The Weak Link Theory of Economic Development
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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