Description
The traditional factor endowment theory focuses upon natural resources and their abundance as criteria that impacts ‘manufacturing’ and exports/trade from a country. A country's factor endowment is commonly understood as the amount of land, labor, capital, and entrepreneurship that a country possesses and can exploit for manufacturing. Countries with a large endowment of resources tend to be more prosperous than those with a small endowment, all other things being equal. The development of sound institutions to access and equitably distribute these resources, however, is necessary in order for a country to obtain the greatest benefit from its factor endowment.
The ‘New Factor Endowments’ for the modern
economy
By: Amit Bhushan Date:
23
rd
July 2!"
The traditional factor endowment theory focuses u#on natural
resources and their a$undance as criteria that im#acts ‘manufacturin%’
and e&#orts'trade from a country( A country)s factor endowment is
commonly understood as the amount of land, labor, capital,
and entrepreneurship that a country #ossesses and can e&#loit for
manufacturin%( *ountries with a lar%e endowment of resources tend to
$e more #ros#erous than those with a small endowment+ all other
thin%s $ein% e,ual( The de-elo#ment of sound institutions to access
and e,uita$ly distri$ute these resources+ howe-er+ is necessary in
order for a country to o$tain the %reatest $ene.t from its factor
endowment(
Now in a arena with ca#ital and entre#reneur $ein% mo$ile and with
Transnational cor#orations dominatin% $usiness scenario with
their own $rand of intra/#reneurshi# with its own set of reward
mechanism+ its hi%h time the that the economist ta0e a reloo0
at the 1E*23*1E4/5167N T1E548 of Factor endowments( The
theory had se-eral loo# holes since $e%innin% and it ne-er
really e&#lained many economic #henomenons( 3o its time
when the economist attem#t to identify the factors that really
matter for economic de-elo#ment rather than stic0 with old
factors that may not ha-e much im#act and ha-e failed to
e&#lained many o$ser-ations(
The new factors could $e such as availability of required land or
better still ‘work space’ 9since land use is what creates wor0
s#ace and this is su$:ect to Floor 3#ace 7nde& and ty#es of land
usa%e su##orted there under; F37 also $rin%s in focus
re,uirement of industrial'commercial su##ort structure rather
than $arren land<+ labour with necessary training/skills
es#ecially with technolo%ies and lan%ua%es to #erform needed
wor0+ Access to raw materials and to markets and
infrastructure includin% #ayments infra has a $i% role to #lay
here 97nfra has a role in wor0 s#ace area as well and includes
communication+ trans#ort = lo%istics includin% su##ort for
industrial'commercial wor0s = li-a$le conditions for wor0ers<+
supportive taxonomy which su##orts incenti-es for
entre#reneurs 9this should $alance incenti-es for domestic as
well as forei%n entre#reneurs; incenti-es for forei%n
entre#reneurs are also necessary so than they $rin% in new
conce#ts'technolo%ies as well as ris0 $earin% a$ilities< and
availability/access of technologies( There can also $e some
additional factors such as ‘domestic standards’ for
products and services which im#act mar0et access and
com#etiti-eness of $usinesses and cost of energy which has
im#act on cost of #roduction and its #rice as #roducts =
ser-ices reach the end consumer and therefore o-erall demand
for the #roduce( The other factors are security for #eo#le+
#rocesses and material for entre#reneurs as well as external
peace for comfort = trade facilitation of the entre#reneurs( The
idea is that *a#ital as well as $i% $usiness is mo$ile( *a#ital
mo-es freely to see0 $est returns while $i% $usiness also mo-es
to $est locations failin% which it %ets whittled down in a
com#etiti-e %lo$al economy( >hat such ca#ital needs is a
trans#arent = consistent re%ulatory set u# which ensures that
re,uired returns can $e si#honed o? to any #referred country of
in-estors 9which is were the emer%in% economies ha-e
%enerally failed $ut now 3outh Asian economies includin% *hina
seem to $e turnin% a new leaf<( 7t is the la$our which .nds it
di@cult to mo-e es#ecially cross $order mo-ement due to
re%ulations and also due to cultural factors( 3imilarly small
