Rethinking Trade and Development: A Developmentalist Perspective

In one of the longest lasting debates in economics, mainstream economists still basically rest their position regarding trade and development policies on the static principle of comparative advantage, while relying on fancier econometric techniques to find empirical support. This paper draws attention to dynamic considerations, first emphasizing Smith's observation that there was more scope for division of labor in manufactures than in primary production. Prebisch noted that primary products generally have lower income elasticity of demand than manufactures. In a global context where some countries undertook industrial development ahead of others, these would generate the trade patterns that Ricardo predicted. Investment would flow from the industrial center to the periphery to augment primary production as Mill anticipated. Through the dominance of backwash over spread effects, international inequalities would widen à la Mrydal. International dualism, especially in a technological sense, would be aggravated à la Singer. To counter such uneven development, developmentalists such as Hamilton, List, Prebisch, Myrdal, and Singer advocated technological acquisitions and industrial development on the part of the less-developed countries or regions. Contrary to mainstream portrayal they did not simply advocate protectionism. Instead, their policy suggestions were nuanced and sophisticated, and included both non-trade and trade instruments, means of building technological capabilities, and (for those writing after World War II) considerations of how to sensibly direct and regulate the activities of multinational corporations. These policy ideas appear to neatly link up with those drawn from case studies of East Asian development undertaken by some researchers that are outside of the economics mainstream.