The Japan-born ‘flying-geese (FG)’ theory of growth has recently gained recognition in academia and popularity in the media. Since Kaname Akamatsu introduced his ideas in a very broad fashion in the 1930s, opportunities have abounded for further elaboration and application to contemporary development issues. This article reviews some of his key ideas and presents a reformulation from an evolutionary structuralist perspective. The oft-used, yet vague, concept of ‘the ladder of economic development’ is defined in terms of a ‘leading-sector’ stages model, à la Schumpeter – and what comes next as a new rung is considered. The enabling mechanisms of structural upgrading are explored, and the dynamics and benefits of an FG formation of aligned countries are stressed. Also, a stages (FG-theoretic) model of balance of payments is introduced to discuss the financial issues of ‘borrowed growth’ and ‘global (G2) imbalances’. The dynamics of structural upgrading and interactive growth via trade and investment within a hierarchy of countries is the essence of these reformulated FG models, which make up what is now increasingly shaped and recognized as ‘new structural economics’.
The FG theory stresses interactive growth via emulative learning among the economies operating at different stages of growth along the ladder of economic development.
Policy makers need a clear understanding of the ladder that offers both inter- and intra-industrial routes to climb over the course of industrial upgrading.
Interactive growth is made all the more efficient when countries cluster cooperatively in a regional hierarchy, reaping ‘economies of concatenation’ (interactive stimuli) and benefiting from ‘comparative advantage recycling’ (staggered export drives that avoid a fallacy of composition, i.e., the impracticality of simultaneous exports by all economies).
Emulative learning is facilitated by multinationals’ (MNCs’) foreign direct investment (FDI) and other activities that accompany technology, managerial skills and access to export markets – a powerful catalyst for industrial upgrading and development.
‘Borrowed growth’ is the finance mode of interactive growth, whose benefits and risks vary with the development stage, institutional set-up and policy.
Growth stages fundamentally and structurally determine external imbalances, but short-term, situational and coincidental macroeconomic factors also magnify the imbalances between nations, as is the case with ‘G2 imbalances’. These two causes should be distinguished, since the latter alone is amenable to immediate adjustments in fiscal, monetary and exchange rate policies – but not the fundamental one.