The changing global economic landscape: What are the factors that matter?

The global division of labour is changing. China, India and a number of other countries from the developing world have increased their presence in the global economy during the last decade. But many if not most developing countries fail to mimic this performance. This paper argues that the global knowledge economy presents developing countries with both opportunities as well as challenges. Opportunities because there is an enormous amount of knowledge out there to exploit, challenges because it is not at all easy to succeed in doing so. Successful exploitation of knowledge requires technological capabilities that cannot be taken for granted. Therefore, creation of such capabilities should be at the centre of attention of policy-makers in the developing world. The evidence clearly suggests that countries that succeed in doing so are the ones that manage to escape the vicious circle of poverty, disease and social and political unrest that have characterized many countries in the developing world. The paper, which draws on joint work with Martin Srholec, is based on a presentation at the Cournot Centre Conference, “The New International Division of Labour”, Paris, 12-13 November 2009. It was published as chapter 1 in Robert M Solow & Jean-Philippe Touffut (ed.), The Shape of the Division of Labour: Nations, Industries and Households. Edward Elgar Publishing, and is reproduced here with the permission of the publisher.