Potential Comparative Advantage

Abstract

There is a considerable amount of evidence of developing countries either wishing or being encouraged to promote particular activities; promotion which increases exports of existing products and/or diversifies exports into non-traditional manufacturing activities. As we argued in Chapter 10, governments should be cautious about trying to select or identify specific activities for either the domestic or the export market. There are many examples of the failure of governments to identify appropriate activities. Indeed a primacy needs to be placed on demonstrating the responsibility of governments to create an environment conducive to facilitating efficient resource allocation. For example the encouragement of exports may require reductions of anti-export bias in incentive structures induced by existing policies (see for example Greenaway and Milner, 1986b, 1987a). The creation of more neutral incentive structures is likely to be a major element in export promotion.