This paper deals with a classic development question: how can the process of economic development—transition from stagnation in a traditional technology to industrialization and prosperity with a modern technology—be accelerated? Lewis (1954) and Rostow (1956) argue that the pace of industrialization is limited by the rate of capital formation which in turn is limited by the savings rate of workers close to subsistence. We argue that access to capital goods in the world market can be quantitatively important in speeding up the transition. We develop a parsimonious open-economy model where traditional and modern technologies coexist (a dual economy in the sense of Lewis 1954). We show that a decline in the world price of capital goods in an open economy increases the rate of capital formation and speeds up the pace of industrialization relative to a closed economy that lacks access to cheaper capital goods. In the long run, the investment rate in the open economy is twice as high as in the closed economy and the per capita income is 23% higher . ( JEL O11, F43, O14)"> This paper deals with a classic development question: how can the process of economic development—transition from stagnation in a traditional technology to industrialization and prosperity with a modern technology—be accelerated? Lewis (1954) and Rostow (1956) argue that the pace of industrialization is limited by the rate of capital formation which in turn is limited by the savings rate of workers close to subsistence. We argue that access to capital goods in the world market can be quantitatively important in speeding up the transition. We develop a parsimonious open-economy model where traditional and modern technologies coexist (a dual economy in the sense of Lewis 1954). We show that a decline in the world price of capital goods in an open economy increases the rate of capital formation and speeds up the pace of industrialization relative to a closed economy that lacks access to cheaper capital goods. In the long run, the investment rate in the open economy is twice as high as in the closed economy and the per capita income is 23% higher . ( JEL O11, F43, O14)"> This paper deals with a classic development question: how can the process of economic development—transition from stagnation in a traditio">
[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/a/bla/ecinqu/v53y2015i4p1839-1849.html
   My bibliography  Save this article

The Quantitative Importance Of Openness In Development

Author

Listed:
  • Wenbiao Cai
  • B. Ravikumar
  • Raymond G. Riezman
Abstract
type="main" xml:id="ecin12216-abs-0001"> This paper deals with a classic development question: how can the process of economic development—transition from stagnation in a traditional technology to industrialization and prosperity with a modern technology—be accelerated? Lewis (1954) and Rostow (1956) argue that the pace of industrialization is limited by the rate of capital formation which in turn is limited by the savings rate of workers close to subsistence. We argue that access to capital goods in the world market can be quantitatively important in speeding up the transition. We develop a parsimonious open-economy model where traditional and modern technologies coexist (a dual economy in the sense of Lewis 1954). We show that a decline in the world price of capital goods in an open economy increases the rate of capital formation and speeds up the pace of industrialization relative to a closed economy that lacks access to cheaper capital goods. In the long run, the investment rate in the open economy is twice as high as in the closed economy and the per capita income is 23% higher . ( JEL O11, F43, O14)

