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Balanced and Unbalanced Growth

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  • James E. Rauch

Abstract

A mechanism of endogenous growth suitable for investigation of sectoral or regional interaction is developed. It is shown how the high value placed on production linkages by economic historians might be reconciled with the high value placed on openness (often implying lack of linkages) by observers of contemporary less developed countries. When the output of one sector is traded and the output of the other is nontraded, it is shown how the traded goods sector acts as the 'engine of growth' in the sense that its profitability of knowledge acquisition primarily determines the steady state aggregate growth rate. It is also shown how sectors or regions interact out of steady state through product, labor, and capital markets, and in particular how if the former interaction dominates the growth of one sector 'pulls along' the growth of the other while if the latter two interactions dominate one sector or region booms while the other declines. The paper builds on these results to show why liberalization of foreign trade should lead to a transition from a lower to a higher steady state growth rate and why, during the course of this transition, growth might initially be even slower than before liberalization. On this basis a reinterpretation of the post-1973 economic performance of Chile is offered. A final application to economic integration of previously separate regions or countries shows that the largest growth effects are to be had if one region is allowed to decline and provide a source of cheap labor for the other region.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4659.

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Date of creation: Feb 1994
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Publication status: published as Journal of Development Economics, Vol. 53 (June 1997): 41-66. Journal of Development Economics, Vol. 54 (December 1997): 493-518(reprinted with corrected page proofs).
Handle: RePEc:nbr:nberwo:4659

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  1. Grossman, G.M. & Helpman, E., 1990. "Hysteresis In The Trade Pattern," Papers 157, Princeton, Woodrow Wilson School - Public and International Affairs.
  2. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  3. Sergio Rebelo, 1999. "Long Run Policy Analysis and Long Run Growth," Levine's Working Paper Archive 2114, David K. Levine.
  4. McMillan, John & Naughton, Barry, 1992. "How to Reform a Planned Economy: Lessons from China," Oxford Review of Economic Policy, Oxford University Press, vol. 8(1), pages 130-43, Spring.
  5. Stewart, Frances & Ghani, Ejaz, 1991. "How significant are externalities for development?," World Development, Elsevier, vol. 19(6), pages 569-594, June.
  6. Kevin M. Murphy & Andrei Shleifer & Robert Vishny, 1988. "Income Distribution, Market Size, and Industrialization," NBER Working Papers 2709, National Bureau of Economic Research, Inc.
  7. James E. Rauch, 1994. "Balanced and Unbalanced Growth," NBER Working Papers 4659, National Bureau of Economic Research, Inc.
  8. Child, Frank C & Kaneda, Hiromitsu, 1975. " Links to the Green Revolution: A Study of Small-Scale, Agriculturally Related Industry in the Pakistan Punjab," Economic Development and Cultural Change, University of Chicago Press, vol. 23(2), pages 249-75, January.
  9. Pack, Howard & Westphal, Larry E., 1986. "Industrial strategy and technological change : Theory versus reality," Journal of Development Economics, Elsevier, vol. 22(1), pages 87-128, June.
  10. Kiminori Matsuyama, 1991. "Agricultural Productivity, Comparative Advantage and Economic Growth," NBER Working Papers 3606, National Bureau of Economic Research, Inc.
  11. Sebastian Edwards, 1991. "Trade Orientation, Distortions and Growth in Developing Countries," NBER Working Papers 3716, National Bureau of Economic Research, Inc.
  12. Resnick, Stephen A., 1970. "The Decline of Rural Industry Under Export Expansion: A Comparison among Burma, Philippines, and Thailand, 1870–1938," The Journal of Economic History, Cambridge University Press, vol. 30(01), pages 51-73, March.
  13. Morande, Felipe G., 1992. "The dynamics of real asset prices, the real exchange rate, trade reforms and foreign capital inflows : Chile, 1976-1989," Journal of Development Economics, Elsevier, vol. 39(1), pages 111-139, July.
  14. Paul M. Romer, 1987. "Crazy Explanations for the Productivity Slowdown," NBER Chapters, in: NBER Macroeconomics Annual 1987, Volume 2, pages 163-210 National Bureau of Economic Research, Inc.
  15. Riedel, James, 1976. "A Balanced-Growth Version of the Linkage Hypothesis: A Comment," The Quarterly Journal of Economics, MIT Press, vol. 90(2), pages 319-22, May.
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Cited by:
  1. Diao, Xinshen & Rattsø, Jørn & Stokke, Hildegunn Ekroll, 2002. "International spillovers, productivity growth and openness in Thailand," TMD discussion papers 89, International Food Policy Research Institute (IFPRI).
  2. Klaus Schmidt-Hebbel, 2006. "Chile's Economic Growth," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 43(127), pages 5-48.
  3. Torvik, Ragnar, 2001. "Learning by doing and the Dutch disease," European Economic Review, Elsevier, vol. 45(2), pages 285-306, February.
  4. Easterly, William, 2001. "The Effect of IMF and World Bank Programmes on Poverty," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  5. Easterly, William, 2001. "The effect of International Monetary Fund and World Bank programs on poverty," Policy Research Working Paper Series 2517, The World Bank.
  6. Valerie A. Ramey & Matthew D. Shapiro, 1998. "Displaced Capital," NBER Working Papers 6775, National Bureau of Economic Research, Inc.
  7. Faini, Riccardo, 1996. "Increasing returns, migrations and convergence," Journal of Development Economics, Elsevier, vol. 49(1), pages 121-136, April.
  8. Jørn Rattsø & Hildegunn Ekroll Stokke, 2003. "Learning and Foreign Technology Spillover in Thailand: Empirical Evidence on Productivity Dynamics," Nordic Journal of Political Economy, Nordic Journal of Political Economy, vol. 29, pages 47-66.
  9. Hildegunn Ekroll Stokke & Jørn Rattsø & Xinshen Diao, 2001. "International spillovers, productivity growth and openness in Thailand: An intertemporal general equilibrium analysis," Working Paper Series 2202, Department of Economics, Norwegian University of Science and Technology.
  10. Jensen, Martin Kaae, 2012. "Global stability and the “turnpike” in optimal unbounded growth models," Journal of Economic Theory, Elsevier, vol. 147(2), pages 802-832.
  11. Rauch, James E., 1997. "Balanced and unbalanced growth," Journal of Development Economics, Elsevier, vol. 53(1), pages 41-66, June.

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