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Regional cooperation and trade agreements
The volume of trade to countries in the region was found to be influenced by the nature of the regional cooperation and trade agreements. This finding is grounds for a reassessment of the viability of small-scale import substitution and far more consideration for regional cooperation and regional trade, which enable economies of scale to be tapped.
The exporting firms have mainly targeted regional markets, with smaller volumes being exported to international markets. This study has found that even to sustain regional markets, competition with other regions of the world will have to be faced sooner or later. There is always a danger of losing the regional markets to competitors from other regions. Even if imported products are not as suitable to local conditions, competitors from outside the region have sometimes penetrated the regional market by supplying their products at lower prices or by supplying products with a better finish. Thus specific local and regional markets can be lost to others if continuous efforts are not made to develop competitiveness in terms of quality and price. The study has revealed some cases in which competitors from other regions have made products specifically for the African regional market. Thus the specificity of regional markets may make the competition for various products less intense but it does not guarantee a monopoly. The need to exert continuous effort to attain and maintain competitiveness in such markets does not seem to be obviated by any specific characteristics of regional demand.
Africa has demonstrated the slowest progress in developing regional integration and cooperation arrangements (UNCTAD, 1993b). The challenge which emerges from this study is whether regional cooperation arrangements can be designed for Africa to facilitate (through investments, joint technological activities and trade) the process by which firms and other institutions in Africa build up technological capabilities. The African Economic Community and existing sub-regional economic cooperation arrangements should accord high priority to promoting trade expansion' based on both exports and imports, by removing distortions, avoiding the duplication of large investments where national markets are small, reducing transaction costs (e.g. by trading arrangements which guarantee market access, regional marketing intelligence, improvements in the marketing infrastructure) and by redirecting trade flows.
Notes to part I
1 UNECA, Beyond Recovery: ECA-revised Perspectives of Africa's Development, 1988-2008, E/ECA/CM.14/31, Addis Ababa, March 1988.
2 World Bank. Accelerated Development in Sub-Saharan Africa, Washington, D.C., 1981.
3 During 1980-88. 33 countries in Africa had agreements with the IMF and 12 had extended fund facilities, while 15 had Strategic Adjustment Loans with the World Bank.
4 UNCTAD, Developments and Issues in the Uruguay Round of Particular Concern to Developing Countries Note by the UNCTAD Secretariat, TD/B/39(2)/CPR 1, 15 March 1993a.
5 UNIDO, African Industry in Figures Vienna, 1993.
6 Sharma, R., The 'Missing Middle' in Sub-Saharan Africa: Role of South-South Cooperation Research and Information for the Non-aligned and other Developing Countries New Delhi, Interest Publications, 1993.
7 Riddell, R.C. (ed.), Manufacturing Africa: Performance and Prospects of Seven Countries in Sub-Saharan Africa London, James Curry, etc., 1990.
8 UNCTAD, Follow-up to the Recommendations Adopted by the Conference at its Eighth Session: Evolution and Consequences of Economic Spaces and Regional Integration Processes TD/B/40(1)7. 23 July 1993b.
9 Husain, I., Structural Adjustment and Long-term Development in Sub-Saharan Africa, in van de I Hooven, R., and van de Kraaj, F. (eds) Structural Adjustment in Sub-Saharan Africa London, James Curry, 1994.
10 Sub-Saharan Africa: From Crisis to Sustainable Growth A Long-term Perspective Study Washington, D.C., 1989.
11 Prebisch, R., Five Stages in My Thinking about Development, in Bauer, P., Meier, G., and Seers, D. (eds), Pioneers in Development, New York, 1954.
12 Nurkse, R., Patterns of Trade and Development Wicksell Lectures, Stockholm, 1959.
13 The main exports in order of importance arc: cocoa, coffee, timber, cotton, sugar, live animals and meat, tobacco, tea, fish products, rubber, groundnuts, palm oil, bananas, sisal, spices and fruits.
