.
GEOGRAPHY AND
ECONOMIC COMPOSITION
Before addressing the grand strategy and precise
tactics of a country, or considering how it organizes
its institutions and defines it interests, it is necessary
to start with the most basic considerations. Some
characteristics of countries, such as their location or
geology, can never be changed; other aspects, such
as their economic composition, will change only slowly.
These are the givens that a country must begin with
when devising a TPF, as they each define the nature of
the challenges and opportunities that a country faces.
1. Composition of the economy
The classic means of describing any economy
is to consider the relative importance of its three
principal components. These are the primary sector
(i.e. agriculture, mining, forestry and fisheries),
the secondary sector (i.e. manufacturing and
construction) and the tertiary sector (i.e. services).
For the present purposes, the distinction between
the first and third categories is the starkest. At some
risk of oversimplification, economic development
might be defined as the process by which countries
become progressively less dependent on the primary
sector (especially agriculture) while the tertiary sector
II. TRADE AND DEVELOPMENT 11
becomes commensurately more prominent. This
point can be appreciated from the data in figure 2,
which show how the one sector diminishes and the
other grows as incomes rise. That same point can
be appreciated within different regions, as reported
in tables 2 and 3. The least agricultural developing
economies are, on average, 7
.2 times richer than
the most. Conversely, the most services-intensive
economies are 8.1 times richer than the least. Both
of these relationships hold true across all three
major developing regions and are especially intense
in Asia and the Pacific. While all three sectors have
contributions to make, no country can properly be
considered developed if it does not possess a diverse
and competitive services sector.
Countries that are excessively dependent upon exports
of one commodity, or a narrow range of primary goods,
face numerous challenges to their development.
Whether it is oil in Algeria, diamonds in Botswana,
copper in Zambia, or the canal in Panama, countries
do well not to depend too much on any one resource.
Policymakers often hope to promote diversification
of the economy, both vertically (i.e. moving up the
value chain for a given sector) and horizontally
(i.e.
promoting the establishment and expansion of entirely
new industries that are not unduly dependent on the
country’s natural resource bases). Often the next
step in processing is obvious, whether that means
moving from raw to refined copper (Zambia) or from
fruits to fruit juices (Jamaica). The TPF for Rwanda, for
example, pointed to several specific steps that could
be taken to improve the country’s capacity to move up
the coffee value chain. These are all variations on the
promotion of infant industries. Like that broad strategy,
the relative value of this more specific policy depends
on the details. A policy that is properly designed and
implemented could well pay dividends, but one that is
poorly conceived or badly executed could be wasteful
and inefficient.
