NEW YORK – Since World War II’s end, the global economy’s trade and financial openness has increased, thanks to institutions like the International Monetary Fund and successive rounds of liberalization, starting with the General Agreement on Tariffs and Trade (GATT) in 1947. In parallel, colonialism collapsed, and we are now slightly more than halfway through a century-long process of modernization for the many developing countries that emerged. But where has that process led, where is it taking us now, and, perhaps most importantly, how can we influence its course?
With formal barriers to trade and capital flows lowered, several trends combined to accelerate growth and structural change in post-colonial and other developing economies. These included advances in technology (especially in transportation and communications), management innovation in multinational companies, and integration of these companies’ supply chains.
Thus, in the early post-war period, developing countries, whose exports had previously consisted mainly of natural resources and agricultural products, expanded into labor-intensive manufacturing. Textiles and apparel came first, followed by luggage, dishes, toys, etc. Supply chains also dispersed geographically, with lower value-added components and processes allocated to low-income countries.
In consumer electronics, for example, low-income countries became a natural location for labor-intensive assembly processes. But semi-conductors, circuit boards, and other components were designed and manufactured in high middle-income countries like Korea.