This document provides an overview and comparison of old and new perspectives on economic development, as presented by Justin Lin in his "New Structural Economics". The old perspectives, including laissez-faire, structuralism, and trade theories, focused on government intervention and import substitution. The new perspective emphasizes the role of comparative advantage, facilitating industrial upgrading based on a country's factor endowments, and allowing the market to allocate resources. This new perspective provides a more continuous view of development and a greater role for the private sector compared to the old perspectives.

1. Justin Lin’s
“New Structural Economics”
Lyla Latif
Seminar on Global Governance and Development
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2. Table of contents
 Different perspectives on globalization
through economics
 Old perspectives
 New perspective
 Highlighting the similarities and differences
between these 2 perspectives
 Contemporary application of the new
perspective
 Concluding remarks
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3. Introduction
 Take home message from Justin Lin is that
we need to re examine the strategies for
achieving sustainable growth
 He offers a new perspective for economic
growth based on structural change and
industrial upgrading
 Before we discuss this new perspective, it is
important to understand the contributions
made by the old perspectives of
development economics and the challenges
these perspectives encountered
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4. The old perspectives
Laissez faire
Structuralist
approach
Early trade
and
development
Rational
expectations
Decision tree
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5. The laissez faire approach
Liberal market
No government control (protection of private
property rights)
Decisions about resource allocation made by
the market
Production increases because the old
traditional techniques are refined
No emphasis on successive introduction of
big innovation or creation of new industries
or altering methods of production
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6. The structuralist approach
Market fails (structural rigidities and
coordination problems, modern industries
unable to develop spontaneously, market is
not large enough for productivity)
Role of government (resource allocation) –
BIG PUSH (large coordinated government
investment program)
Role of government
Limited taxation (subsidization problems)
therefore administrative measures
(monopolies, suppression of interest rates,
overvaluing domestic currency and controlling
prices of raw materials)
Developing countries face
structural challenges
(different from HIC)
Balanced growth theory (capital shortage = no
development – expansion of market and
increase in production )
Unbalanced growth theory (lack of
entrepreneurial skills, investment
concentration in selected projects in key
areas)
Problems
Shortages in funds, foreign exchange and raw
materials
Increase in price of imports
Monopolies
Opportunities for rent seeking and corruption
Fragmentation of markets (small scale goods
production, loss of efficiency)
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7. Early trade and development
theories
Produce what is
available
Adopt policy
of free trade
(CA only in
what is
produced)
Demand
could be
low
Capital
accumulation
is important
Possible through
the importation of
capital goods
Lead to industrialization
and domestic economy
development through
import substitution
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8. Rational expectations approach
(also known as the free market approach
or the Washington consensus)
Structural approach failed
State’s role in using fiscal and monetary policy for economic
E.g., Latin American debt crisis (could not pay back loans)
Government intervention is bound to fail. It should not
initiate industrialization E.g., collapse of central and eastern
Promotion
Results?
development not helping
Privatization
Economic liberalization
EU
Stabilization programs
Controversial whether indeed this approach has produced growth and employment generation
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9. Decision tree (also referred to
as growth diagnostics)
•Central role in economic development
Structural
change
•BC in each country affect growth
•Vary over time and across countries
•Failure to address BC in one area will
prevent growth even if reforms in other
areas are satisfactory
Binding
constraints
•Identify the BC
•Governments cannot reform all sectors
have to focus on priority areas Key
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10. The challenges encountered
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11. The new perspective
Factor
endowments
Levels of
development
Market and
government
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12. Factor endowments
Low income agrarian countries
 Scarcity in capital
 Abundance in labor and resources
 Production activities tend to be
 Labor intensive
 Resource intensive
(subsistence agriculture, animal
husbandry, fishery and mining
production)
 Firm sizes are small
 Markets often informal and limited to local
markets
 Hard and soft infrastructure is simple and
rudimentary
High income industrialized countries
 Abundance of capital because they are industrialized
 Capital intensive industries with economies of scale in
production
 Reliance on new technology and products for
achieving technological innovations and industrial
upgrading
 R&D activities to generate no rival public knowledge
and R&D subsidized
 Large banks and sophisticated equity markets which
can mobilize a large amount of capital and are
capable of diversifying risks
 Hard and soft infrastructure is built along national and
global markets for business transactions that are long
distance, large in quantity and value and no longer
informal but based on contracts
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13. Level of development
Low income
agrarian
economy
Intermediate
levels
High income
industrialized
economy
 For a country to move from low
income to high income level, it
must:
 Upgrade its factor endowments
 Its stock of capital must grow
rapidly than its labor force
 This would then mean;
 Increase in its scale of
production since its moving
closer to global industrial
frontiers
 Need bigger markets and
changes in infrastructure to
meet its levels of risk (develop
and expansion of financial
institutions to share risk)
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14. Market and government
Comparative
advantage
Factor
endowments
Competitive
economy
 Role of government:
 Design policies to facilitate
industrial upgrading
 Enable distortion free situation
(import substitution and
subsidization followed by
administrative measures)
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15. Similarities & differences between the
old & new perspectives
Similarities
Structural differences among
developing and developed
countries exist
State plays a crucial role in
moving the economy from
lower stage to higher stage of
development
Differences
Old
perspective
New
perspective
Policies that go
against an
economy’s CA
Advises developing
countries to develop
capital intensive
industries through
direct administrative
measures and price
distortions
Central role of the
market in resource
allocation
Advises states to
play a facilitating role
to assist firms in the
process of industrial
upgrading by
addressing
externalities and
coordination issues
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16. Addressing economic
development
Old perspectives
 Failure to develop:
 Incorrect price signals
 Dividing countries along
dichotomies and as a result
missing the fact that economic
development is a continuous
process that gives each country
following its CA the opportunity
to improve and adjust its
economic structures at each
development stage
 Resource dependent
 Victims of external political and
economic factors
 State intervention
New perspective
 Countries will develop:
 Determined by endowments
 Build industries and upgrade
infrastructure consistent with
their CA
 State to only
 Provide information about
new industries
 Coordinate related
investments across
different firms in the same
industry
 Nurture new industries
through incubation
 Encourage FDI
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17. Application of the new
perspective
Fiscal Policy
Foreign
capital
Trade policy
Human
development
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18. Explanations
Fiscal policy
 Endowments and CA = sound
fiscal policy
 Strong growth
 Good trade performance
 No need for subsidization
(viable firms)
 End result= fewer home grown
economic crises
 External shocks: government
in good position to implement
counter cyclical fiscal stimulus
and invest in infrastructure
and social projects
Foreign capital
 FDI inclined towards
endowments and CA
 Brings not only capital but;
 Technology
 Management
 Access to market needed for
industrial upgrading
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19. Explanation continued
Trade policy
 Trading based on CA,
concentrate on exports
 Trade liberalization for industries
not consistent with CA and
subject to imports
 Industrial upgrading
 Infrastructure improvement
 Technology
Human development
 Industrial upgrading +
technological innovation = need
for training workers to cope with
change and attain the requisite
skills
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20. Conclusion
 Is Lin’s New Structural Economics a useful
perspective or not?
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