Edited by Suiwah Leung, Ben Bingham and Matt Davies
Chapter 2: Innovation and Economic Development: The Role of Production Networks
Ben Bingham INTRODUCTION 1 Recent literature points to the role of ‘economic discovery’ in economic development.1 Hausman and Rodrik (2003) were among the first to suggest that a capacity to discover new economic activities might drive development. Imbs and Wacziarg (2003), and more recently Klinger and Liederman (2006), subsequently confirmed a robust relationship between economic diversification and economic development. This chapter explores the link between economic discovery and the spread of international production networks. The literature (Baldwin 2006; Kimura 2006) suggests that these networks might promote economic discovery in developing countries because production fragmentation increases the potential range of activities in which developing countries have a comparative advantage. A synergy also exists between the desire of advanced economy firms to improve their competitiveness by offshoring activities and developing countries’ interest in promoting economic discovery. Developing countries that recognize these opportunities and exploit them are likely to have a significant edge over those that do not. Thus there may be a link between the rapid pace of economic discovery in East Asia over the past quarter century and the spread of regional production networks. These reflect, in part, greater openness to globalization and the unbundling of production processes. In turn, the development divide within East Asia may partly reflect the fact that the Mekong 42 were slower to adapt to these changes than their more developed ASEAN counterparts. The chapter concludes with a word of caution. While production networks can help start industrialization, it is not a panacea. Escaping the middle-income...
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