entre#reneurs and inno-ators also .nd it di@cult to chan%e
locations in #art due re%ulatory = cultural reasons and also due
to #ersonal'human reasons(
7t can $e said with some de%ree of con.dence $asis o$ser-ations that
if a country achie-es cost e?ecti-eness in the a$o-e mentioned
factors+ its economy is li0ely to witness healthy %rowth and
#ros#erity due to rise in $usiness acti-ity( 1owe-er it should $e
noted that achie-in% cost com#etency in all the a$o-e %oals
may not $e #ossi$le since thin%s may wor0 at cross #ur#oses
i(e( creation of a su##orti-e ta&onomy may not lea-e ade,uate
re-enue for %o-ernment to create infrastructure or reducin%
currency -alue to %ain e&ternal mar0ets may yield hi%h
domestic inAation as well as hi%h cost of im#orts with other
attendant #ro$lems such as la$our( Also+ focus to de-elo#
reser-es for ener%y resources for say #etroleum may cause
ne%lect of the de-elo#ment of inland waterways and $ecome a
source of disad-anta%e and one can %o on = on( Also a
sustained %rowth in $usiness acti-ity may itself lead to rise in
la$our rate or its shorta%e as well as chan%e in the nature of
demand and therefore hi%her de%ree of technolo%ical o$solesce
which may ma0e $usinesses uncom#etiti-e( 3uch a
#henomenon may re,uire the country to ad:ust ta&onomy or
currency -alue ad:ustments to .& tem#orary #ro$lems with
attendant lon%er term conse,uences(
3o the focus of the leadershi#+ which is concerned to de-elo# the
economy should $e to try and understand the #lay and im#act
of each of these forces and e-ol-e a healthy $alance in these
factors which should lead to %rowth in economy and #ros#erity(
The other area could also $e de-elo#ment of the institutional
framewor0 which ensures a healthy mo-ement of *a#ital as
well as easier Aow for entre#reneurs 9across country $orders<+
since these factors cannot $e e&#ected to sol-e $y itself without
the su##ort from the %o-ernment of the day( Ensurin% cross
country mo-ement of raw materials and mar0et access to
achie-e o#timiBation of sourcin% costs as well as transaction
cost should also $e the focus area for the %o-ernment(
>hile the theory still needs to $e e-ol-ed 9$y researchers<; and may
still not $e a$le to e&#lain ‘all’ the rele-ant economic
#henomenon( For e&am#le+ the mo-ement of la$our within a
country also ha##ens %enerally from rural to ur$an areas and is
di@cult to re-erse e-en with de-elo#ment of su##ort structure
for #eo#le such as communications+ roads+ hos#itals+
entertainment and schools( The la$our continues to e&#ect
additional economic incenti-es due to #erce#tion #ro$lem not
e&#lained $y the Factor endowments or e-en $y the ‘new factor
endowments’ since this tends to loo0 only at hard factors rather
than soft factors or other human considerations such as $arriers
to a$sor$ in locality due to lan%ua%e'dialect or for culture'-alue
system( There is di@culty to mo-e s0illed la$our from
de-elo#ed to de-elo#in% world as well( Therefore inclusion =
e&clusion set for the theory needs to $e identi.ed( 1owe-er the
$i% di?erence $etween the new and the old theory is that the
%o-ernance of the country is a factor in the new theory while in
the old theory+ %o-ernance of a country has -ery little
im#lication on the %rowth and #roducti-ity( The em#hasis on the
%o-ernment to create or unleash factors of %rowth throu%h
suita$le re%ulatory inter-entions in the mar0et'economy is the
new #aradi%m and area to focus u#on while natural resource
$ase of the country continues to #lay their role $ut which is
%enerally limited(
doc_512755517.doc
The traditional factor endowment theory focuses upon natural resources and their abundance as criteria that impacts ‘manufacturing’ and exports/trade from a country. A country's factor endowment is commonly understood as the amount of land, labor, capital, and entrepreneurship that a country possesses and can exploit for manufacturing. Countries with a large endowment of resources tend to be more prosperous than those with a small endowment, all other things being equal. The development of sound institutions to access and equitably distribute these resources, however, is necessary in order for a country to obtain the greatest benefit from its factor endowment.
