The Purification-straw Theory of Trade and Development

Description

Purification straw is a device one can use to drink water directly from raw sources. It removes bacteria as water is sucked through it. One might still taste some of the algae, but at least the water will be bacteria-free. It costs around US$3.5 a piece, and lasts for around six months to a year.Purification straw typifies a class of products that are noticeably missing in traditional economic models of trade and development. These products, like purification straw, although safe to use in principal, are never used by anyone in the developed world. They are used exclusively in extremely poor areas. Yet, their deceptive simplicity notwithstanding, their development requires knowledge that is way beyond the level mastered by people living in poor areas. Indeed, they are developed and sold for profit almost exclusively by innovators from the developed world.Overlooking these products can lead to very misleading world views and their accompanying policy recommendations. For example, a traditional view is that poor countries benefit from the growth of rich countries. The underlying trickle-down theory is that, as innovators invent better and better products for the rich-country consumers, poor-country citizens also stand to benefit by imitation. Natural implications of this view include that increasing inequality among countries is not a reason for concern, and policies that facilitate imitation are in general recommendable for developing countries. However, products like purification straw suggest that “inventing for the richest 10%” can be very different from “inventing for the other 90%”. As inequality among countries increases, consumers in poor countries will find that inventions made in rich countries are increasingly irrelevant, and the question of how to incentivize “inventing for the other 90%” increasingly pressing. Not only that inequality among countries can mean direct harm on poor countries, simplistic recommendations to facilitate imitation could bring perverse incentives to innovators who may otherwise be willing to “invent for the other 90%”.This project aims at providing a new framework to think about trade and development policies, with the full recognition of products like purification straw, and their implication that “inventing for the richest 10%” can be very different from “inventing for the other 90%”. We intend to use this new framework in investigating (i) the impacts of inequality among countries, (ii) desirable policies regarding intellectual property rights protection in developing countries, and (iii) the political economy of trade and development policy formation in developing countries.