The key characteristics of the endowment structure in developing countries are a relative abundance of natural resources or unskilled labour and a scarcity of human and physical capital. In developing countries with abundant unskilled labour or resources but scarce human and physical capital, only the labour-intensive and resourceintensive industries will have comparative advantages in open, competitive markets; and in developed countries with abundant capital and relatively scarce labour, capital-intensive industries will be the most competitive (Heckscher and Ohlin, 1991; Lin, 2003; Lin and Zhang, 2007; Ohlin, 1967). The development strategy advocated by the dominant social thought in development economics in the 1950s and 1960s and pursued by governments in many developing countries after the Second World War was, in essence, a comparative-advantage-defying (CAD) strategy.

CAD strategy, viability and endogenous distortions

Under a CAD strategy, firms in prioritised industries cannot survive in an open, competitive market because they are in conflict with the comparative advantages determined by their endowment structure and will require higher costs to produce goods than firms in countries with a comparative advantage in the same industries. Even if they are well managed, they cannot earn a socially acceptable profit in an undistorted, open, competitive market. I refer to these firms as non-viable. In other words, these non-viable enterprises are unable to survive in an open, competitive market even if they are well managed; and, unless the government provides subsidies and/or protection, no one will invest in or continue to operate such firms.