The ‘New Factor Endowments’ for the modern
economy
By: Amit Bhushan Date:
23
rd
July 2!"
The traditional factor endowment theory focuses u#on natural
resources and their a$undance as criteria that im#acts ‘manufacturin%’
and e&#orts'trade from a country( A country)s factor endowment is
commonly understood as the amount of land, labor, capital,
and entrepreneurship that a country #ossesses and can e&#loit for
manufacturin%( *ountries with a lar%e endowment of resources tend to
$e more #ros#erous than those with a small endowment+ all other
thin%s $ein% e,ual( The de-elo#ment of sound institutions to access
and e,uita$ly distri$ute these resources+ howe-er+ is necessary in
order for a country to o$tain the %reatest $ene.t from its factor
endowment(
Now in a arena with ca#ital and entre#reneur $ein% mo$ile and with
Transnational cor#orations dominatin% $usiness scenario with
their own $rand of intra/#reneurshi# with its own set of reward
mechanism+ its hi%h time the that the economist ta0e a reloo0
at the 1E*23*1E4/5167N T1E548 of Factor endowments( The
theory had se-eral loo# holes since $e%innin% and it ne-er
really e&#lained many economic #henomenons( 3o its time
when the economist attem#t to identify the factors that really
matter for economic de-elo#ment rather than stic0 with old
factors that may not ha-e much im#act and ha-e failed to
e&#lained many o$ser-ations(
The new factors could $e such as availability of required land or
better still ‘work space’ 9since land use is what creates wor0
s#ace and this is su$:ect to Floor 3#ace 7nde& and ty#es of land
usa%e su##orted there under; F37 also $rin%s in focus
re,uirement of industrial'commercial su##ort structure rather
than $arren land<+ labour with necessary training/skills
es#ecially with technolo%ies and lan%ua%es to #erform needed
wor0+ Access to raw materials and to markets and
infrastructure includin% #ayments infra has a $i% role to #lay
here 97nfra has a role in wor0 s#ace area as well and includes
communication+ trans#ort = lo%istics includin% su##ort for
industrial'commercial wor0s = li-a$le conditions for wor0ers<+
supportive taxonomy which su##orts incenti-es for
entre#reneurs 9this should $alance incenti-es for domestic as
well as forei%n entre#reneurs; incenti-es for forei%n
entre#reneurs are also necessary so than they $rin% in new
conce#ts'technolo%ies as well as ris0 $earin% a$ilities< and
availability/access of technologies( There can also $e some
additional factors such as ‘domestic standards’ for
products and services which im#act mar0et access and
com#etiti-eness of $usinesses and cost of energy which has
im#act on cost of #roduction and its #rice as #roducts =
ser-ices reach the end consumer and therefore o-erall demand
for the #roduce( The other factors are security for #eo#le+
#rocesses and material for entre#reneurs as well as external
peace for comfort = trade facilitation of the entre#reneurs( The
idea is that *a#ital as well as $i% $usiness is mo$ile( *a#ital
mo-es freely to see0 $est returns while $i% $usiness also mo-es
to $est locations failin% which it %ets whittled down in a
com#etiti-e %lo$al economy( >hat such ca#ital needs is a
trans#arent = consistent re%ulatory set u# which ensures that
re,uired returns can $e si#honed o? to any #referred country of
in-estors 9which is were the emer%in% economies ha-e
%enerally failed $ut now 3outh Asian economies includin% *hina
seem to $e turnin% a new leaf<( 7t is the la$our which .nds it
di@cult to mo-e es#ecially cross $order mo-ement due to
re%ulations and also due to cultural factors( 3imilarly small
