A Theoretical Evaluation of the New Structural Approach in Development Economics: Advantages and Challenges

From the perspective of modern structural economics, the literature on development economics after World War II has witnessed three waves: old structuralism, neoclassic and modern structural economics. Modern structuralism is based on the comparative advantages of an economy in factors of production, improvement of infrastructures with government assistance, and the use of market mechanisms to allocate resources. Old structuralism advocated governmental development policies that defied the comparative advantage of the economy. In modern structuralism, the role of government in industrial diversification and its upgrading is limited to providing information about new industries, coordination of the corresponding investments among different firms in the same industry, compensating externalities of information to lead firms and foster new industries through helping incubators and encouraging foreign direct investment. The government also plays a leading role in improving hard and soft infrastructures in order to reduce firms' transaction costs and facilitating the industrial development of the economy. Identification and facilitation of growth is an instrument for implementation of new structural economics, which can be implemented through six stages. In this article, the theory, policies and applications of modern structuralism are investigated. The most important aspects of the evaluation include comparative advantage, creating advantage and latent advantage, globalization of production, and implementation problems. It is also pointed out that economic development is not the same as industrial development and coping with problems in picking winners.