Ch-07-Relative Advs

6. IPR and Advantage of backwardness
• Balance between IPR and learning benefits; • Various forms of learning benefits
7. Question:
• Would developing countries be trapped in low-end industries forever? Or would the world be divided forever? – as worried by Structuralism economists?
• “Relative advantages” of growth factors.
3. Relative Advantages from perspectives of growth factors
• 3 candidates:
– labor costs;
– learning cost – advantages of backwardness (all kind of knowledge); benefit from spill-over effects from other countries.
• Capital: more capital means low capital cost;
• Labor: low scarcity means low labor cost. • Human capital: high productivity;
• Innovation: better goods, and low cost
– High tech. vs. A. tech
– Comparison of costs between you and your competitor who is the innovator of that high tech. !! -- fit local conditions; -- may be partial, not the whole system.
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By this theory, the only CA for poor country is cheap labor, or low labor costs.
(Leontief paradox)
–wk.baidu.com
Relative Advantages
• As CA is a well-known term dedicated merely to the single factor of low labor cost, it is better to find another term to avoid confusion.
– local information, local culture, local institutions.
• Anything else?
Application: industrial structure
• Labor intensive industries; low-end manufacturing industries; • OEM--Original Equipment Manufacturing， “贴牌生产”或“原始设备制造” ; processing industries;
• As long as you are still backward, you will have RAs to utilize so that you can grow faster, even you start to have some highquality factors.
• All countries and companies try to get every thing which may lower the costs.
5. Appropriate technology
• The technology which make your competitiveness improved, rather than deteriorated.
Ch-7. Comparative advantages (CA) and Relative advantages
The issue:
• When a developing county or a small start-up firm has no any advantage in terms of highquality factors to compete in the market place, how it should do, how it can grow?
1. Competitiveness
• Capabilities to make money in competitive market.
– To provide goods with better quality at the same cost, or provide same goods at lower cost, so that you can make money from more sales (at lower prices) or higher profit margins (at same prices). – Given the quality of goods (or supposing homogenous goods), competitiveness is about lower cost!
• Sales agent at local market; local-brandfirst strategy;
Examples:
• Company: Lenovo;
• Country: Taiwan, Korea;
This theory can be valid for long time
• Not only in the initial stage, but also later stages, as developing countries will suffer from lack of many “high quality factors” for long time if the gap is big.
• Even it has overcome the original capital bottleneck, what it should do? • Basically, how to make money in the competitive market dominated by advanced competitors? !
Competitiveness analysis
Profit = sales revenue – total cost
Cost = capital cost + equipment + tech. labor + sales costs + R&D Brand cost
High Quality and low scarcity of factors means low cost
• Institutions: efficiency
2. The original theories of CA
– David Regardo: relative productivity/competitiveness comparison. Heckscher-Ohlin: comparative cost advantage based on different scarcities of factor (of production) endowments; countries produce different goods because different factor scarcity.
-- this is the issue about if high-quality factors could be growing in developing countries.
But
• You have to make money by using the RAs in the first place anyway, otherwise, nothing sustainable;