In the long-run, specialization based on static comparative advantage, i.e. low wages, will not lead to the development of competitive industries which can be highly rewarding to the factors of production.
Changes in the global economy during the last quarter-century or so have intensified competition in the international and internal markets of developing countries. Such changes have increased the need for government support for infant industries in developing countries which are at the early stages of development and industrialization. Yet, the means for it has decreased because of the limits imposed on policy space of developing countries by international trade rules and conditions imposed on developing countries by IFIs and bilateral donors. To explain, since the early 1980s a number of factors have changed which have led to intensification of competition in international and internal markets, particularly for developing countries. The first and most important of all is the changes in the economic philosophy in favour of market orientation at the cost of the withdrawal of government from economic decision making and resource allocation. Such a change in philosophy has been accompanied by liberalization of international trade and FDI.
Secondly there have been changes in the organization of international production in favour of globalization, networking and production sharing. Globalization has been facilitated by the liberalization of FDI flows and trade liberalization; change in international trade rules, rapid technological changes, and decreases in transport and communication costs.