Too late to escape poverty?

Over the past four weeks, I have discussed the poverty traps identified in Paul Collier’s book The Bottom Billion. The book also contains a chapter “On Missing the Boat”, which suggests that it is becoming increasingly difficult for countries to escape from poverty. Over the past 25 years, developing countries have become increasingly successful at producing manufactured goods for the global markets, and service exports are also growing.

The new-found manufacturing success of developing countries is attributable to low labour costs and economies of agglomeration, in which overhead costs fall when large numbers of manufacturers are located near each other. A country needs to achieve a substantial cost-competitiveness advantage to attract substantial numbers of manufacturers. However, countries which have not already attracted manufacturers are not able to offer sufficient labour cost differentials to make them cost-competitive with countries like China.

Countries in Africa may have to wait many years until wages become sufficiently high in Asia that moving manufacturing operations to Africa becomes economically attractive. Thus, while globalisation and international trade has been very helpful for Asian economic development, it is likely to be far less useful to Africa.