Trade exports of developing countries have shifted from primary products-oriented to manufactures and services-oriented, over the past half century. The movement has been influenced by the growingly globalized international trade and the desire to become more competitive. Some countries, China and India, have indeed emerged as fierce competitors in manufacture and trade in services, respectively.
The Growth of Manufactures: A highlight on the Chinese Industrial Boom
World manufactured production grew in the period 1985-1998 threefold (Lall, 2000). Developing countries followed the suit and started orienting its production to manufactures with the beginning of the 1990’s – rather faster than developed countries. The total output of manufactured goods moved from16.4% to 23.3% of world production, within the stated time period (Lall, 2000).
The new orientation reflects the ambition of developing countries to move from traditional patterns of trade based on the exportation of primary goods. In doing so, the assumption has been that the exportation of manufactured goods offers more advantages than that of primary goods. The former being added value production should generate more money. This is the rationale that explains the change in the trade pattern of developing countries.
Furthermore, one can say the move from primary goods production to manufacture underscores a ‘natural’ evolution because of the de facto growingly inter-connected world. In a globalized world, countries try to emulate or adapt to other countries’ patterns; hence, developing countries adopt this pattern that developed countries embraced a century before them. The new orientation is sought as a means to climb up the development ladder and upgrade to the rank of middle-income or high income countries (Razmi and Blecker, 2005).
Of all developing countries, China has particularly witnessed a boom in manufacture industry. A Global Insight forecast that China would even surpass the US in 2009 (Scissors, 2008). The incredible growth of Chinese manufacture industries has contributed to the growth of economy. The industrial added value accounts for 45% of China’s GDP (Jun, 20003). Manufacture industry has benefited from the lavish availability of labor, notably in the rural areas. China has adopted a policy of industrializing the countrysides, encouraging their large populations into working in factories. Hence millions of rural and small industries prospered (Jun, 2003).
It must be noted, nevertheless, that China is a sort of outlier among developing countries. The incredible growth of its industries brings to the fore some new issues. China is now exerting competition pressure on its peer emerging countries. There has been concern among economists that China competitiveness is affecting negatively developing countries. In Latin America, for instance, various industry executives have been complaining that Chinese products have harmed the domestic and export markets. This is particular linked to Chinese textile industry. China has been accused of textile dumping and grievances were being voiced out in the WTO, World Trade Organization, (Murphy, Swann, and Drajem, 2007).
Expansion of Trade in Services: the Example of India
Another sector that has seen the propulsion of developing countries is that of services, notably in India where IT outsourcing has flourished. In fact, in addition to their growing share in world manufacturing, developing countries have contributed significantly, in the last fifty years, to the growth of international trade thanks to the burgeoning sector of trade in services.
Trade in services has been influenced by the growing globalization and is expected to put pressure on labor market, in the next 25 years, as cheap qualified labor in developing countries, notably in India, is being employed by outsourcing countries (World Bank 2007). The UNCTAD Commission on Trade in Goods and Services, and Commodities found in 2006 that developing countries have increased their share in total trade by 3% and account now for a quarter of trade in services, including IT (UNCTAD, 2006).
The explanation for such growth is similar to the growth of manufactures in developing countries. The growth of trade in services is another face of developing countries’ attempt at integrating world economy. It is based on cheap skillful local labor. This is better reflected in the case of India where Western and international firms are outsourcing their jobs, especially with regards to IT industries.
Accordingly, with its high-skilled but low-cost IT engineers, India has attracted noticeably foreign firms. Call centers and software houses have been disappearing from western countries but increasing in India. Of the many firms who opted for the cost and skill convenience that India offers, one could mention Cisco, a communication firm, mandated that 20 percent of its top talent be in India within five years (Giridharadas, 2007).
Hence, the country has witnessed in the 1990’s one of the fastest rates of growth in the exportation of services, 17% per annum (World Bank, 2004). This fact supports the claim that the growth in the sector of services is the main reason for India’s economic fast growth during the 1990’s (World Bank, 2004). It gives, in turn, credit to the choice of India, and other developing countries, to orient their industries towards the exportation of services.
All in all, there has been considerable change, lately, in world trade patterns in so far as developing countries are concerned. They have oriented their industries towards manufactures and trade in services, probably as an attempt on their part to adapt to the growingly globalized world and become more competitive. Both China and India prove to be good showcases on this new pattern.
Giridharadas, Anand. “In India, outsourcing moves to the top floor”, International Herald Tribune, 2007.
Lall, Sanjaya. “The Technological Structure and Performance of Developing Country Manufactured Exports, 1985-98”, Oxford Development Studies, 2000, Vol. 28 Issue 3, p337-369
Murphy, Helen, Swann, Christopher and Drajem, Mark. Economic Outlook: Competition from China Squeezes Developing Countries, International Herald Tribune. 2007.
Razmi, Arslan & Blecker, Robert, 2005. “Developing Country Exports of Manufactures: Moving Up the Ladder to Escape the Fallacy of Composition?”, Working Papers, University of Massachusetts Amherst, Department of Economics.
Scissors, Derek. “Weighing Chinese Manufacturing Strength”, Heritage Foundation, 2008.
Jun, Zhang. “Investment, investment efficiency, and economic growth in China”, Journal of Asian Economics, 2003, pp713–734.
UNCTAD. “Trade in services and development implications”, Trade And Development Board, Commission on Trade in Goods and Services, and Commodities, Tenth session, Geneva, 2006.
World Bank. Global Economic Prospects 2007: Managing the Next Wave of Globalization. “Sustaining India’s Services Revolution”, South Asia Region, 2004.