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Development Strategy, Optimal Industrial Structure and Economic Growth in Less Developed Countries

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  • Justin Yifu Lin

    (China Center for Economic Research)

  • Pengfei Zhang

Abstract

In this paper, we develop an endogenous growth model that combines structural change with repeated product improvements. There are two sectors in the present paper, one is traditional sector, and the other is modern sector. The technological progress in the traditional sector takes the form of horizontal innovation based on expanding variety, while the technologies in the modern sector become not only increasingly capital-intensive but also progressively productive over time. The application of the basic model to the less developed economies show that the optimal industrial structure in the less developed countries (LDCs) is endogenously determined by its factor endowments; the firm in the LDCs that enters the capital-intensive, advanced industry in the developed countries (DCs) would be nonviable owing to the relative scarcity of capital in the LDCs factor endowments; whether the industrial structure matches with the factor endowment structure or not is the fundamental cause to explain differences in economic performance among the LDCs.

Suggested Citation

  • Justin Yifu Lin & Pengfei Zhang, 2007. "Development Strategy, Optimal Industrial Structure and Economic Growth in Less Developed Countries," Development Economics Working Papers 22710, East Asian Bureau of Economic Research.
    • Handle: RePEc:eab:develo:22710
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    Cited by:

    1. Pengfei Zhang, 2018. "Endogenous sector-biased technical change and perpetual and transient structural change," Journal of Economics, Springer, vol. 123(3), pages 195-223, April.
    2. Justin Yifu Lin, 2007. "Development and Transition : Idea, Strategy, and Viability," Development Economics Working Papers 22709, East Asian Bureau of Economic Research.
    3. Hanying Qi, 2019. "A New Literature Review on Financialization," Journal of Accounting, Business and Finance Research, Scientific Publishing Institute, vol. 7(2), pages 40-50.

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    More about this item

    Keywords

    Capital Intensity; Development Strategy; Factor Endowments; Endogenous Growth; Industrial Structure; productivity; technology; Viability;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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