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Ha-Joon Chang

To most of those who govern the global economy today – the developed country policy-makers, international business leaders, and the international economic organisations (the IMF, the World Bank, and the WTO) – the solution to the problem of economic development is obvious. What the developing countries need, they argue, is the ‘good’ economic policies and institutions that the developed countries themselves used in order to develop – such as liberalisation of trade and investment and strong patent law. Their belief in their own recommendation is so absolute that in their view it has to be imposed on the developing countries at all costs, through strong bilateral and multilateral external pressures. This chapter discusses that, by having the freedom to choose policies and institutions that are more suitable to their conditions, developing countries will be able to develop faster, benefitting the developed countries in the long run by increasing their trade and investment opportunities.

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Jostein Hauge and Ha-Joon Chang

In this chapter, the authors critically evaluate the contention that today’s economic development strategies need to focus more on developing services rather than manufacturing. They ground their discussion particularly in the context of developing countries. They conclude that while services have increased their potential for contributing to productivity growth and are more tradable than before, manufacturing remains the backbone of productivity growth and economic development. They show that economic development has hardly ever happened without industrialisation; manufacturing has a larger multiplier effect in the economy than services; the falling share of the manufacturing sector in gross domestic product in many countries is somewhat of an illusion; manufactured goods remain far more tradable than services; and that the supposed risk of automation of manufacturing jobs in developing countries is mostly hype without evidence.