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- Title
Investment and Trade for a Developing Economy with Economies of Scale in Industry.
- Authors
Hughes, G. A.
- Abstract
The article presents a model that depicts an underdeveloped country, which is gradually investing to build up its industrial sector. Trade is vital to such a country both for the import of capital goods and in order to relieve it of the need to build up all industries in such a way as to balance supply with domestic demand for consumption and inter-industry input requirements. For convenience it is assumed that all capital goods are imported. This interpretation is not, in fact, restrictive because one could view the export surplus as measuring the domestic resources available for investment purposes. A further feature of the model emphasizes that there is no substitution in production processes, which are specified in terms of known input requirements per unit of output. These input needs fall as output is increased, hence the economies of scale. In fact, one could interpret the reasons underlying the decline in input coefficients rather broadly to incorporate a variety of external economies, learning, or some form of technical progress. Clearly these possibilities could be expanded upon for discussion in their own right, but it suffices for present purposes to use the all-embracing term of increasing returns.
- Subjects
BUSINESS planning; DEVELOPING countries; INDUSTRIAL organization (Economic theory); RATE of return; BUSINESS; ECONOMIES of scale; INTERNATIONAL trade; PRODUCTION (Economic theory); INVESTMENT analysis; INVESTMENTS; MICROECONOMICS
- Publication
Review of Economic Studies, 1976, Vol 43, Issue 2, p237
- ISSN
0034-6527
- Publication type
Article
- DOI
10.2307/2297320