Technological Innovation, Entrepreneurship and Development
David B. Audretsch & Mark Sanders
#2009-052
Industrialization has long been seen as the answer to underdevelopment
and poverty. First this led countries to follow protectionist import
substitution policies but as these failed developing countries have
opened up to trade and FDI and tried to follow strategies of export
driven industrialization. If we consider the share of non-OECD countries
in global trade in manufactures, this has been a big success. But has
it? Developed countries still retain their competitive advantage in the
innovative and fast growing industries of the future and for every
success story in Asia there are at least two tales of woo in Africa. In
this paper we present a two region product life cycle model of global
specialization and trade. In it we analyse the impact of three major
shocks to the gradually globalizing and integrating world economy and
show that these shocks have caused a transition in the global
specialization pattern. The advanced and previously industrialized
countries have arguable made the transition to an entrepreneurial
economy in which innovation, creativity and high value added in early
stage activity are the basis of competitive advantage, whereas the
developing world by-and-large has absorbed mature industrial activities
based on the Heckscher–Ohlinian competitive advantage based on cheap
unskilled labour. The key exogenous shocks that have led to this shift
are the collapse of communism, the introduction of information and
communication technologies and the opening up of large, populous
developing countries such as India, China, and Brazil. Our model
predictions are very much in line with observed trends in developing and
developed economies and as such provides insights in the possible
underlying mechanisms at work.
Keywords: globalization, innovation, trade, development
JEL Codes: F01, J31, O1, P0
UNU-MERIT Working Papers
ISSN 1871-9872