Competitiveness and Development

Almost all industrial countries have undergone strategies to maintain, or improve, competitiveness in order to improve the standard of living of their population, particularly during the last quarter-century or so. But how have they treated developing countries? ‘Competitiveness and Development’ explains how developing countries can attain competitiveness at a high level of development, examines the possibilities and constraints in achieving it, and proposes remedial measures at the national and international levels.

The author Mehdi Shafaeddin illustrates how developed countries impose restrictive policies on developing countries through international financial institutions and the WTO, as well as regional and bilateral agreements, thereby limiting their policy space for promoting dynamic comparative advantage in order to achieve competitiveness at a high level of development. Such policies, the author argues, lock developing countries that are at the early stages of development in specialization in primary commodities, or at best simple processing and assembly operations in accordance with their static comparative advantage.

To support this argument, the author critically examines the neoclassical theory of economics, which is the philosophy behind the principle of static comparative advantage as well as the policy stances of international financial institutions and the WTO. The author also reviews the historical experience of developed countries through industrialization, development and achieving competitiveness based on the principle of dynamic comparative advantage. In this context, he explains the importance of trade and industrial policies and the role of government in human resource development, innovation and technological development. To illustrate his case, the author compares the contrasting experiences of China and Mexico since the 1980s, during which time globalization has been intensified.

In ‘Competitiveness and Development’, the author explains the confusion surrounding the concept of competitiveness in the context of developing countries; proposes policies for achieving competitiveness at a high level of development; examines its possibilities and constraints; and suggests policy changes necessary at the national and international levels. Shafaeddin illustrates how developed countries impose restrictive policies on developing countries through international financial institutions and the WTO, as well as regional and bilateral agreements, which limit their policy space for promoting dynamic comparative advantage in order to achieve competitiveness at a high level of development. Ultimately, such policies lock developing countries that are at early stages of development in specialization based on static comparative advantage and competitiveness at a low level of development.

Mehdi Shafaeddin is a development economist with a DPhil degree from Oxford University and over 30 years of experience in teaching, research and policy advice at the national and international levels. He held the position of Head, Macroeconomic and Development Policies Branch, UNCTAD. He is currently an international consultant. Shafaeddin is the author of many articles on trade, industrialization and development policy issues in international academic journals. His latest books include ‘Trade Policy at the Crossroads: The Recent Experience of Developing Countries’ (Palgrave Macmillan, 2005).

Erik S. Reinert is Professor of Technology and Development Strategies at the Tallinn Technical University in Estonia, and is the President of the Other Canon Foundation.