Page 226 - Global Political Economy_Understanding The International Economic Order

THE TRADI NG SYS TEM
domestic environment for those sectors most likely to be competitive
in international markets.
As he substitutes the term “competitive advantage” for the tradi-
tional emphasis ofneoclassical economics on “comparative advan-
tage,” Porter’s research strongly supports the idea that advantage in
international trade, at least in high-tech industries, can be and is cre-
ated by deliberate corporate and national policies. Comparative or
competitive advantage results from deliberate corporate decisions and
government policy choices rather than appearing as a gift from
Mother Nature. Ifinternational competitiveness is indeed increasingly
based on technological developments, learning by doing, and econo-
mies ofscale, then individual firms are ultimately responsible for cre-
ating or failing to create competitive advantage, but governments can
and do have an important and even decisive role in promoting their
own national firms in international markets.
Mainstream economists have been hesitant to acknowledge the in-
creased importance ofsuch factors as technology and learning by do-
24
ing in the determination oftrade patterns. Nevertheless, the funda-
mental idea that comparative or competitive advantage is largely
arbitrary and a product ofhuman intervention rather than a fixed
gift ofnature is accepted by growing numbers ofmainstream econo-
25
mists. Introducing the concept of“knowledge capital” as a determi-
nant ofeconomic growth and international competitiveness, Gross-
man and Helpman argue that comparative advantage results from
26
natural endowments supported by experience. Moreover, they em-
phasize that nations with a headstart in a particular technology tend
to strengthen their position over time, and that technologically deficit
nations, especially small nations, may find it impossible to ever catch
27
up. As the idea ofpath dependence teaches us, productivity increases

24
Despite the importance ofMichael Porter’s pioneering empirical studies, his ideas
appear to have had almost no impact on the American economics profession, perhaps
because the work is largely empirical and the findings cannot be expressed in a formal
model.
25
Gene M. Grossman and Elhanan Helpman, “Trade, Innovation, and Growth,”
American Economic Review 80, no. 2 (May 1990): 86.
26
Gene M. Grossman and Elhanan Helpman, “Comparative Advantage and Long-
Run Growth,” American Economic Review 80, no. 4 (September 1994): 796–815.
27
Gene M. Grossman and Elhanan Helpman, “Hysteresis in the Trade Pattern,” in
Wilfred J. Ethier, Elhanan Helpman, and J. Peter Neary, eds., Theory, Policy and Dy-
namics in International Trade: Essays in Honor of Ronald W. Jones (New York: Cam-
bridge University Press, 1993), 288. The term “hysteresis” is used by economists to
mean that an economic outcome has been determined by historical factors. This is a
rare concession to the role ofhistory in economic outcomes.
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