Academic journal article Lecturas de Economia

Consecuencias Para El Crecimiento Economico del Estancamiento Estructural: Un Modelo De Diversificacion Productiva De Dos Sectores

Academic journal article Lecturas de Economia

Consecuencias Para El Crecimiento Economico del Estancamiento Estructural: Un Modelo De Diversificacion Productiva De Dos Sectores

Article excerpt

Economic growth consequences of structural stagnation: A two-sector model of productive diversiication

Implications pour la croissance economique de la stagnation structurelle: un modele de diversification a deux secteurs

--Introduction.--I. Autarky--II. International trade.--Concluding comments. Primera version recibida el 13 de diciembre de 2012; version final aceptada el 2 de mayo de 2013

Introduction

Is it convenient for an underdeveloped country to diversify its economy? Or, should it be specialized according to the world division of labour? Underdeveloped economies face this dilemma: specialization or diversification.

Most analysts bet on the specialization option. From a static viewpoint there is not much discussion. The world as an integrated economic system increases its efficiency when each country engages in those productive activities for which it has comparative advantages--the gains from trade are well established in economic theory. In fact, this paper provides a theoretical support to the gains from specialization if factor prices just were internationally equalized.

On the other hand, a long tradition in economic development analysis has spoken in favour of the diversification option. The fundamental common idea is that comparative advantages are not static but dynamic. As a country diversifies, its economic structure reaches the production of more technologically integrated goods so that the economy as a whole gains efficiency. Productive diversification becomes a comparative advantage itself since the economic structure must be patiently built (Hirschman, 1958; Leontief, 1963; Landes, 1998). Besides, private capital and fixed social capital are accumulated along the process of productive diversification, so that comparative advantages change in favour of capital intensive goods (Hirschman, 1958; Chenery, Robinson and Syrquin, 1986).

According to this viewpoint, history matters. Early and late developers are not symmetrically related in the world markets. Late developers face technological disadvantages and political risks. They start with a lower aggregate productivity and have to solve coordination problems for further industrialization (Murphy, Shleifer and Vishny, 1989). Sometimes the thrust to industrialization finds a strong opposition from already established industrial entrepreneurs who prefer foreign (instead of local) supplies for their own industries (Hirschman, 1958).

Given the existing asymmetries in the world economy, this paper provides theoretical support for the gains from productive diversification. It is argued that the bunch of countries that are unable to climb the ladder of industrialization contributes to world market disequilibria by exacerbating competition among them. As a result, countries whose productive activities require a shallow use of intermediate goods--a lower degree of interindustrial integration--experience terms of trade deterioration, perceive lower factor remunerations, earn lower real incomes, and achieve lower rates of economic growth. Moreover, in a world where technological innovation is monopolized by a few industrialized nations, this paper predicts that specialization leads to world-market disequilibria, international price gaps and differentiated paths of economic growth. Hence the specialization option may be good for the short run, but it is not good in the long run.

Is this perspective relevant? Yes. Neither prices nor earnings are internationally equalized (see any World Bank's World Development Report or any Union Bank of Switzerland's Prices and Earnings around the Globe). In fact, huge price gaps remain between developed and underdeveloped countries. Besides, rich countries have grown faster than poorer countries in the long run (Pritchett, 1997; Easterly and Levine, 2001; Perry et al., 2006).

In order to substantiate the above statements, a two-sector growth model is described and solved in this paper. …

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