Leading Dragons Phenomenon: New Opportunities for Catch-Up in Low-Income Countries

60 Pages Posted: 20 Apr 2016

See all articles by Vandana Chandra

Vandana Chandra

affiliation not provided to SSRN

Justin Y. Lin

Peking University - China Center for Economic Research

Yan Wang

Cornell University; African Development Bank

Date Written: March 1, 2012

Abstract

Modern economic development is accompanied by the structural transformation from an agrarian to an industrial economy and occurs through a process of continuous industrial and technological upgrading. Since the 18th century, all countries that industrialized successfully in Europe, North America and East Asia followed their comparative advantage and leveraged the late-comer advantage to emulate the leader-follower flying geese pattern of industrial upgrading. The large dynamic emerging market countries such as China, India and Brazil are also engaged in industrial upgrading but with a critical difference. In particular, because of its sheer size, China has absorbed nearly all labor-intensive jobs and become the world?s largest exporter of labor-intensive products. The current view is that China?s dominance hinders poor countries from developing similar industries. The authors argue that industrial upgrading has increased wages and is causing China to graduate from labor-intensive to more capital- and technology-intensive industries. These industries will shed labor and create a huge opportunity for lower wage countries to start a phase of labor-intensive industrialization. This process, called the Leading Dragon Phenomenon, offers an unprecedented opportunity to low-income Sub-Saharan Africa where the industrial sector is underdeveloped and investment capital and entrepreneurial skills are leading constraints to manufacturing. It can seize the opportunity and resolve the constraints by attracting some of the OFDI flowing currently from China, India and Brazil into the manufacturing sectors of other developing countries. All low-income countries will compete but to catch the jobs spillover from China, the winner must implement credible economic development strategies that are consistent with its comparative advantage.

Keywords: Economic Theory & Research, Emerging Markets, Achieving Shared Growth, Debt Markets, E-Business

Suggested Citation

Chandra, Vandana and Lin, Justin Yifu and Wang, Yan, Leading Dragons Phenomenon: New Opportunities for Catch-Up in Low-Income Countries (March 1, 2012). World Bank Policy Research Working Paper No. 6000. Available at SSRN: https://ssrn.com/abstract=2024824

Vandana Chandra (Contact Author)

affiliation not provided to SSRN

Justin Yifu Lin

Peking University - China Center for Economic Research ( email )

No. 38 Xueyuan Road
Haidian District
Beijing, Beijing 100871
China

Yan Wang

Cornell University ( email )

Ithaca, NY 14853
United States

African Development Bank ( email )

Rue Joseph Anoma
Abidjan, Ivory Coast 01 BP 1387
Ivory Coast (Cote D'ivoire)

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