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RODRICK: INDUSTRIAL DEVELOPMENT: STYLIZED FACTS AND POLICIES “Old School”- movement of labor from traditional activities in agriculture and other primary sectors to “modern” industry was the key to raising the economy’s saving and investment rates and to fostering economic growth o Manufacturing alternatives- non-traditional agriculture can play an important role in development (as it has notably in Chile). And the modernization of traditional agriculture can be a significant source of productivity gains (as with the green revolution). o Technology allows rapidly growing developing countries have been able to grow much faster than earlier antecedents o world markets provide near-limitless demand for manufactured exports from developing countries o there are natural limits to export-led growth based on primary products, as country after country has discovered “economic fundamentals”—macroeconomic stability and well-functioning markets o As long as an economy is open to international trade, comparative advantage directs resources to where their contribution to national product is maximized o non-traditional economic activities bring investment into activities that may not have started up otherwise industrialization of three kinds of economic policies: trade liberalization, promotion of non- traditional exports, and current-account policies (including, critically, the exchange rate). II. Important stylized facts of development o Economic development requires diversification, not specialization o Poor countries produce a relatively narrow range of goods, while richer countries are engaged in a broad range o as incomes increase, economies become less concentrated and more diversified. This process goes on until countries reach roughly the income level of Ireland. It is only at relatively high levels of income that further growth is associated with increased specialization Argument: Specialization only works in the most developed countries as a means to sustain growth o Rapidly growing countries are those with large manufacturing sectors
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What does this imply for industrialization? It suggests that enhancing an economy’s productive capabilities over an increasing range of manufactured goods is an integral part of economic development. The first order of business in development is to learn how to do new things, not to focus on what one already does well.
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