This chapter examines different approaches to explaining manufactured export performance in a small open developing economy. Section 2.2 surveys the literature on the macroeconomic determinants of overall manufactured export performance in developing countries. Section 2.3 focuses on the main theories of international trade which permit the identification of factors, largely at the industry level, that affect a country’s pattern of manufactured exports and comparative advantage. Section 2.4 examines the predictions of different trade theories for a small, open economy, the assumptions concerning shifts in comparative advantage in manufacturing over time and policy needs. The discussion also introduces the recent technological capability (TC) approach which is based on the literature on firm-level technological capabilities in developing countries. Section 2.5 discusses the issues to be addressed in this study.
KeywordsForeign Direct Investment Comparative Advantage Real Exchange Rate Trade Liberalization Industrial Policy
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- 23.One of the most prominent advocates of free trade, John Stuart Mill, in his book Principles of Political Economy, first published in 1848, argued that:‘The only case in which, on mere principles of political economy, protecting duties can be defensible, is when they are imposed temporarily (especially in a young and rising nation) in the hopes of naturalising a foreign industry, itself perfectly suitable to the circumstances of the country. The superiority of one country over another in a branch of production often arises only from having begun it sooner. There may be DO inherent advantage on one part, or disadvantage in another, but only a present superiority of acquired skill and experience … But it cannot be expected that individuals should at their own risk, or rather to their certain loss, introduce a new manufacture, and bear the burden of carrying on until the producers have been educated to the level of those with whom the processes are traditional. A protective duty, continued for a reasonable time, might sometimes be the least inconvenient mode in which the nation can tax itself for the support of such an experiment’ (Mill, 1940, p. 922).Google Scholar