But the point is that international production and trade in these sectors exhibit a relatively new pattern, whereby there is a “vertical disintegration of production” across locations. That is, different parts of a production process are dispersed across different geographical locations, and goods travel across several such locations over the entire process before reaching final consumers. This is also true of the other major dynamic export sector : textiles and clothing.
 
In such sectors, the total value of recorded trade far exceeds the value added. But by and large most developing countries are confined to the labour-intensive processes in this overall production. This means it is misleading to look simply at the “high-tech” nature of the final product. Many of these processes involve essentially low-skilled assembly-type operations, in which developing country locations compete with each other by virtue of their cheap labour rather than any other criterion. This also means that much of the value-added that does accrue in this process is garnered by the multinational corporations that are organising the production in this way, rather than by the economies which are hosting them.
 
But there are other factors, apart from this firm-based separation and geographical relocation of production, which may have played a role in reducing returns to developing country exporters. The most important of these is the well-known fallacy of composition : the idea that what may be possible and attractive for an individual exporting country, may turn out to have much reduced or even opposite effects when many countries try to follow the same path.
 
This problem has been well established for a range of primary products for some time now, but recent evidence suggests that it is also becoming increasingly significant in world trade in manufactured goods. Thus, the slowdown in exports from the East/Southeast Asian region from 1996, which preceded the financial crisis, has been attributed to the same fallacy of composition. (Ghosh and Chandrasekhar, Crisis as Conquest : Learning from East Asia, Orient Longman 2001) As more and more countries in the region entered the world market for office equipment and semiconductor related items, overproduction meant that prices crashed. Only the People’s Republic of China and the Philippines showed very high rates of growth ox exports in this category in that year : for all other countries in the region, exports in this sector stagnated or declined.
 
The electronics sector typifies the problem of overproducing standardised mass products with high import content, which have experienced bother higher volatility and steeper falls since 1995. But the same is true of a range of manufactured goods exports from developing countries, which is why there is evidence of a general terms of trade movement against manufactures of the South.
 
Since more and more developing countries are turning to precisely this strategy, and basing their hopes on relocative FDI to achieve it, those already within the loop become vulnerable as well. Thus the pattern of high export volume growth and relatively slow or stagnant income growth has become marked even for middle income “super traders: such as Hong Kong and Mexico.
 
In addition, developing countries increasingly try to offer fiscal and trade-related concessions to would-be exporters, especially relocative MNCs. When this is combined with other conditions currently prevailing in the world economy, such as the increasingly crowded markets for labour-intensive goods, weak aggregate demand growth and protectionist tendencies in the advanced countries, it is not surprising that increase export volumes in these sectors have not translated into higher real revenues.
 
Ironically, it turns out that some primary products actually performed better in world trade markets than many of these manufactured goods. The most “market-dynamic” agricultural commodities have outperformed most manufactured goods in terms of export volumes and values. These include silk, beverages, cereal preparation, preserved food, sugar preparations, manufactured tobacco, chocolate, fish and seafood. However, apart from silk (in which China has a 70 per cent market share), these other commodities are dominated by developed country producers. Other primary commodities which are major exports of most developing countries, have continued to languish.
 
The lesson from all this should not be simply be to despair that nothing seems to work in terms of export focus for developing countries. Rather, this year’s TDR serves as an important reminder that the current pattern of export-orientation, based either on traditional primary production or relocative FDI-based exports relying on labour-intensive parts of wider manufacturing processes, may not deliver sustained benefits in terms of income growth.
 
The earlier more successful East Asian strategy was based on targeted trade and industrial policies rather than on market-determined processes. While such strategic trade policies may have become much more difficult in the current context, what this Report suggests is that some alternative strategy must be found if developing countries are to negotiate their integration into the world economy in a way that actually furthers their development prospects.