14 Brown, M.B. and Tiffen, P., Short Changed: Africa and World Trade London, Pluto Press, 1992.
15 ITC, Cocoa: Traders' Guide Geneva, International Trade Centre, 1987.
16 Killick, T., Explaining Africa's Post-independence Development Experiences. Paper presented at the Second Biennial Conference on African Economic Issues, Abidjan, 13-15 October, 1992
17 North, Douglass C., Economic Performance through Time, American Economic Review 84 (3), June 1994.
18 However, over time there has been a shift in this approach towards recognition of institutional and enterprise-level actions as a complement to macroeconomic and sectoral policies [Lieberman, I., Industrial Restructuring Policy and Practice Research and Policy Series, Washington, D.C., World Bank, 1990].
19 Weiss, J., Industry in Developing Countries: Theory Polity and Evidence London and New York, Routledge, 1988.
20 Bhagwati, J.N. and Srinivasan, T.N., Foreign Trade Regimes and Economic Development: India, National Bureau of Economic Research, New York, Columbia University Press, 1975.
21 World Bank, Capital Accumulation and Economic Growth: The Korean Paradigm, World Bank Staff Working Papers, No. 712, Washington, D.C., 1985.
22 Westphal, L., Empirical Justification for Infant Industry Protection World Bank Staff Working Paper No. 445, Washington, D.C, 1981; Pack, H. and Westphal, L.E., Industrial Strategy and Technological Change: Theory versus Reality, Journal of Development Economics 22, 1986; Jacobsson, S. and Alam, G., Liberalization and Industrial Development in the Third World: A Comparison of the Indian and South Korean Engineering Industries New Delhi, Sage, 1994.
23 Lall, S., Navaretti, G.B., Teitel, S. and Wignaraja, C., Technological Capabilities and Industrial Development in Ghana Study prepared for the World Bank, Washington, D.C., March 1993.
2. TRADE THEORY: RELEVANCE AND IMPLICATIONS FOR AFRICAN EXPORT ORIENTATION
1 Colclough, C., Structuralism versus Neo-liberalism: An Introduction, in Colclough and Manor, p. 18a, 1991.
2 Leontief, W.W., Studies in the Structure of the American Economy, New York, Oxford University Press, 1953
3 Helpman, E. and Krugman, P., Market Structure and Foreign Trade: Increasing Returns Imperfect Competition and the International Economy, Brighton, Wheatsheaf, 1985; Porter, M., The Competitive Advantage of Nations London and Basingstoke, Macmillan, 1990.
4 Linder, S. B., An Essay on Trade and Transformation, Stockholm, Almquist and Wikell, 1961 (reprinted New York, Garland, 1983).
5 Yoffie, D.B. (ed.) Beyond Free Trade: Firms Governments and Global Competition Boston, Mass.. Harvard University School Press, 1993.
6 Ray, E.J., US Protection and Intra-industry Trade: The Message for Developing Countries, Economic Development and Cultural Change, 40 (1), October 1991.
7 Haque, I.U., International Competitiveness: Public Sector/Private Sector Interface, in Haque, I.U., (ed.) International Competitiveness: Interaction of the Public and Private Sectors, collected papers from an EDI policy seminar in Seoul, Republic of Korea, 18-21, April 1990.
8 Kierzkowski, H., Recent Advances in Trade Theory: A Selected Survey, Oxford Review of Economic Policy 3 (1), 1987.
9 Caves, R., International Trade and Industrial Organization: Introduction, Journal of Industrial Economics, 29, 1980; Brander, J.A., Intra-industry Trade in Identical Commodities, Journal of International Economics, 11, 1981; Brander, J.A. and Krugman, P.A., A Reciprocal Dumping Model of International Trade, Journal of International Economics, 1983.
10 Ethier, W.J., Internationally Decreasing Costs and World Trade, Journal of International Economics, 9, 1979; Krugman, P.R., Increasing Returns and the Theory of International Trade, in Bewley, T. (ed.), Advances in Economic Theory, Cambridge, 1987; Grossman, G. and Helpman, E., Product Development and International Trade, Journal of Political Economy, 97, 1989, Grossman, G.M. and Helpman, E., Trade Innovation and Growth, American Economic Review, Papers and Proceedings, May 1990a.
