Comparative Advantage Following (CAF) Strategy and Integration into the World Market for Manufactured Export Products

Abstract

This article investigates the impact of countries comparative advantage following (CAF) strategy on their integration into the world markets for manufactured exports. The analysis uses a panel dataset of 113 countries (comprising both developed and developing countries) over the period 1995-2015. Based on the two-step system Generalized Method of Moments approach, the findings have shown that the CAF development strategy induces a rise in countries share of manufactured export products in the world s total manufactured exports. Interestingly, the magnitude of this positive effect of the CAF strategy increases as the size of inward FDI stock rises. An important implication of this analysis is that countries that promote industries in line with their comparative advantage are likely to enjoy a greater integration into the world market for manufactured export products, notably when they experience a greater size of inward FDI stock.