Suggested Citation

  • Wenbiao Cai & B. Ravikumar & Raymond G. Riezman, 2015. "The Quantitative Importance Of Openness In Development," Economic Inquiry, Western Economic Association International, vol. 53(4), pages 1839-1849, October.
    • Handle: RePEc:bla:ecinqu:v:53:y:2015:i:4:p:1839-1849
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1111/ecin.2015.53.issue-4
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Restuccia, Diego & Urrutia, Carlos, 2001. "Relative prices and investment rates," Journal of Monetary Economics, Elsevier, vol. 47(1), pages 93-121, February.
    2. Uy, Timothy & Yi, Kei-Mu & Zhang, Jing, 2013. "Structural change in an open economy," Journal of Monetary Economics, Elsevier, vol. 60(6), pages 667-682.
    3. Gary D. Hansen & Edward C. Prescott, 2002. "Malthus to Solow," American Economic Review, American Economic Association, vol. 92(4), pages 1205-1217, September.
    4. Caroline Betts & Rahul Giri & Rubina Verma, 2017. "Trade, Reform, and Structural Transformation in South Korea," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 65(4), pages 745-791, November.
    5. Chang Yongsung & Hornstein Andreas, 2015. "Transition dynamics in the neoclassical growth model: the case of South Korea," The B.E. Journal of Macroeconomics, De Gruyter, vol. 15(2), pages 649-676, July.
    6. Teignier, Marc, 2018. "The role of trade in structural transformation," Journal of Development Economics, Elsevier, vol. 130(C), pages 45-65.
    7. Stephen L. Parente & Edward C. Prescott, 2002. "Barriers to Riches," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262661306, April.
    8. Westphal, Larry E, 1990. "Industrial Policy in an Export-Propelled Economy: Lessons from South Korea's Experience," Journal of Economic Perspectives, American Economic Association, vol. 4(3), pages 41-59, Summer.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Manuel García‐Santana & Josep Pijoan‐Mas & Lucciano Villacorta, 2021. "Investment Demand and Structural Change," Econometrica, Econometric Society, vol. 89(6), pages 2751-2785, November.
    2. Aristizabal-Ramirez, Maria & Leahy, John & Tesar, Linda L., 2023. "A north-south model of structural change and growth," Journal of Monetary Economics, Elsevier, vol. 133(C), pages 77-102.
    3. B. Ben Moummad & E. Ezzahid & A. Zoglat, 2023. "The impact of capital goods prices on Africa's economic performance," South African Journal of Economics, Economic Society of South Africa, vol. 91(1), pages 68-84, March.
    4. Chen, Chaoran, 2020. "Capital-skill complementarity, sectoral labor productivity, and structural transformation," Journal of Economic Dynamics and Control, Elsevier, vol. 116(C).
    5. Hallonsten, Jan Simon & Ziesemer, Thomas, 2016. "A semi-endogenous growth model for developing countries with public factors, imported capital goods, and limited export demand," MERIT Working Papers 2016-004, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Michelle Connolly & Kei-Mu Yi, 2015. "How Much of South Korea's Growth Miracle Can Be Explained by Trade Policy?," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(4), pages 188-221, October.
    2. Herrendorf, Berthold & Rogerson, Richard & Valentinyi, Ákos, 2014. "Growth and Structural Transformation," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 2, chapter 6, pages 855-941, Elsevier.
    3. Michael Sposi, 2015. "Navigating the Structure of the Global Economy," Annual Report, Globalization and Monetary Policy Institute, Federal Reserve Bank of Dallas, pages 10-17.
    4. Logan T Lewis & Ryan Monarch & Michael Sposi & Jing Zhang, 2022. "Structural Change and Global Trade," Journal of the European Economic Association, European Economic Association, vol. 20(1), pages 476-512.
    5. Suesse, Marvin & Wolf, Nikolaus, 2020. "Rural transformation, inequality, and the origins of microfinance," Journal of Development Economics, Elsevier, vol. 143(C).
    6. Cai, Wenbiao, 2015. "Structural change accounting with labor market distortions," Journal of Economic Dynamics and Control, Elsevier, vol. 57(C), pages 54-64.
    7. Murat Ungor, 2017. "Productivity Growth and Labor Reallocation: Latin America versus East Asia," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 24, pages 25-42, March.
    8. Restuccia, Diego & Yang, Dennis Tao & Zhu, Xiaodong, 2008. "Agriculture and aggregate productivity: A quantitative cross-country analysis," Journal of Monetary Economics, Elsevier, vol. 55(2), pages 234-250, March.
    9. Perez Sebastian,Fidel & Steinbuks,Jevgenijs & Feres,Jose Gustavo & Trotter,Ian Michael, 2020. "Electricity Access and Structural Transformation : Evidence from Brazil's Electrification," Policy Research Working Paper Series 9182, The World Bank.
    10. Sposi, Michael, 2019. "Evolving comparative advantage, sectoral linkages, and structural change," Journal of Monetary Economics, Elsevier, vol. 103(C), pages 75-87.
    11. Li, Shang-ao & Gong, Liutang & Pan, Shan & Luo, Feng, 2020. "Wage and price differences, technology gap and labor flow dynamics," Economic Modelling, Elsevier, vol. 88(C), pages 211-222.
    12. Tomasz Swiecki, 2017. "Determinants of Structural Change," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 24, pages 95-131, March.
    13. Diego Restuccia, 2004. "Barriers to Capital Accumulation and Aggregate Total Factor Productivity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(1), pages 225-238, February.
    14. Tasso Adamopoulos, 2008. "Land Inequality and the Transition to Modern Growth," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(2), pages 257-282, April.
    15. Guo, Kaiming & Hang, Jing & Yan, Se, 2021. "Servicification of investment and structural transformation: The case of China," China Economic Review, Elsevier, vol. 67(C).
    16. Kaveri Deb, 2022. "Trade Structure and Economic Growth in Emerging and Developing Asia: A Dynamic Panel Analysis," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 20(3), pages 601-628, September.
    17. Ryan Monarch & Jing Zhang & Logan Lewis, 2017. "Structural Change and Slowdown of International Trade," 2017 Meeting Papers 1542, Society for Economic Dynamics.
    18. Douglas Gollin & Stephen L. Parente & Richard Rogerson, 2004. "Farm Work, Home Work, and International Productivity Differences," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(4), pages 827-850, October.
    19. Andres Erosa & Ana Hidalgo, 2005. "On Capital Market Imperfections as a Source of Low TFP and Economic Rents," Working Papers tecipa-200, University of Toronto, Department of Economics.
    20. Restuccia, Diego & Yang, Dennis Tao & Zhu, Xiaodong, 2008. "Agriculture and aggregate productivity: A quantitative cross-country analysis," Journal of Monetary Economics, Elsevier, vol. 55(2), pages 234-250, March.

    More about this item

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:ecinqu:v:53:y:2015:i:4:p:1839-1849. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/weaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.