New Structural Economics : A Framework for Rethinking Development
As strategies for achieving sustainable growth in developing countries are re-examined in light of the financial crisis, it is critical to take into account structural change and its corollary, industrial upgrading. Economic literature has devoted...
| Main Author: | |
|---|---|
| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
|
| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2010/02/11737058/new-structural-economics-framework-rethinking-development http://hdl.handle.net/10986/19919 |
| Summary: | As strategies for achieving sustainable
growth in developing countries are re-examined in light of
the financial crisis, it is critical to take into account
structural change and its corollary, industrial upgrading.
Economic literature has devoted a great deal of attention to
the analysis of technological innovation, but not enough to
these equally important issues. The new structural economics
outlined in this paper suggests a framework to complement
previous approaches in the search for sustainable growth
strategies. It takes the following into consideration:
First, an economy's structure of factor endowments
evolves from one stage of development to another. Therefore,
the optimal industrial structure of a given economy will be
different at different stages of development. Each
industrial structure requires corresponding infrastructure
(both "hard" and "soft") to facilitate
its operations and transactions. Second, each stage of
economic development is a point along the continuum from a
low-income agrarian economy to a high-income industrialized
economy, not a dichotomy of two economic development stages
("poor" versus "rich" or
"developing" versus "industrialized").
Industrial upgrading and infrastructure improvement targets
in developing countries should not necessarily draw from
those that exist in high-income countries. Third, at each
given stage of development, the market is the basic
mechanism for effective resource allocation. However,
economic development as a dynamic process requires
industrial upgrading and corresponding improvements in
"hard" and "soft" infrastructure at each
stage. Such upgrading entails large externalities to
firms' transaction costs and returns to capital
investment. Thus, in addition to an effective market
mechanism, the government should play an active role in
facilitating industrial upgrading and infrastructure improvements. |
|---|