Abstract
Abstract: This paper argues that cumulative causation processes are fundamental to understanding growth and development. Such processes derive from spatially concentrated increasing returns to scale including thick market effects, knowledge spillovers, sectoral and urban clustering, and self‐reinforcing improvements in physical and social infrastructure. These sources of agglomeration have been extensively analyzed in the economic geography literature. They imply that spatial unevenness in economic activity and incomes is an equilibrium outcome. Growth tends to be ‘lumpy’, with some sectors in some countries growing fast while other countries lag. The policy challenge is to lift potential new centers of economic activity to the point where they can reap the productivity and investment climate advantages of increasing returns and cumulative causation.
Highlights
The role of trade—especially modern sector exports—in economic growth is increasingly clear
If preferences are offered with rules of origin allowing specialization in tasks, and open to members beyond least-developed countries, will export diversification occur in response? These conditions are offered by one policy regime, the special rule for apparel contained in the U.S African Growth and Opportunity Act (AGOA), and the evidence is of a strong export response, with apparel exports from Kenya, Madagascar, Lesotho, and other areas of Southern Africa soaring from around US$300 million to US$1.5 billion per year (Collier and Venables 2007)
Some factors are truly exogenous—such as first nature geography—and others are a function of political and institutional history. On top of these exogenous factors, we need to place a theory of the location of economic activity
Summary
The role of trade—especially modern sector exports—in economic growth is increasingly clear. This paper draws on recent work in trade and economic geography to provide a lens through which to assess trade, globalization, and economic growth. The third is that globalization is changing the nature of international trade, in particular by facilitating the fragmentation of production Discussion of these facts is the subject of the section of the paper. Rapid economic growth can occur, and is likely to be associated with modern sector export growth. It will typically be “lumpy” in three senses. How can countries or regions get to the threshold at which they become attractive as export bases for manufacturing, and at which they start to benefit from increasing returns to scale? How should we understand the economic relationship between regions or countries? Are developments in one region complementary or competing with developments in another?
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