Many improvements have been achieved in understanding the nature and causes of a nation's wealth in the past two and a quarter centuries since the publication of Adam Smith's The Wealth of Nations in 1776. It seems that many more improvements need to be implemented, however, before economists can truly be confident in providing advice to developing countries about their development and transition to a modern economy. The development policies adopted after the Second World War by a few east Asian economies were inappropriate in the context of the prevailing theories at that time. Those developing countries that followed prevailing development theories in formulating their policies failed to narrow the gap between themselves and the industrial countries. Similarly, China's transition to a market economy, begun thirty years ago, was thought doubtful in the light of prevailing theories. The path taken has led to sustained growth, however, while countries that followed standard approaches in their transitions encountered various difficulties.

This contrast in economic development and transition is intriguing to economists. I have had the privilege of experiencing in person the dramatic changes in China and carrying out in situ research of China's development and transition over the past twenty years. I have gradually come to realise that an economy's factor endowments, which are given at any time but can be changed through time, are an important starting point for the enquiry of economic development in a country.