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The Weak Link Theory of Economic Development

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  • Charles I. Jones

    (University of California, Berkeley)

Abstract

Per capita income in the richest countries of the world exceeds that in the poorest countries by more than a factor of 50. What explains these enormous differences? This paper returns to an old idea in development economics and proposes that complementarity and linkages are at the heart of the explanation. Just as a chain is only as strong as its weakest link, problems at any point in a production chain can reduce output substantially if inputs enter production in a complementary fashion. This paper builds a model with complementary inputs and links across sectors and shows that it can easily generate 50-fold aggregate income differences from plausible distributions of productivity in the underlying sectors.

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Bibliographic Info

Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 042007.

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Length: 29 pages
Date of creation: Feb 2007
Date of revision:
Handle: RePEc:hkm:wpaper:042007

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References

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  1. Pritchett, Lant, 1995. "Divergence, big time," Policy Research Working Paper Series 1522, The World Bank.
  2. Douglas Gollin, 2001. "Getting Income Shares Right," Department of Economics Working Papers 2001-11, Department of Economics, Williams College.
  3. Francesco Caselli & James Feyrer, 2005. "The Marginal Product of Capital," NBER Working Papers 11551, National Bureau of Economic Research, Inc.
  4. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output Per Worker Than Others?," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 83-116, February.
  5. Paul M Romer, 1999. "Endogenous Technological Change," Levine's Working Paper Archive 2135, David K. Levine.
  6. Gary S. Becker & Kevin M. Murphy, 1994. "The Division of Labor, Coordination Costs, and Knowledge," NBER Chapters, in: Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education (3rd Edition), pages 299-322 National Bureau of Economic Research, Inc.
  7. Stephen L. Parente & Edward C. Prescott, 1997. "Monopoly rights: a barrier to riches," Staff Report 236, Federal Reserve Bank of Minneapolis.
  8. Edward C. Prescott, 1997. "Needed: a theory of total factor productivity," Staff Report 242, Federal Reserve Bank of Minneapolis.
  9. Jacob Mincer, 1958. "Investment in Human Capital and Personal Income Distribution," Journal of Political Economy, University of Chicago Press, vol. 66, pages 281.
  10. Paul M. Romer, 1993. "New Goods, Old Theory, and the Welfare Costs of Trade Restrictions," NBER Working Papers 4452, National Bureau of Economic Research, Inc.
  11. Peter J. Klenow & Mark Bils, 2000. "Does Schooling Cause Growth?," American Economic Review, American Economic Association, vol. 90(5), pages 1160-1183, December.
  12. Yoram Ben-Porath, 1967. "The Production of Human Capital and the Life Cycle of Earnings," Journal of Political Economy, University of Chicago Press, vol. 75, pages 352.
  13. Peter Klenow & Andrés Rodríguez-Clare, 1997. "The Neoclassical Revival in Growth Economics: Has It Gone Too Far?," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 73-114 National Bureau of Economic Research, Inc.
  14. Kremer, Michael, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 551-75, August.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Bringing in the supply side
    by chris dillow in Stumbling and Mumbling on 2010-12-10 12:16:37
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Cited by:
  1. Stefano Bosi & Thierry Laurent, 2008. "Health, Growth and Welfare: Why Put Public Money on Medical R&D?," Documents de recherche 08-18, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
  2. Eifert, Benn & Gelb, Alan & Ramachandran, Vijaya, 2008. "The Cost of Doing Business in Africa: Evidence from Enterprise Survey Data," World Development, Elsevier, vol. 36(9), pages 1531-1546, September.

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