ABSTRACT
This chapter describes the complex relationship of trade and economic development. Economic growth and development is a complex issue where trade is only one factor in the equation. Historically, economic development in the West has been accompanied by sectoral transformation from primary to manufacturing and then advanced producer services. Econometric studies examining the effect of trade on economic growth report somewhat mixed results. Balassa's stages of comparative advantage model offers a normative framework to attain economic development through trade. One way to explain the pattern of exports among the countries here is to apply Balassa's dynamic model of comparative advantage. In this model, Balassa regards economic development to be a linear process involving the gradual accumulation of physical capital, skill, human capital, technology and know-how among firms. The model thus intertwines import-substitution with export-orientation in various stages that enable the country to gradually acquire comparative advantage in more technologically sophisticated goods.
