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'Catch up' strategies for developing countries

The dynamic economic growth of China and other large emerging markets provides an unprecedented opportunity for industrialisation and growth in Africa and other low income countries, according to a paper in the November issue of the LSE journal Global Policy.

According to Justin Yifu Lin, formerly of the World Bank, nearly 100 million labour intensive manufacturing jobs will be freed up by the graduation of China, and other growing middle income countries, from low skilled manufacturing. This could quadruple manufacturing employment in low income countries.

In his paper, ‘From flying geese to leading dragons, new opportunities and strategies for structural transformation in developing countries’, Lin says: “To fully benefit from these opportunities, policy makers in low income countries must quickly plan and implement economically viable growth strategies.”

Chinese DragonLin argues that the successful strategy for developing countries is to exploit their late-comer advantage by building up industries that are growing dynamically in more advanced countries with similar resources to theirs, in terms of land, labour and capital.

In the article Lin sets out a six-step process for developing countries to do this. They should:

 Identify a list of goods and services that have been produced for about 20 years in rapidly growing countries, with similar resources and a per capita income that is about 100 per cent higher than their own

 Prioritise those industries identified in Step 1 in which some domestic private firms have already entered spontaneously and identify and remove obstacles to their development

 Adopt specific measures to attract firms from higher income countries, identified in Step 1, to invest in industries that are completely new to domestic firms

 Provide support to scale-up industries that have been spontaneously discovered by private enterprises but not identified in Step 1.

 In developing countries with poor infrastructure and an unfriendly business environment, the government can invest in industrial parks or exporting processing zones to attract domestic private firms and/or foreign firms to invest in the targeted industries

 Provide limited incentives for domestic pioneer firms or foreign investors that work with the list of industries identified in step 1, to compensate for public knowledge created by their investments

Lin says: “Regardless of size, location, or natural resources, all developing countries can achieve annual growth rates of eight per cent or more for decades and embark on the path of prosperity, provided that they carefully follow their comparative advantage, tap the potential of the latecomer advantage and engage in activities that will dynamically transform their economic structure.”

The November issue of Global Policy also includes a special section on ‘International Law, Human Rights, and the Global Economy: Innovations and Expectations for the 21st Century.’ The articles, written by international law experts, show how development, inequality and poverty, global public goods, the world economy and trade and finance are all matters of international law and human rights.

Justin Yifu Lin is the author of Quest for Prosperity: How Developing Economies Can Take Off, Princeton University Press

Global Policy

Posted: Wednesday 28 November 2012