Evolutionary Trade and Structural Transformation: The Dynamics of Real Competitiveness in Asia

Abstract

Why are some nations rich, and others poor? Deep structural change at the rules and institutional level leads poor countries to become rich. Deep structural change is invisible and can only be described qualitatively, whereas change in the surface structure is visible and measurable with unit values and quality improvement in exports. This paper employs an evolutionary trade concept, which offers a satisfactory representation of technological change as it becomes manifest on a surface level when countries acquire better physical, technical and human resources, which locate in physical space. Export unit value increases with productivity, and firms invest and trade in productivity in their economic geography. Firm (agent) competition for higher productivity and market (gross export) share drives trade success.

Dynamic export unit value analysis of Asian countries measures technological change as it surfaces due to deep structural change. As reflected in the paper's evolutionary trade concept, the relationship between export unit values and structural transformation is complex and non-linear, however a shift on aggregate toward higher export unit values signals deep structural change for higher productivity and real competitiveness. Surface structural change in six countries (Bangladesh, India, Indonesia, Nepal, Pakistan, and Thailand) is measured from 1991 to 2002. No significant, across the board structural change was detected in the six countries during that period.

Keywords: Asia, Competitiveness, Developing countries, Evolutionary aggregative model, Productivity, Quality growth, Structural transformation, Trade theory, Unit labor costs, Unit values

JEL Classification: E11, F10, F14, O14, O33, O47