Development Theory and the Economics of Growth

440 Pages·2000·24.545 MB·English

by  Jaime Ros Bosch

Development Theory
and the
Economics of Growth
Jaime Ros
Ann Arbor
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Development and Inequality in the Market Economy
The purposeo f this seriesi s to encouragea nd foster analytical and policy-
orientedw ork on market-baserde formi n developinga ndp ostsocialisct ountries.
Special attention will be devoted in the series to exploring the effects of
free market policies on social inequality and sustainable growth and
development.
Editor:
And& Solimano
Editorial Board:
Alice Amsden
FranqoisB ourguignon
William Easterly
Patricia Meller
Vito Tanzi
Lance Taylor
Titles in the Series:
And& Solimano,E ditor. RoadM aps to Prosperity: Essayso n Growth
and Development
AndrCsS olimano,E ditor. Social Inequality: Values,G rowth, and the State
Lance Taylor, Editor. After Neoliberalism:W hatN ext for Latin America?
And& Solimano,E duardoA ninat, and Nancy Birdsall, Editors.
Distributive Justicea nd EconomicD evelopment:T he Caseo f Chile and
Developing Countries
JaimeR os. DevelopmentT heory and the Economicso f Growth
Felipe Larrain B., Editor. Capital Flows,C apital Controls,a nd Currency
Crises: Latin America in the 1990s
Copyright 0 by the University of Michigan 2000
All rights reserved
Published in the United States of America by
The University of Michigan Press
Manufactured in the United States of America
@ Printed on acid-free paper
2003 2002 2001 2000 4 3 2 1
No part of this publication may be reproduced,
stored in a retrieval system, or transmitted in any form
or by any means, electronic, mechanical, or otherwise,
without the written permission of the publisher.
A UP catalog record for this book is available
from the British Library.
Library of Congress Cataloging-in-Publication Data
Ros, Jaime.
Development theory and the economics of growth i Jaime Ros.
p. cm. - (Development and inequality in the market economy)
Includes bibliographical references and index.
ISBN O-472-11141-8 (cloth : alk. paper)
1. Development economics. 2. Economic development. I. Title.
II. Series
HD75 .R67 2000
338.9 - dc21 W-037741
To Adriana
Contents
List of Figures ix
. . .
List of Tables Xl11
Preface xv
Introduction 1
1. Some Stylized Facts 16
2. A Mature Economy: Growth and
Factor Accumulation 37
3. Labor Surplus Economies 69
4. increasing Returns, External Economies, and
Multiple Equilibria 101
5. Internal Economies, Imperfect Competition, and
Pecuniary Externalities 134
6. Endogenous Growth and Classical
Development Theory 156
7. Trade, Industrialization, and Uneven Development 183
8. Natural Resources, the Dutch Disease, and the
Staples Thesis 212
9. Trade Specialization and Growth 239
10. Development, Income Distribution, and
Inequality Traps 264
11. Structural Constraints: Domestic and Foreign
Exchange Bottlenecks 303
12. Debt Traps and Demand-Constrained Growth 332
13. In Defense of Development Theory 358
Notes 377
References 405
Index 421
Figures
1. Output per worker and capital per worker 19
2. GDP per worker and education 19
3. Output per worker and arable land per worker 20
4. Initial level of education (ca. 1965) and per capita
GDP growth, 1965-97 25
5. International distribution of per capita GDP,
1870-1993 27
6. Growth rates and levels of GDP per capita 29
7. Global income dispersion 32
8. The Solow model 39
9. The Solow model in the real wage diagram 41
10. The MRW extension of the Solow model 54
11. A poverty trap model with endogenous savings 62
12. Lewis labor surplus 72
13. Keynesian unemployment 73
14. The classical subsistence wage 74
15. The Lewis model 75
16. A two-good, two-sector model with elastic price
demands 88
A3.1 Savings rates (s) and profit shares (rr) 100
A3.2 Changes in savings rates (As) and profit shares (An) 100
17. A Rosenstein-Rodan/Leibenstein model 105
18. A case of multiple equilibria in Solow 1956 108
19. Low-level equilibrium with a capitalist sector 111
20. Profit expectations and multiple equilibria 138
21. The big push model of Murphy, Shliefer, and Vishny
1989b 138
22. A Nurksian trap 145
23. A Rosenstein-RodanlHirschman model 151
24. A Romer-type model 159
25. The AK model 160
26. Endogenous growth with high elasticity of factor
