Intermediate Goods and Weak Links in the Theory of Economic Development
AbstractWhat explains the enormous differences in incomes across countries? This paper returns to two old ideas: linkages and complementarity. First, linkages between firms through intermediate goods deliver a multiplier similar to the one associated with capital in a neoclassical growth model. Because the intermediate goods share of output is about one-half, this multiplier is substantial. Second, just as a chain is only as strong as its weakest link, problems along a production chain can sharply reduce output under complementarity. These forces considerably amplify distortions to the allocation of resources, bringing us closer to understanding large income differences across countries.(JEL: D57, E23, O1O, O47)
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Bibliographic InfoArticle provided by American Economic Association in its journal American Economic Journal: Macroeconomics.
Volume (Year): 3 (2011)
Issue (Month): 2 (April)
Find related papers by JEL classification:
- D57 - Microeconomics - - General Equilibrium and Disequilibrium - - - Input-Output Tables and Analysis
- E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
- O10 - Economic Development, Technological Change, and Growth - - Economic Development - - - General
- O47 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
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