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Trade policy and industrialisation when backward and forward linkages matter

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  • Baldwin, Richard
  • Venables, Anthony J.

Abstract

This paper develops a model in which the interaction of forward and backward linkages determines the range of goods and of parts that are produced in a developing economy. Using a simple formalisation of the range and sophistication of parts used in different goods, the paper investigates the effects of trade and industrial policy. Linkages create multiplier effects, so, for example, support for final goods producers can increase the range of parts produced, broadening the industrial base and attracting entry of further final goods producers. Effects depend on whether policy is targeted at appropriate margins. Policies that expand the range of parts on the margin are likely to spark more industrialisation than policies that promote parts production within the margin (parts that are already produced domestically), or parts far beyond the margin (highly sophisticated parts not used in locally produced final goods).

Suggested Citation

  • Baldwin, Richard & Venables, Anthony J., 2015. "Trade policy and industrialisation when backward and forward linkages matter," Research in Economics, Elsevier, vol. 69(2), pages 123-131.
    • Handle: RePEc:eee:reecon:v:69:y:2015:i:2:p:123-131
    DOI: 10.1016/j.rie.2015.02.008
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    References listed on IDEAS

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    1. Markusen, James R. & Venables, Anthony J., 1999. "Foreign direct investment as a catalyst for industrial development," European Economic Review, Elsevier, vol. 43(2), pages 335-356, February.
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    7. Dani Rodrik, 2016. "Premature deindustrialization," Journal of Economic Growth, Springer, vol. 21(1), pages 1-33, March.
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    Cited by:

    1. Maria Savona, 2021. "Revisiting High Development Theory to Explain Upgrading Prospects in Business Services Global Value Chains," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 33(2), pages 206-226, April.
    2. Filippo Bontadini & Maria Savona, 2019. "Revisiting the Natural Resource ‘Curse’ in the Context of Trade in Value Added: Enclave or High-development Backward Linkages?," SPRU Working Paper Series 2019-15, SPRU - Science Policy Research Unit, University of Sussex Business School.
    3. Michael Stierle & Ulrike Stierle-von Schütz & Stijn Rocher, 2018. "How did Regional Economic Structures in the EU Change during the Economic Crisis?," European Economy - Discussion Papers 088, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    4. Gbadago, Frank Yao & Enu-Kwesi, Francis & Agyei, Samuel Kwaku & Garchie, John Gatsi, 2024. "Effects of operators’ strategic approach to local content and in-country spending requirements on financial performance of upstream petroleum sector firms, Ghana," Resources Policy, Elsevier, vol. 93(C).
    5. Boone, Jan & Žigić, Krešimir, 2015. "Trade policy in markets with collusion: The case of North–South R&D spillovers," Research in Economics, Elsevier, vol. 69(2), pages 224-237.
    6. Svetlana Ledyayeva, 2017. "Export incentives and global value chains," UCL SSEES Economics and Business working paper series 2017-2, UCL School of Slavonic and East European Studies (SSEES).
    7. ITO Koji & Ivan DESEATNICOV & FUKAO Kyoji, 2017. "Japanese Plants' Heterogeneity in Sales, Factor Inputs, and Participation in Global Value Chains," Discussion papers 17117, Research Institute of Economy, Trade and Industry (RIETI).
    8. Bernard Hoekman, 2016. "Subsidies, Spillovers and WTO Rules in a Value-chain World," Global Policy, London School of Economics and Political Science, vol. 7(3), pages 351-359, September.
    9. Maria Savona & Filippo Bontadini, 2023. "Revisiting the Natural Resource Curse: Backward Linkages for Export Diversification and Structural Economic Transformation," Development and Change, International Institute of Social Studies, vol. 54(2), pages 378-421, March.
    10. Kawabata, Yasushi, 2015. "Endogenous formation of free trade agreements in vertically related markets," Research in Economics, Elsevier, vol. 69(2), pages 214-223.
    11. Emre Özçelik & Erdal Özmen, 2020. "Premature Deindustrialisation: The International Evidence," ERC Working Papers 2001, ERC - Economic Research Center, Middle East Technical University, revised Sep 2020.
    12. Markaki, Maria & Papadakis, Stelios, 2024. "Productive Structure Optimization under Macroeconomic Constraints based on Input-Output Analysis," Structural Change and Economic Dynamics, Elsevier, vol. 70(C), pages 91-105.
    13. Djeunankan, Ronald & Tadadjeu, Sosson & Kamguia, Brice, 2024. "Linking energy poverty and industrialization: Empirical evidence from African countries," Energy, Elsevier, vol. 292(C).
    14. Gbadago, Frank Yao & Enu-Kwesi, Francis & Agyei, Samuel Kwaku & Gatsi, John Gartchie, 2023. "Key local factors, supplier and linkage effectiveness: Evidence from the upstream petroleum sector of Ghana," Resources Policy, Elsevier, vol. 85(PA).
    15. Lahiri, Sajal & Ono, Yoshiyasu, 2015. "Pollution, foreign direct investment, and welfare," Research in Economics, Elsevier, vol. 69(2), pages 238-247.
    16. Bernard Hoekman & Douglas Nelson, 2020. "Subsidies, Spillovers and Multilateral Cooperation," RSCAS Working Papers 2020/12, European University Institute.

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