The Role of Comparative Advantage, Endowments, and Technology in Structural Transformation

Abstract

This chapter critically discusses traditional theories of comparative advantage. While traditional theories of trade have mainly seen specialization according to one’s comparative advantages as the key route to development, this chapter argues for an alternative ‘point of view emphasizing the role of technological learning and absolute advantages for structural transformation. The chapter argues that Ricardian adjustment processes relying on endowment-based comparative advantages are often a misleading driver of development, and that instead competitiveness offers a better criterion to achieve sustained economic well-being. This theoretical perspective provides useful guidance to interpret the effects of unbridled globalization and the role of natural resources relative to industrial and trade policies in shaping the process of structural change and economic development.

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