Is cost competitiveness a prerequisite for growth? : application of the theory of comparative advantage in understanding developing countries' export growth in Asia

The theory of comparative advantage argues that countries benefit from trade even without cost competitiveness and that what matters is the difference between efficiencies at which a country can produce different goods and services within its economy. In reality, however, a significant proportion of trade seems to occur based on cost competitiveness. China's exports to Japan have skyrocketed in the last decade, but the growth is mainly in labor-intensive industries because of the competitive prices that China can offer in global markets. This study intends to review the limitations of applying the theory of comparative advantage to interpreting the recent economic growth in Asia through theoretical reviews and a case study on Japan and China. The analysis reveals that comparative advantage can drive a developing country without cost competitiveness to growth of exports on the condition that a hierarchical mechanism exists in which an advanced country creates demand for further specialization through industrial upgrading and hands over its declining industries to the developing country. When the advanced country's need for further specialization is not sufficient, the developing country would be compelled into cost competition with the advanced country.

Department dc:contributor.department

Massachusetts Institute of Technology. Dept. of Urban Studies and Planning.

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2006

Author dc:creator

• Tsubouchi, Minami

Advisor dc:contributor.advisor

• Alice H. Amsden.

• Urban Studies and Planning.

Statement dc:rights

• M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/1721.1/37477

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/37477