11 Dixit, A.K. and Norman, V., Theory of International Trade, Cambridge, Nisbet, 1980; Krugman, P.R., A Model of Innovation, Technology Transfer and the World Distribution of Income, Journal of Political Economy, 87, 1979; Lancaster, R., Intra-industry Trade under Perfect Monopolistic Competition, Journal of International Economics, 10, 1980.
12 Dixit, A.K. and Stiglitz, J., Monopolistic Competition and Optimum Product Diversity, American Economic Review, 67, 1977; Lancaster, R., Variety, Equity and Efficiency, New York, Columbia University Press, 1979.
13 Greenway. D., New Trade Theories and Developing Countries, in Bala-subramanyam, V.N. and Lall, S. (eds), Current Issues in Development Economics, London, Macmillan, 1991.
14 Scherer, F., Industrial Market Structure and Economic Performance, Chicago etc.. Houghton Mifflin, 1980
15 Alcorta, L., The Impact of New Technologies on Scale in Manufacturing Industry: Issues and Evidence, World Development, 22 (5), May 1994.
16 The traditional formulation assumed that the output of the domestic industry is the source of external economies via the larger demands for intermediate inputs (presumably produced at lower cost).
17 Ethier, W.J., National and International Returns to Scale in the Modern Theory of international Trade, American Economic Review, 72, 1982.
18 The assumption of symmetry requires that all intermediate goods (components) be producible from capital and labour via identical production functions and that all these components contribute in totally symmetric fashion to the finished manufactured goods, implying that all components are produced in equal amounts.
19 Helpman, E., International Trade in the Presence of Product Differentiation, Economies of Scale and Monopolistic Competition, Journal of International Economics 11, 1981.
20 Krugman, P.R., Import Protection as Export Promotion, in Kierzkowski, 1984.
21 Krugman, P., Scale Economies, Product Differentiation and the Pattern of Trade, American Economic Review 70, 1980.
22 The concept of contestable markets combines the Betrand behaviour of firms and costless unrestricted entry and exit.
23 Baumol, W.J., Panzar, J.C. and Willig, R.D., Contestable Markets and the Theory of Industrial Structure New York, Harcourt Brace Jovanovich, 1982.
24 Monopolistic competition is like contestable markets, with the possibility of product differentiation.
25 Solow, R.A., Contribution to the Theory of Economic Growth, Quarterly Journal of Economics 71, 1956; Baldwin, R.E., Review of Theoretical Developments on Regional Integration. Paper presented at the first Project Workshop on Regional Integration and Trade Liberalization in Sub-Saharan Africa, African Economic Research Consortium, Nairobi, 2-4 December 1993.
26 Mankiw, G., Romer, D. and Weil, D., A Contribution to the Empirics of Economic Growth, Quarterly Journal of Economics 107 1992.
27 Romer, P. Increasing Returns and Long-run Growth, Journal of Political Economy 94, 1986.
28 Arrow, K., The Economic Implications of Learning by Doing, Review of Economic Studies June 1962.
29 Spencer, M., The Learning Curve and Competition, Bell Journal of Economics 12, 1981.
30 Nelson, R. and Winter, S., An Evolutionary Theory of Economic Change Cambridge, Mass., Belknap Press of Harvard University Press, 1982; Dosi, G., Pavitt, K. and Soete, L., The Economics of Technical Change and International Trade, London, Harvester Wheatsheaf, 1990; Cooper, C., Are Innovation Studies on Industrialized Economies Relevant to Technology Policy in Developing Countries?, Maastricht, INTECH Working Paper, No. 3, 1991.
31 In mathematical terms, the addition of an equation specifying equilibrium conditions is a way of providing for the model's 'determination' or closing the model'.
32 Nelson, R.' The Role of Firm Differences in an Evolutionary Theory of Technical Advance, Science and Public Policy 18 (6), December 1991.
