structural change Flashcards
structural change
when some sectors in an economy expand while others shrink, we refer to this as structural change
capital flight
investing their capital in worldwide markets instead of in the domestic economy
patronage
the creation of inefficient jobs as a way to buy votes
sectoral growth
the expansion of specific sectors of the economy
balanced growth
all economic sectors grow at the same rate
unbalanced growth
sectors grow at different rates
sectoral composition
a change in the weight of each sector in terms of the economy’s output
intersectoral linkages
the effects of conditions in one sector on other related sectors
backward linkages
- effects on upstream sectors that play the role of suppliers for a given sector
- promotes development of suppliers
forward linkages
- effects on downstream sectors that are clients for a given sector
- promote downstream customer sectors
big push theories
theories that promote the idea that development can only be successful when a government makes efforts to expand, simultaneously, various sectors on a very large scale
complementaries
- complementaries exist when the objects must be combined in certain proportions in order to be effective
coordination problems
occur when each sector makes independent decisions but one sector’s decision depends on another sector’s decision
development banks
specialize in giving long-term loans for development purposes (export-oriented industrial firms)
import substitution strategies
focus on the development of a country’s domestic industry with the objective of a gradual decline in imports of industrial products while the domestic sectors develop
export promotion strategies
focus on developing competitive sectors for the successful export of products to the world market
terms of trade
the ration of the export price index to the import price index
prebisch-singer hypothesis
countries specializing in exports of primary commodities are doomed to experience a decline in their terms of trade. based on idea that as the world economy develops, demand for primary commodities will fall behind the demand for manufactured goods.
primary commodities
raw materials, agricultural products
import substitution
following the path of industrialization such that domestic industry and manufacturing would replace imports from advanced industrialized countries
infant industries
newly established firms that did not have a foothold in the global marketplace, or the experience and knowledge of long-established industries
export promotion
employing policies that included preferential credit for exportation firms, easy access to imports, and even governmental subsidies to help firms offer competitive prices -> encouraged industries to develop and export competitive products on world markets
poverty trap
if a country is very poor, it cannot afford to save because it must allocate all of its income to consumption with no resources left for investment.
three assumptions of lewis model
- labor can be moved from agriculture to industry at no cost
- the labor market in the modern sector is competitive, and given excess labor in the agricultural sector, wages remain at subsistence level
- profits from the modern sector are reinvested only in that sector
- free movement, subsistence wage, reinvesting
lewis model limitations
- initial scarcity of capital limits growth
- profits not always reinvested domestically
- inefficient government investment
- unions
- creation of informal sectors
role of institutions in lewis model
- high taxes, regulation, corruption, inflation, expropriation -> capital flight
- gov-directed industrialization -> patronage
assumptions of harris-todaro model
- migration is a rational decision
- decision based on expected wage
- the probability of obtaining a city job inversely related to urban unemployment
flexible wage case equilibrium
Wa = Lm / Lurb) x Wm: wages in agriculture and manufacturing are equal and there is no urban unemployment
urban fixed wage equilibrium
Wa = Lm / Lurb (Wm): fixed wages in urban creates unemployment in that sector
expected wage equation harris-todaro
prob of job x wage = (Lm / Lurb) x Wm
harris-todaro implications
- excess migration
- urban congestion
- adverse effects of rural edu
- higher unemployment
- response: restrict migration or increase rural income
asian miracle
- export promotion
- strong institutions to provide the framework for competition and respect for the “rules of the game”
- at least partly due to close communication coordination between governments and the private sectors and among complementary sectors such as steel and autos
flying geese model
intends to explain the catching up process of industrialization of latecomer economies
intra-industry
product development with a particular developing country, with a single industry growing over three time-series curves: import, production, export
inter-industry
sequential appearance and development of industries in a particular developing country, with industries being diversified and upgraded from consumer goods to capital goods and/or from simple to more sophisticated producs
international aspect
subsequent relocation process of industries from advanced to developing countries during the latter’s catching-up process
main drive of fg model
- ‘leader’s imperative for internal restructuring’ due to increasing labor costs
- leade goose shifts from labor intensive to capital intensive based on comparative advantage
- sheds it low-productivity production to nations further down in the hierarchy in a pattern then reproduces itself between the countries in lower ties
Trade openness
the share of exports to GDP
Trade share
region’s exports as a percentage of world exports
theory of comparative advantage
- explains how
economies benefit from trade through specialization and,
therefore, greater efficiency - provides the justification for free trade that is almost
unanimously accepted among economists.
