Balanced and Unbalanced Growth
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.
|Date of creation:||Feb 1994|
|Date of revision:|
|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).|
|Contact details of provider:|| Postal: |
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1989.
"Income Distribution, Market Size, and Industrialization,"
The Quarterly Journal of Economics,
MIT Press, vol. 104(3), pages 537-64, August.
- Kevin M. Murphy & Andrei Shleifer & Robert Vishny, 1988. "Income Distribution, Market Size, and Industrialization," NBER Working Papers 2709, National Bureau of Economic Research, Inc.
- Gene M. Grossman & Elhanan Helpman, 1990.
"Hysteresis in the Trade Pattern,"
NBER Working Papers
3526, National Bureau of Economic Research, Inc.
- Sergio T. Rebelo, 1990.
"Long Run Policy Analysis and Long Run Growth,"
NBER Working Papers
3325, National Bureau of Economic Research, Inc.
- James E. Rauch, 1994.
"Balanced and Unbalanced Growth,"
NBER Working Papers
4659, National Bureau of Economic Research, Inc.
- Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
- 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.
- 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.
- Matsuyama, Kiminori, 1992.
"Agricultural productivity, comparative advantage, and economic growth,"
Journal of Economic Theory,
Elsevier, vol. 58(2), pages 317-334, December.
- Kiminori Matsuyama, 1991. "Agricultural Productivity, Comparative Advantage and Economic Growth," NBER Working Papers 3606, National Bureau of Economic Research, Inc.
- Kiminori Matsuyama, 1990. "Agricultural Productivity, Comparative Advantage, and Economic Growth," Discussion Papers 934, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- 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.
- 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.
- Edwards, Sebastian, 1992.
"Trade orientation, distortions and growth in developing countries,"
Journal of Development Economics,
Elsevier, vol. 39(1), pages 31-57, July.
- Sebastian Edwards, 1991. "Trade Orientation, Distortions and Growth in Developing Countries," NBER Working Papers 3716, National Bureau of Economic Research, Inc.
- 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.
- 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.
- 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.
- Stewart, Frances & Ghani, Ejaz, 1991. "How significant are externalities for development?," World Development, Elsevier, vol. 19(6), pages 569-594, June.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:4659. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.