Pathfinding Paper 9

Perspectives on Trade, Structural Transformation, and Development - George Alessandria, Robert Johnson, and Kei-Mu Yi 

This pathfinding paper explores the role of international trade (or lack thereof) in structural transformation and development.  We begin by reviewing recent work on trade and structural transformation. Though this existing work focuses primarily on middle income countries, we identify lessons and questions stimulated by this literature that are relevant for developing countries.  We then assess the particular role of global value chains in facilitating industrialization.  We take stock of what is known about the costs/benefits of task specialization and spillovers from engagement with foreign firms, and seek to position this knowledge in the context of macro-level industrial transformation.  Despite the potential for trade to stimulate industrialization and growth, the fact remains that many low income countries do not in fact trade very much.  We thus investigate barriers to trade, focusing in particular on evidence on the nature of barriers derived from micro-firm level trade dynamics.  We conclude with reflections on how recent deglobalization shocks (including COVID-19) may shape future prospects for trade by developing countries.