An extended dual economy model: Implications for emerging economies and their multinational firms

Abstract

Purpose

The purpose of this paper is to introduce a new theoretical framework called the “extended dual economy model”. Based on the seminal work of Lewis (2014), the author uses it to explain the sectoral specialisation of home countries and their firms and MNEs.

Design/methodology/approach

The paper is multi-disciplinary and entirely conceptual, with cool ideas but very few numbers and equations.

Findings

Emerging economies exhibit a “duality” in their economic structure that reflects itself in two largely different sets of location (L) characteristics. They are simultaneously home to both “traditional” sectors, which are resource and labour intensive, as well as “modern” sectors, which are knowledge and capital intensive, each of which can be analysed as having two sub-economies. These different sets of location advantages shape the firm-specific advantages of EMNEs and their FDI.

Research limitations/implications

This analysis helps to underline what shapes the ability of home countries to “emerge”, and the ability of their firms to grow and their MNEs to become internationally competitive. Few EMNEs can thrive in international markets without concurrent growth in their domestic markets. Maintaining the appropriate location assets to optimally support both types of sectors is costly. Each type of sub-economy requires different kinds of support sectors, infrastructure and policies, with little overlap. Weaknesses in its home country L advantages hinder the long-term competitiveness of their EMNEs.

Practical implications

Few EMNEs can thrive in international markets without concurrent growth in their domestic markets. Weaknesses in its home country L advantages hinder the long-term competitiveness of their EMNEs.

Originality/value

The extension of the Lewisian dual economy model allows a number of interesting new insights because it allows us to consider firms, non-firms, informality and the bottlenecks associated with promoting knowledge-intensive sectors in a globalised world. It emphasises structural change, and the need to manage pathways and effectively channel growth.

Citation

Narula, R. (2018), "An extended dual economy model: Implications for emerging economies and their multinational firms", International Journal of Emerging Markets, Vol. 13 No. 3, pp. 586-602. https://doi.org/10.1108/IJoEM-10-2017-0375