33 Tidd, J., Flexible Manufacturing Technologies and International Competitiveness London, Pinter, 1991.
34 Kaldor, M., The Case for Regional Policies, Scottish Journal of Political Economy, 17, 1970; Kaldor, M., What is Wrong with Economic Theory?, Quarterly Journal of Economics, 89, 1975; Pasinetti, L.L., Structural Change and Economic Growth A Theoretical Essay on the Dynamics of the Wealth of Nations Cambridge, Cambridge University Press, 1981.
35 Havrylyshyn. O. and Civan, E., Intra-industry Trade among Developing Countries, Journal of Development Economics, 18, 1985. Greenway (1991) evaluated the extent of intra-industry trade in developing countries as a way of determining how widespread economies of scale and product differentiation are. Two categories of intra-industry studies arc invoked: documentary studies recording the incidence of intra-industry trade at a given level of aggregation, and econometric studies identifying the determinants of a given level or change in intra-industry trade.
36 Stewart, F., Recent Theories of International Trade: Some Implications for the South, in Kierzkowski, 1984; Stewart, F., A Note on 'Strategic' Trade Theory and the South, Journal of International Development, 3 (5), 1991.
37 Balassa. B. and Bauwens, L., Changing Trade Patterns in Manufactured Goods, Amsterdam, North-Holland, 1988.
38 Lecraw, D., Technological Activities of LDC-based Multinationals, Annals of the American Academy of Political and Social Science, 458, November 1981.
39 ITC, Supply and Demand Surveys: Indicative Value of Imports and Export Trade in Selected Products for Member Countries of the PTA (1981-1985), Geneva, ITC/UNCTAD/GATT, December 1985.
40 The COMTRADE data base was used. This contains foreign trade statistics for 199 countries and customs areas. In the absence of sufficient data for all PTA countries, the official statistics of the countries' trading partners were systematically scanned. The data series relate to 17 countries: Angola, Burundi, Comoros, Djibouti, Ethiopia, Kenya, Madagascar, Malawi, Mauritius, Mozambique, Rwanda, Seychelles, Somalia, Uganda, Tanzania, Zambia and Zimbabwe. Data for Botswana, Lesotho and Swaziland had to be excluded as their trade flows are recorded as part of the Southern African Customs Union. Trade with South Africa and the then USSR is not reflected in the data base. However, the data displays a high degree of volatility from year to year: often a country changes from a large exporter of a product one year to a non-exporter in the following years. This could be a reflection of the quality of data.
41 Koester, U. and Thomas, M., Agricultural Trade among Malawi, Tanzania, Zambia and Zimbabwe, IFPRI, Washington, D.C., February 1992.
42 Badiane, O.. Macroeconomic Policies and Inter-country Trade in West Africa, IFPRI, Washington, D.C., 1992.
43 See, e.g., Spencer, B.J., What Should Trade Policy Target?, in Krugman, 1986. The point has been disputed in Srinivasan, T.N., Recent Theories of Imperfect Competition and International Trade: Any Implications for Development Strategy? Indian Economic Review, 24 (1), 1989.
3. SOME CONCEPTUAL ISSUES AND METHODOLOGY OF THE STUDY
1 Lovell, K.C.A., Production Frontiers and Productive Efficiency. In Fried, Harold O., Lovell K.C.A. and Schmidt, Shelton S. (eds), The Measurement of Productive Efficiency: Techniques and Applications, Oxford, Oxford University Press, 1993.
2 Koopmans, T.C., An Analysis of Production as an Efficient Combination of Activities, in Koopmans T.C., (ed.), Activity Analysis, Production and Allocation, Cowles Commission for Research in Economics, Monograph No. 13, New York, John Wiley, 1951.
3 Debreu, G., The Coefficient of Resource Utilization, Econometrica, 19 (3), July 1951; Farell, M.J., The Measurement of Productive Efficiency, Journal of the Royal Statistical Society, series A, General, 120 (3). 1957.
4 Pack, H., Productivity and Industrial Development in Sub-Saharan Africa, World Development, 21 (1), 1993.
5 Kaldor, N., The Effect of Devaluations on Trade in Manufactures, in Further Essays on Applied Economics, London, Duckworth, 1978.
