Abstract
This paper argues that developing economies may face a trade-off between specializing according to existing comparative advantage (in low-technology goods), and entering sectors in which they currently lack a comparative advantage, but may acquire such an advantage in the future as a result of the potential for productivity growth (in high-technology goods). Comparative advantage is endogenously determined by past technological change, while simultaneously shaping current rates of innovation. As a result, it is possible that specialization according to current comparative advantage under free trade is welfare reducing, while protectionist measures are welfare increasing.