entre#reneurs and inno-ators also .nd it di@cult to chan%e
locations in #art due re%ulatory = cultural reasons and also due
to #ersonal'human reasons(
7t can $e said with some de%ree of con.dence $asis o$ser-ations that
if a country achie-es cost e?ecti-eness in the a$o-e mentioned
factors+ its economy is li0ely to witness healthy %rowth and
#ros#erity due to rise in $usiness acti-ity( 1owe-er it should $e
noted that achie-in% cost com#etency in all the a$o-e %oals
may not $e #ossi$le since thin%s may wor0 at cross #ur#oses
i(e( creation of a su##orti-e ta&onomy may not lea-e ade,uate
re-enue for %o-ernment to create infrastructure or reducin%
currency -alue to %ain e&ternal mar0ets may yield hi%h
domestic inAation as well as hi%h cost of im#orts with other
attendant #ro$lems such as la$our( Also+ focus to de-elo#
reser-es for ener%y resources for say #etroleum may cause
ne%lect of the de-elo#ment of inland waterways and $ecome a
source of disad-anta%e and one can %o on = on( Also a
sustained %rowth in $usiness acti-ity may itself lead to rise in
la$our rate or its shorta%e as well as chan%e in the nature of
demand and therefore hi%her de%ree of technolo%ical o$solesce
which may ma0e $usinesses uncom#etiti-e( 3uch a
#henomenon may re,uire the country to ad:ust ta&onomy or
currency -alue ad:ustments to .& tem#orary #ro$lems with
attendant lon%er term conse,uences(
3o the focus of the leadershi#+ which is concerned to de-elo# the
economy should $e to try and understand the #lay and im#act
of each of these forces and e-ol-e a healthy $alance in these
factors which should lead to %rowth in economy and #ros#erity(
The other area could also $e de-elo#ment of the institutional
framewor0 which ensures a healthy mo-ement of *a#ital as
well as easier Aow for entre#reneurs 9across country $orders<+
since these factors cannot $e e&#ected to sol-e $y itself without
the su##ort from the %o-ernment of the day( Ensurin% cross
country mo-ement of raw materials and mar0et access to
achie-e o#timiBation of sourcin% costs as well as transaction
cost should also $e the focus area for the %o-ernment(
>hile the theory still needs to $e e-ol-ed 9$y researchers<; and may
still not $e a$le to e&#lain ‘all’ the rele-ant economic
#henomenon( For e&am#le+ the mo-ement of la$our within a
country also ha##ens %enerally from rural to ur$an areas and is
di@cult to re-erse e-en with de-elo#ment of su##ort structure
for #eo#le such as communications+ roads+ hos#itals+
entertainment and schools( The la$our continues to e&#ect
additional economic incenti-es due to #erce#tion #ro$lem not
e&#lained $y the Factor endowments or e-en $y the ‘new factor
endowments’ since this tends to loo0 only at hard factors rather
than soft factors or other human considerations such as $arriers
to a$sor$ in locality due to lan%ua%e'dialect or for culture'-alue
system( There is di@culty to mo-e s0illed la$our from
de-elo#ed to de-elo#in% world as well( Therefore inclusion =
e&clusion set for the theory needs to $e identi.ed( 1owe-er the
$i% di?erence $etween the new and the old theory is that the
%o-ernance of the country is a factor in the new theory while in
the old theory+ %o-ernance of a country has -ery little
im#lication on the %rowth and #roducti-ity( The em#hasis on the
%o-ernment to create or unleash factors of %rowth throu%h
suita$le re%ulatory inter-entions in the mar0et'economy is the
new #aradi%m and area to focus u#on while natural resource
$ase of the country continues to #lay their role $ut which is
%enerally limited(
doc_512755517.doc