6 Fagerberg, J., International Competitiveness, Economic Journal. 98 (391) 1988.
7 OECD, Technology and the Economy: The Key Relationships, Paris, OECD, 1992a.
8 Nelson, R., Recent Writings on Competitiveness: Boxing the Compass, California Management Review, 34, (2), Winter 1992.
9 Enos, J. L., The Creation of Technological al Capability in Development Countries, Pinter, London, 1991.
10 Ndlela, D. B., Kaliyathi, J.W.E., Mutungwazi, D. and Zwizwai, B.M., A Study of the Transfer of Technology and Technology Acquisition in the Metals and Metal Goods Sector in Zimbabwe, in East Africa Technology Policy Studies Network (EATPS), Technology Policy Studies in Eastern and Southern Africa, Nairobi, International Development Research Centre (IDRC), 1990; Amdi, I.E.S., Government Policy and Assistance in the Development of Technological Capacity of the Metalworking Cabottage Sector on Benue State of Nigeria, Zaira, Nigeria, Department of Political Science, Ahmadu Bello I University (n.d.); Herbert-Copley, B., Technical Change in African Industry: Reflections on IDRC Supported Research, Canadian Journal of Development Studies, 13 (2), 1992.
11 Yin, R.K., Case Study Research: Design and Methods, Applied Social Science Research Methods Series, Vol. 5, London and New Delhi, Beverly Hills, 1984.
12 Reid, G.C., Theories of Industrial Organization, Oxford, Blackwell, Oxford, 1987.
13 Competitiveness based on minor, locally generated adaptations and improvements specific to recipient environments has been cited in the case of Argentina's international sale of industrial plants and engineering works.
4. THE CHANGING WORLD ECONOMY: MARKET CONDITIONS AND TECHNOLOGICAL DEVELOPMENTS
1 The concept of 'quality' has been broadened to encompass consistency, predictability, employee motivation, supplier involvement and performance measurement.
2 Partnering can involve R&D consortia, joint ventures and cross-licensing arrangements.
3 Tapscott, D. and Caston, A., Paradigm Shift: The New Promise of Information Technology New York, McGraw-Hill, 1993; Mytelka, L.K., Strategic Partnerships: States Firms and International Competition London, Pinter and Cranbury, N.J.. Fairleigh Dickinson University Press, 1991.
4 OECD, Information Networks and New Technologies: Opportunities and Policy Implications for the 1990s Information Computer Communications Policy, No. 30, Paris. OECD, 1992b.
5 CBI, Active Sportwear. A Survey of the Netherlands and Other Major Markets in the European Community, Rotterdam, CBI, September 1991b.
6 CBI, Household and Furnishing Textile: A Survey of the Netherlands and Other Major Markets in the European Community Rotterdam, CBI, January 1991a.
7 CBI, Footwear: A Survey of the Netherlands and Other Major Markets in the EC Rotterdam CBI, 1990.
8 UNIDO, The Implications of the Single European Market for Industry in Developing Countries PPD. 229 (SPECK.) Vienna, 6 October 1992a.
9 Bhagwati, J.N., The World System at Risk London, Harvester Wheatsheaf, 1991.
10 Waelbroeck, J. and Kol, J., Export Opportunities for the South in the Evolving Pattern of World Trade Brussels, CEPS, 1987.
11 South Commission, The Challenge to the South The Report of the South Commission, Oxford, Oxford University Press, 1990.
12 Peng, Martin Khor Kok, The End of the Uruguay Round and Third World Interests, South/ester. Winter 1993/Spring 1994.
13 Salam, M.A., Science and Technology: Challenge far the South, Trieste, Third World Academy of Sciences and Third World Network of Scientific Institutions, 1992.
14 Dussauge, P., Hart, S. and Ramanantsoa, B., Strategic Technology Management Chichester, John Wiley, 1992.
15 Bagchi, A.K., Public Intervention and Industrial Restructuring in China India and the Republic of Korea Geneva, IL-ARTEP, 1987.
16 This computing architecture goes by various names, such as network computing, cooperative processing and client/server architectures.
