This chapter establishes the relative importance of different sources of comparative advantage in explaining trade, with particular focus on policy and institutional factors. The policy and institutional areas shown to be important determinants of comparative advantage include physical and human capital accumulation (especially secondary and tertiary education), financial development, the business climate, as well as a number of aspects of labour market institutions. The results suggest that comparative advantage has been — and is likely to be in the future — relatively more important for North-South and South-South trade. Overall, the chapter concludes that when seeking to maintain or develop competitiveness in a certain area, it is best develop an effective broad policy approach.

This chapter examines the impact of the import of intermediate inputs and capital goods on firm-level productivity. It also systematically explores the specific impacts of nontrade, or complementary, policies on firms’ ability to realise dynamic gains. Access to skilled labour is a particularly important policy variable with respect to the import of intermediate goods, followed by access to finance, while macroeconomic stability slightly outranks access to finance for capital goods importers. The importance of access to finance has particular policy significance given the wide-spread financial reforms being discussed or underway.

The patterns of trade for a broad category of technology-intensive products, including advanced technology products (ATP), are analysed for a group of 15 economies in Asia, Europe, and the United States. This chapter finds that the degree of downstreaming is highly sector- and product-specific. For example, there has been more downstreaming of electronics than chemicals, of consumer electronics than electronic components, and of certain basic chemicals than specialized products, such as photographic film and cosmetics. The chapter also discusses the roles of technology, national and sectoral innovation systems, government policies, and other factors in shaping the degree of diffusion and downstreaming.

For a broad sample of OECD countries, this chapter considers empirically the relationship between change in the protection of intellectual property rights (IPR) between 1990 and 2000 and the evolution of technological achievement, as well as the relationship of such achievement to change in labour productivity. The core assessment proceeds via regression analysis using a two stage approach and national level data. The results point to a positive and statistically significant relationship between indicators for protection of patent and trademark rights and technological achievement. The relationship between such technological achievement and labour productivity was positive and significant in certain specifications.

Export restrictions on raw materials accentuate the challenge of supplying raw materials in a world market context of sharply rising commodity prices. The economic effects of export restrictions are overwhelmingly negative. By diverting exports to domestic markets, export restrictions raise prices for foreign consumers and importers while increasing global uncertainty and negatively affecting investment in extraction and production. Timely and accurate information about government policy is a necessary condition for predictability of supply and risk management in production. This paper presents preliminary findings from an ongoing OECD initiative attempts to contribute to improved transparency by constructing an inventory of export restrictions on critical raw materials.

This chapter outlines a pragmatic framework for the structural policies needed to complement trade liberalization within the context of comparative advantage. Its recommendations are eclectic — ranging from efforts to identify key areas of market failure to policy experiments and the analysis of successful past experiences in developing institutions and infrastructure. The goal is to strengthen an economy’s ability to maximise benefits attendant from specialising in comparative advantage industries, while providing support to facilitate structural adjustment and ensure that the benefits from structural change are widely shared. The tools recommended are in turn based on strategies that can be (and often have been) implemented by governments subject to the usual political, informational and capacity constraints.