Endnotes

¹ All the trade data in this paper are in current US dollars and come from the UN Comtrade database.

² For a discussion of the role of capabilities (defined simply in terms of a combination of cost and quality) in trade and of the process capability development see Sutton (2000). By one simple measure of its development R and D expenditure per capita PRC has made great strides in recent years. In R&D, according the 2004 OECD Science, Technology and Innovation Scoreboard, PRC reached 1.1 per cent of GDP in 2002, up from 0.6 per cent in 1996; around 60 per cent of the R&D expenditure came from companies rather than the government. In terms of business enterprise R&D as a share of GDP, this takes PRC to fourth place in the developing world, after the Republic of Korea, Taipei,China and Singapore, and well ahead of other large economies like India, Brazil, Mexico, Argentina or Indonesia.

³ Macro models for recent trade developments following PRC’s WTO accession assume away adjustment problems and predict strong trade creation so that all partners gain form trade liberalization and PRC's growth; see for example Roland-Holst (2002) and Weiss (2004).

⁴ Countries may also suffer because Chinese imports raise world prices for primary and intermediate products. We ignore this and other price effects in this paper, as we do not deal with unit price data (these are only available for a small set of traded products). However, the risk of PRC raising primary product prices is very real, and attracting considerable media attention.

⁵ See Lall, Albaladejo and Moreira (2004).

⁶ See Lall, Albaladejo and Zhang (2004).

⁷ The technology classification is explained in detail in Lall (2000) and has been used in a number of recent studies on trade. One difficulty in applying this classification to trade is that the data do not distinguish between different processes in making a given product. A high technology product like semiconductors may in fact simply be based on low technology assembly and in the trade data its exports appear as high-tech. There is no way to overcome this problem; the only way to proceed is to apply the categories and then qualify the results with other evidence on the technological content of local production. A related problem is that at this level of aggregation it is not possible to distinguish between products in the same industry with very different technological and other features. Some low technology industries may have very complex and innovative products within them and some high technology ones may cover relatively simple and mature products.

⁸ This sophistication index is explained in detail in Lall and Weiss(2004). The authors acknowledge the insights of C.H.Kwan (REITI) who first put forward a version of this measure.

⁹ These are the 50 fastest growing products on the world market at the 3-digit SITC Rev 2 level for exports over $10 billion in 2000 (that is excluding small exports that grow rapidly from a low base).

¹⁰ For example, Weiss and Jalilian (2004: 287-8) argue that "In LA the higher growth manufacturing activities have been a combination of resource-processing (such as iron and steel, petrochemicals, nonferrous metals, pulp and paper and various agro-processing activities), labour-intensive assembly in garments and simple electronics (in the export processing zones of Mexico and Central America) and, in the larger countries, automobiles. This production and export structure can have important implications for longer term growth in so far as LA economies are specialized in products with relatively low incomeelasticities and therefore weak export demand prospects. Furthermore, the relative large endowment of Latin American economies in terms of natural resources has been seen as a potential constraint on the growth of manufactured exports, as commodity price booms can shift relative prices against tradable sectors like manufacturing… Whatever the price mechanism at work, Latin American economies appear to have been left behind in some of the most dynamic segments of world trade… Of the 20 fastest growing exports from LA, nine are primary commodities. ESEA [East and South East Asia], on the other hand, has succeeded in general in specializing in relatively dynamic products in terms of export growth, particularly in computers and their parts, and optical instruments."

¹¹ For a disaggregated analysis of RB exports see Chami (2003), who finds that ‘differentiated’ RB products are highly dynamic and that economies like Chile that specialised in them did much better in US markets than countries that exported undifferentiated RB products. He also conducts a more general comparison of LAC and East Asia and finds that, "Generally speaking, exporter countries with a low share of resource-based products in total exports tended to perform better in the last decade than those with high shares. Within Latin America, Mexico and Costa Rica with low shares of resource-based exports performed relatively well, while Brazil, Colombia and Venezuela, with high shares of resource-based exports, did not do very well." (p. 20)

¹² The share of each manufactured product in a country’s total manufactured exports is multiplied by the sophistication score of that product (in world trade); the figure is then totalled across all products.

¹³ The unweighted average for threatened exports in EA of 75 % is much higher than LAC’s unweighted average of 47%. The highest figures for LAC are 75% for Costa Rica and 71% for El Salvador, while in EA they are 98% for Hong Kong, China and 85% for Malaysia. The lowest figure in LAC is 16% for Venezuela, while in EA it is 50% for Indonesia.

¹⁴ The competitive impact calculations below are carried out on the basis of export figures for each country to the US (with market shares based on world exports to the US) rather than on import figures into the US. We used the export figures to make these results comparable with the previous world market exercise. A calculation with US import data may well yield slightly different results.

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