Michael Spence, a Nobel laureate in economics, is Professor of Economics Emeritus and a former dean of the Graduate School of Business at Stanford University. He is Senior Fellow at the Hoover Institution, Senior Adviser to General Atlantic, and Chairman of the firm’s Global Growth Institute. He serves on the Academic Committee at Luohan Academy, and chairs the Advisory Board of the Asia Global Institute. He was Chairman of the independent Commission on Growth and Development, an international body that from 2006-10 analyzed opportunities for global economic growth, and is the author of The Next Convergence: The Future of Economic Growth in a Multispeed World (Macmillan Publishers, 2012).
MILAN – Trade and technology development policies almost always have distributional consequences. There may be a few exceptions for which the implementation of a policy produces either gains or no loss for nearly everyone, what economists would call a Pareto improvement. But these instances are relatively rare. You could argue that for early-stage developing countries, the export-driven growth model that draws surplus labor into the modernizing manufacturing and urban sectors comes close to meeting this standard. But even there, the gains are not spread evenly, and income inequality normally increases.
Distributional impacts are the norm, within countries and across national boundaries. Successful developing countries experience structural change as part of the growth process. The long-term benefits of exposure to global markets and investment are very large, driving both growth and significant structural adjustments in terms of jobs, skills, and human capital. But some sectors are inevitably adversely affected.
To ensure that new economic opportunities and pressures do not overwhelm the ability of developing countries – particularly the labor force – to adapt, policymakers should manage the pace and sequencing of the opening process in trade, investment, and the capital account. For example, if net employment creation – jobs created minus jobs lost – turns negative, opening may be happening too fast.
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