Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/63241
Authors: 
Lin, Justin Yifu
Liu, Peilin
Year of Publication: 
2006
Series/Report no.: 
Research Paper, UNU-WIDER, United Nations University (UNU) 2006/43
Abstract: 
This paper argues that both openness and poverty in a country are endogenously determined by the country’s long-term economic development strategy. Development strategies can be broadly divided into two mutually exclusive groups: (i) the comparative advantage-defying (CAD) strategy, which attempts to encourage firms to deviate from the economy’s existing comparative advantages in their entry into an industry or choice of technology; and (ii) the comparative advantage-following (CAF) strategy, which attempts to facilitate the firms’ entry into an industry or choice of technology according to the economy’s existing comparative advantages. To carry out a CAD strategy, many governments of LDCs subsidize the firms in priority sectors by distorting capital prices, foreign exchange, and other inputs; and use administrative methods to allocate price-distorted inputs to the firms. The functions of market will be suppressed. Rent-seeking will be widespread. As a result, economic performance will be poor and the income distribution issue will worsen. Foreign trade will also be retarded. Only if governments of less-developed countries make following their economy’s comparative advantage the basic principle for promoting the economy’s industrial development, will the economy have an open and well functioning market, maintain a high rate of capital accumulation, upgrade its endowment structure quickly, and see a more equitable distribution of income and fewer poor.
Subjects: 
economic development strategy
income distribution
globalization
poverty
JEL: 
O14
O20
O33
N65
ISBN: 
9291908118
Document Type: 
Working Paper

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