ENTREPRENEURSHIP AND DEVELOPMENT

Industrialization has long been seen as the answer to underdevelopment and poverty. First this led countries to follow protectionist import substi tution 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 nonOECD 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 gr owing 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 specializ t on 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 m ade the transition to an entrepreneurial economy in which innovation, creativity and high va lue added in early stage activity are the basis of competitive advantage, whereas the developing wo rld by-and-large has absorbed mature industrial activities based on the Heckscher–Ohlini an competitive advantage based on cheap unskilled labour. The key exogenous shocks that hav e led to this shift are the collapse of communism, the introduction of information and comm unication 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 tre nds in developing and developed economies and as such provides insights in the possible under lying mechanisms at work.