substitution 163
27. A Lucas-type model 165
Figures
28. A development model with skill acquisition 179
29. Short- and long-run gains from trade 189
30. The infant industry argument 191
31. Exceptions to the infant industry argument 193
32. Terms of trade and dynamic gains from trade 199
33. Relative wages and terms of trade with Ricardian
technology 203
34. Relative wages and terms of trade with capitalistic
techniques in the two sectors 206
35. Relative wages and terms of trade in a
Prebisch-Lewis model 208
36. Graham’s paradox model 217
37. The Dutch disease 221
38. The dynamics of capital accumulation and migration
under international labor mobility 225
39. The effects of natural resources and international
labor mobility 225
40. Development traps in resource-scarce economies 228
41. A “linkage effects” model in an open economy 231
42. Low-level equilibria in resource-rich and resource-
scarce economies 233
43. Linkage versus Dutch disease effects 235
44. Savings traps in resource-scarce economies 236
45. The pattern of specialization in a neoclassical model 242
46. The pattern of specialization under increasing
returns 246
47. Short-run determination of migration and the urban
wage premium 276
48. Long-run dynamics of urbanization and capital
accumulation 279
49. Kalecki’s dual economy model 306
50. The model with an inelastic food supply 308
51. Conflict between goods market and labor market
equilibria 311
52. A monetarist economy 313
53. Swan’s diagram with inelastic trade responses 317
54. Effects of capital inflows on investment 319
55. Conflict between external and internal balances 322
56. Conflict between external balance and labor market
equilibrium 325
57. External shocks under a foreign exchange supply
constraint 329
58. The warranted growth rate 337
59. A degenerate growth plan 347
60. Long-term dynamic adjustments in a demand-
constrained path 348
61. Fokeign exchange and investment constraints
on growth 3.55
62. The effect of pecuniary externalities on demand
and unit costs 370
63. Vertical pecuniary externalities in an open economy 372
Tables
1. Comparative Economic Characteristics in the 1990s 17
2. Cross-Country Regressions 18
3. Cross-Country Correlations 21
4. Growth Performance, 1965-92 22
5. Cross-Country Regressions 23
6. Quah’s Transition Probabilities 31
Al.1 Groupings according to Real GDP per Capita
in 1997 35
Al.2 Groupings according to Trend Growth Rate of GDP
per Worker 36
7. Actual and Steady State Income Gaps in the
Solow Model 45
8. Actual and Predicted GDP Growth Rates (1965-97)
in the Solow Model 48
9. Steady State Income Gaps and Growth Rates in a
Solow Model Adjusted for Country-Specific Effects 50
10. Steady State Income Gaps and Growth Rates in the
Neoclassical Model with Human Capital 56
11. Growth and Political Risk, 1982-95 65
A2.1 Groupings according to GDP per Worker in 1997
and the Rule of Law Index (1982-95) 67
12. Savings Rates and Profit Shares in Developing
Economies 80
13. Changes (A) in Savings Rates and Profit Shares,
1970-90s (percentage points) 81
A3.1 Savings Rates and Profit Shares in Manufacturing 98
14. Cross-Country Regressions 117
15. Growth and Initial Income Regression Results 120
16. Actual and Steady State Income Gaps in the Solow
Model Adjusted for Increasing Returns 123
17. Cross-Country Regressions 125
18. Trade Orientation, Investment, and Growth
(22 countries) 258
19. Cross-Country Correlations (22 countries) 258
xiv Tables
20. Cross-Country Correlations (34 countries) 258
A9.1 Trade Orientation and Other Trade Characteristics 263
21. Income Levels and Inequality in 1990 267
22. Inequality and Growth Regression Results,
1960-89 270
23. Inequality and Growth within Regions Regression
Results 271
24. Income Inequality and Urban-Rural Disparities 271
25. Inequality and Factor Endowments Cross-Country
Results, 1990 273
26. Changes in Inequality and Growth Regression
Results, 1965-90 282
27. Two Effects of Inequality on Growth in “Reduced
Form” Regressions 291
28. Effects of Inequality on Factor Growth and
Productivity, 1965-90 293
29. Population Growth, Investment Shares,
and Inequality 295
A10.1 Gini Coefficients circa 1990 301
30. Sectoral Financial Flows 338
31. Cross-Country Growth Regressions: The
Significance of Regional Variables 352