2. 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.
    3. Felipe, Jesus & Kumar, Utsav & Abdon, Arnelyn & Bacate, Marife, 2012. "Product complexity and economic development," Structural Change and Economic Dynamics, Elsevier, vol. 23(1), pages 36-68.
    4. Ferrarini, Benno & Scaramozzino, Pasquale, 2016. "Production complexity, adaptability and economic growth," Structural Change and Economic Dynamics, Elsevier, vol. 37(C), pages 52-61.
    5. Benno Ferrarini & Pasquale Scaramozzino, 2013. "Complexity, Specialization and Growth," CEIS Research Paper 275, Tor Vergata University, CEIS, revised 30 Apr 2013.
    6. Uma S. Kambhampati & Ashok Parikh, 2005. "Has liberalization affected profit margins in Indian Industry?," Bulletin of Economic Research, Wiley Blackwell, vol. 57(3), pages 273-304, July.
    7. Curzi, Daniele & Raimondi, Valentina & Olper, Alessandro, 2013. "Quality Upgrading, Competition and Trade Policy: Evidence from the Agri-Food Sector," 2013: Productivity and Its Impacts on Global Trade, June 2-4, 2013. Seville, Spain 152387, International Agricultural Trade Research Consortium.
    8. Jesus Felipe & Utsav Kumar & Arnelyn Abdon, 2014. "As You Sow So Shall You Reap: From Capabilities to Opportunities," Oxford Development Studies, Taylor & Francis Journals, vol. 42(4), pages 488-515, December.
    9. Diego Puga & Daniel Trefler, 2005. "Wake up and smell the ginseng: The rise of incremental innovation in low-wage countries," Working Papers tecipa-193, University of Toronto, Department of Economics.
    10. Shrimoyee Ganguly & Rajat Acharyya, 2021. "Trade liberalization, export quality, and three dimensions of wage inequality," Review of Development Economics, Wiley Blackwell, vol. 25(4), pages 2157-2179, November.
    11. Ferrarini, Benno & Scaramozzino, Pasquale, 2011. "Indicators and Patterns of Specialization in International Trade," Papers 148, World Trade Institute.
    12. Shrimoyee Ganguly & Rajat Acharyya, 2021. "Emigration, Tax on Remittances and Export Quality," South Asian Journal of Macroeconomics and Public Finance, , vol. 10(1), pages 40-71, June.
    13. Tseng, Eric & Sheldon, Ian, 2015. "Quality Upgrading, Trade, and Market Structure in Food Processing Industries," 2015: Trade and Societal Well-Being, December 13-15, 2015, Clearwater Beach, Florida 229237, International Agricultural Trade Research Consortium.
    14. Ge, Ying & Lai, Huiwen & Zhu, Susan Chun, 2015. "Multinational price premium," Journal of Development Economics, Elsevier, vol. 115(C), pages 181-199.
    15. Swinnen Johan & Vandeplas Anneleen, 2012. "Rich Consumers and Poor Producers: Quality and Rent Distribution in Global Value Chains," Journal of Globalization and Development, De Gruyter, vol. 2(2), pages 1-30, January.
    16. Tseng, Eric & Sheldon, Ian, 2015. "Food Processing Firms, Input Quality Upgrading and Trade," 2015 Allied Social Sciences Association (ASSA) Annual Meeting, January 3-5, 2015, Boston, Massachusetts 189696, Agricultural and Applied Economics Association.
    17. Ganguly, Shrimoyee & Acharyya, Rajat, 2022. "Devaluation, Export Quality and Employment in A Small Dependent Economy," Journal of Economic Development, The Economic Research Institute, Chung-Ang University, vol. 47(1), pages 137-165, March.
    18. 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.
    19. Jesus Felipe & Arnelyn Abdon & Utsav Kumar, 2012. "Tracking the Middle-income Trap: What Is It, Who Is in It, and Why?," Economics Working Paper Archive wp_715, Levy Economics Institute.
    20. 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.
    21. Ganguly, Shrimoyee & Acharyya, Rajat, 2021. "Deficit versus balanced budget financing of ICT Infrastructure and Export Quality," Journal of Asian Economics, Elsevier, vol. 77(C).
    22. 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.

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    More about this item

    Keywords

    globalization; scarce capabilities; geography and trade;
    All these keywords.

    JEL classification:

    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

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