Endogenous Technological Capability,Trade Policy and Coordination Failure: A Reconsideration of Economic Take-Off(s)

Leo Yanes

No 1306, MRG Discussion Paper Series from School of Economics, University of Queensland, Australia

Abstract: Economic development may feature entry into high-tech industries (‘high-tech industrialization’), or expansion along low-tech trajectories (‘low-tech industrialization’). By endogenizing technological capability within a coordination failure framework, we uncover mechanisms that help explain the differences between these types of industrialization. The process of development is characterized through a sequence of take-offs. In the first instance, an ‘industrial take-off’ triggers industrialization. Subsequently, a ‘technological take-off’ activates investment in technological capability. If wages rise too rapidly after crossing the industrial take-off, the economy misses a window of opportunity, and the technological take-off is bypassed. In this case, industrialization proceeds without entry into high-tech industries, and the economy ends up with lower income than otherwise. Trade policy is an effective instrument to trigger industrialization.

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