Examples of activities in a same classification that require very different capabilities
Industrial policy has traditionally been concerned with promoting certain sectors, often classified according to goods’ end use. However, such a classification is not straightforwardly linked to the capabilities required for producing each good. For instance, Peter Schott notes that the 3-digit ISIC category ‘Electrical Machinery’ includes both portable radios and communication satellites, two goods that obviously require very different capabilities. He finds that even within the same sectoral classification, richer countries specialize in goods embodying a higher amount of capital and technology. On a similar note, John Sutton and Daniel Trefler (find that differences in quality within the same industrial category persist at the highest level of disaggregation.
But it might be misleading to link capabilities purely to technological know-how. It is likely that for the simplest manufacturing industries, such as textiles and garments, the biggest challenge for poor countries is acquiring relevant ‘working practices’, such as knowledge of the market and of how to run a mid-sized business. In their Enterprise Map of Ghana, Sutton and Bennet Kpentey show how Aquafresh, a Ghanaian company that originally manufactured towels and textiles, managed to mutate into a soft drink producer thanks to their well-developed working practices.
As industry develops, working practices lose relative importance in the capabilities space, and technological know-how becomes more and more predominant. Accordingly, industrial development can be seen as a process through which a country develops scarcer capabilities, which allow it to reap higher incomes.
 Peter K. Schott (2003) – “One Size Fits All? Heckscher-Ohlin Specialization in Global Production”, American Economic Review, 93(3): 686-708
 John Sutton and Daniel Trefler (2016) – “Capabilities, Wealth, and Trade”, Journal of Political Economy, 124(3): 826-878
 John Sutton (2012) – Competing in Capabilities: The Globalization Process, Oxford: Oxford University Press
 John Sutton and Bennet Kpentey (2012) – An Enterprise Map of Ghana, London: International Growth Centre
 Sutton and Trefler (2016)