Leading Dragon Phenomenon : New Opportunities for Catch-up in Low-Income Countries

• Published in: Asian development review Vol. 30(1); no. 1; pp. 52 - 84
• Main Authors: Chandra, Vandana, Lin, Justin Yifu, Wang, Yan
• Format: Journal Article
• Language: English
• Published: Manila Asian Development Bank and Asian Development Bank Institute 01.03.2013; MIT Press; Bank; Asian Development Bank; World Scientific Publishing
• Subjects: 18th century; Africa; Asia; China; Developing countries; Economic development; Economic growth; Economic planning; Economic policy; Emerging markets; Employment; flying geese; Foreign investment; GDP; Gross Domestic Product; India; Indonesia; Industrial development; Industrial economics; Industrial Revolution; International; LDCs; Low income groups; Manufacturing; Opportunity; People's Republic of China; Per capita; Productivity; Structural change; structural transformation; Studies; Trends; Asia; Africa; structural transformation; People's Republic of China; flying geese; Asia; Africa
• ISSN: 0116-1105; 1996-7241
• DOI: 10.1162/ADEV_a_00003

Modern economic development is accompanied by the structural transformation from an agrarian to an industrial economy. Since the 18th century, all countries that industrialized successfully have followed their comparative advantages and leveraged the latecomer advantage, including emerging market economies such as the People's Republic of China (PRC), India, and Indonesia. The current view is that Chinese dominance in manufacturing hinders poor countries from developing similar industries. We argue that rising labor cost is causing the PRC to graduate from labor-intensive to more capital-intensive and technology-intensive industries. This will result in the relocation of low-skill manufacturing jobs to other low-wage countries. This process, which we call the “leading dragon phenomenon,” offers an unprecedented opportunity to low-income countries. Such economies can seize this opportunity by attracting the rising outward foreign direct investment flowing from Brazil, the PRC, India, and Indonesia into the manufacturing sectors. All low-income countries can compete for the jobs spillover from the PRC and other emerging economies, but the winner must implement credible economic development strategies that are consistent with its comparative advantage.