The ‘Flying-Geese’ Theory of Tandem Growth and Regional Agglomeration
New Horizons in International Business series
Chapter 3: A Dynamic Stages Model of Structural Upgrading, Industrial Transplantation, and Knowledge Diffusion
THE LADDER OF ECONOMIC DEVELOPMENT DEFINED Trail-blazers’ Legacy 3.1. 3.1.1. What are the causes of structural upgrading from one stage to another – that is, Akamatsu’s progression ‘from crude and simple goods to complex and refined goods’ and ‘capital goods following consumer goods’? In other words, what factors propel a catching-up economy to scale the ladder of economic development – and in what manner? To answer this question, we must first define the ladder of economic development itself. This notion has long been popularly cited in the economics of industrialization, but surprisingly without any clear definition other than casually referring to a gradual process of upgrading from low-productivity to higher-productivity industrial activity. Yet, what exactly are the rungs of such a ladder? In neoclassical economics, economic development is conceived as a process of capital accumulation, that is to say, a country’s capital-to-labor endowment ratio increases. This merely means, however, that any growing country becomes increasingly more capital-abundant as national income rises, resulting in greater savings. Yet, capital accumulation is an effect or a result and not the cause of growth per se. What really brings about a spurt of growth and structural change under capitalism is innovation, both technological and organizational, or breakthrough technological progress that creates brand-new industries, as stressed by Joseph Schumpeter (1934). Capital investment only follows innovations. Therefore, the ladder of economic development can be defined by tracing out the actual historical path of industrial (hence technological) development driven by innovations. The model to be presented here may be...
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