17 This is a fundamentally different approach called object-oriented software, which enables the developer to inherit all the expertise of those who used and improved the object in the past. It reduces the number of design and programming errors by reducing the number and complexity of the programming operations required to develop an application.
18 Mody, A. and Wheeler, D., Automation and World Competition: New Technologies Industrial Location and Trade Basingstoke and London, Macmillan, 1990.
19 UNIDO, Industry and Development Global Report 1989/90 Vienna, 1990a.
20 UNIDO, Industry and Development Global Report 1990/91 Vienna, 1990b.
21 There are three types of shuttleless looms, each featuring some form of specialization. Air-jet looms are used on plain fabrics, while rapier and projectile looms can weave more complicated types of fabrics (e.g. colour stripes and designs).
22 UNIDO, Treeds in Industrial Automation PPD 231 (SPEC.), Vienna, 1992b.
23 Information on footwear is largely drawn from UNIDO (1992b).
24 Levy, B., Transactions Costs, the Size of Firms and Industrial Policy: Lessons from a Comparative Case Study of the Footwear Industry in Korea and Taiwan, Journal of Development Economics 32 (1/2), November, 1990.
25 Kaplinsky, R., Firm Size and Technical Change in a Dynamic Context, in Freeman, C. (ed.), The Economics of Innovation, Aldershot, E. Elgar, 1990.
26 Their findings are based on a study of several thousand organizations in North America, Europe and the Far East. The main objective of the study was to investigate the nature and impacts of changes in technology, including emerging applications, organizational benefits and management implications.
27 OECD, Technology and Productivity: The Challenge for Economic Policy, Paris, OECD, 1991.
28 Rasmussen, J., Schmitz, H. and Dijk, M.P. van, introduction - Exploring a New Approach to Small-scale Industry, IDS Bulletin 23 (3), July 1992.
29 On this point Rasmussen et al. (1992) have made reference to Pyke, F., Becattini, G. and Sengenberger, W. (eds), Industrial Districts and Inter-firm Cooperation in Italy Geneva, International Institute for Labour Studies, 1990.
30 Piore, M. and Sabel, C., The Second Industrial Divide: Possibilities for Prosperity New York, Basic Books, 1984.
31 Browne, J., Dubois, D., Rathmill, K., Sethi, S.P. and Steke, K.E., Classification of Flexible Manufacturing Systems, The FMS Magazine April 1984.
32 Freeman, C. and Hagedoorn, J., Catching up or Falling behind: Patterns in international Inter-firm Technology Partnering, World Development, 22 (5), May 1994.
33 UNESCAP, Technology Flows in Asia - Strategies for Enhancing the Flow of Technologies among Regional Developing Countries (Prepared by Prasada Reddy), Bangkok, 1990.
34 Yamamura, K., Caveat Emptor: The Industrial Policy of Japan, in Krugman, 1986; Carliner, G., Industrial Policy for Emerging Industries. In Krugman, 1986.
5. MAIN FINDINGS OF THE STUDY: A SYSTHESIS
1 OECD, New Forms of Investment in Developing Country Industries: Mining Petrochemicals Automobiles Textiles Food by Charles Oman in collaboration with others, Paris, Development Centre of the OECD, 1989.
2 Morawetz, D., Why the Emperor's New Clothes are Not Made in Columbia: A Case Study in Latin American and East Asian Manufactured Exports New York, Oxford University Press, 1981.
3 Pack, H., Productivity Technology and Industrial Development New York, Oxford University Press, 1987.
4 Sharpley, J. and Lewis, S., Kenya: The Manufacturing Sector to the Mid-1980s see pp. 211 and 232, in Riddell, 1990.
6. CONCLUSIONS AND POLICY IMPLICATIONS
1 Qian, Yingyi and Xu, Chenggang, Why China's Economic Reforms Differ: The M-form Hierarchy and Entry/Expansion of the Non-state Sector. The Economics of Transition 1 (2), 1993. China's economic reforms differ from those of Eastern Europe and the then Soviet Union in the way they have permitted on-going entry and expansion of the non-state sector, resulting in economic growth averaging 8.6 per cent during 1979-91, and a substantial improvement in the standard of living.
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