Academic journal article Journal of Business Economics and Management

An Alternative Approach to Identify Key Industries: Issues to Selection Criteria

Academic journal article Journal of Business Economics and Management

An Alternative Approach to Identify Key Industries: Issues to Selection Criteria

Article excerpt

Introduction

Wassily Leontief introduced the input-output analysis in the mid-1930s which became a standard tool in development planning (Miller, Blair 2009). The analysis has the advantage of showing the impacts of a specific action, and the ripple-effects that the action or event has on other sectors of the economy. Within this analytical framework, Rasmussen (1956) and Hirschman (1958) respectively developed measures for intersectoral linkages and application of intersectoral linkages in the identification of key economic sectors to maximizing impacts of investment. They contended that developing economies should aim investment in key sectors that are known to have a high degree of forward and backward intersectoral linkages. Since Rasmussen (1956), researchers have suggested many measures to observe the strength of backward and forward linkages for identifying key sectors. Several measures are widely accepted as standard actions and influential than others for investment selection (Dietzenbacher et al. 1993; Hoen 2002). The linkage measures mostly designed to identify key sectors in terms of employment, value added or input consumption to the policy goal of expanding output. Interestingly, each of these measures has found slightly different in interpretations and applications but typically surrounding by dispute and controversy (Hewings 1982; Cella 1984; Sonis et al. 1995; Miller, Lahr 2001; Sanchez-Choliz, Duarte 2003).

Therefore, even though there is a good number of studies and applications of intersectoral linkage measures related to weak forward and backward linkages are existed in the subject but more could be done as the gap in key sectors' identification (classification) in the literature remain outstanding. As our knowledge goes, to minimize the gap no study has been considered in the area by comparing the use of different linkages submethods to identify key sectors for expansion of foreign direct investment (FDI) or no study has been measured probable policy goals by alternative selection criteria. In addition, no study has been deliberated to select key sectors by the frequency of their occurrences in the different linkage measures to justify potential outcomes. We understand from the literature that mostly developing and transitional economics suffered to identify the policy goal of expanding FDI and struggled to obtain potential output with limited investment. The evidence of planning challenge even can be found in large developing countries like in India, Argentina and Brazil where they struggled to implement the industrial strategies (Ma 1997; Mann 1997; UNCTAD 1996; Gulati 1997; Jiaqin, Huei 2002). As public sector investment considered a large share in those developing countries, and hence the potential efficiency gains supposed to guide public investment from an economic viewpoint.

Hence, the proper knowledge and appropriate selection of key sectors could help to guide correct investment in the key industries and benefit of investment could be maximized (McMann, Randolph 2011; OECD 2011; Fornahl et al. 2010; Hitt et al. 2009; Kuratko 2009; Audretsch 2009; Hsu 2007). Literature shows that to identify the effective policy goal of expanding FDI India, Brazil and Argentina have encountered lots of difficulties (Gulati 1997; Jiaqin, Huei 2002). Therefore, the arguments place again in the application of intersectoral linkages related to particular weak forward and backward linkage measure as many of those linkage measures differ only slightly but results in outcome that are fairly different (Ma 1997; Mann 1997; Gulati 1997; Jiaqin, Huei 2002). We understand that using the same data set different forward and backward linkage measures yield different selection of key sectors and thus resulting in different policy outcome, which may place complexities in policy design. Therefore, academia should come up with a precise linkage measure by alternative selection criteria in the application of intersectoral linkages. …

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