Structural Change and Development Policy

548 Pages·1979·20.989 MB·English

by  Hollis B. Chenery

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Structural Change
and
Development Policy
A World Bank Research Publication
if
with the assistance
Hazel Elkington
0/
including contributions
Montek S. Ahluwalia
Michael Bruno
N icho las G. Carter
Arthur MacEwan
Alan M. Strout
J.
William Raduchel
Larry E. Westphal
Published for the World Bank
Oxford University Press
Oxford University Press
NEW YORK OXFORD LONDON GLASGOW
TORONTO MELBOURNE WELLINGTON HONG KONG
TOKYO KUALA LUMPUR SINGAPORE JAKARTA
DELHI BOMBAY CALCUTTA MADRAS KARACHI
NAIROBI DAR ES SALAAM CAPE TOWN
© 1979 by the International Bank
for Reconstruction and Development I The World Bank
1818 H Street, N.W., Washington, D.C. 20433 U.S.A.
All rights reserved. No part of this publication
may be reproduced, stored in a retrieval system,
or transmitted in any form or by any means,
electronic, mechanical, photocopying, recording,
or otherwise, without the prior permission of
Oxford University Press. Manufactured in the
United States of America.
The views and interpretations in this book are the
author's and should not be attributed to the World
Bank, to its affiliated organizations, or to any
individual acting in their behalf.
Library of Congress Cataloging in Publication Data
Chenery, Hollis Burnley.
Structural change and development policy.
Bibliography: p. 497
Includes index.
1. Economic development. 2. Underdeveloped areas.
3. Comparative economics. I. Elkington, Hazel, joint
author. II. International Bank for Reconstruction and
Development. III. Title.
HD82.C474 1979 338.9 79-18026
ISBN 0-19-520094-2
ISBN 0-19-520095-0 pbk.
Acknowledgments
The publisher, the author, and the \Vorld Bank acknowledge with thanks
permission to reprint or adapt the fonowing copyrighted material:
J.
"Substitution in Planning Models" by Hollis B. Chenery and William
Raduchel. Reprinted by permission of the publishers from Studies in
Development Planning, edited by Hollis B. Chenery. Cambridge, Mass.:
Harvard University Press. Copyright © 1971 by the President and Fel
lows of Harvard College.
"The Interdependence of Investment Decisions" by Hollis B. Chenery.
Reprinted from The Allocation of Economic Resources, by Moses
Abramovitz and others, with the permission of the publishers, Stanford
University Press. © 1959 by the Board of Trustees of the Leland Stan
ford Junior University.
"Economies of Scale and Investment over Time" by Honis B. Chenery
and Larry E. "Westphal. Reprinted by permission from Public Econom
ics, edited by J. Margolis. © 1969 by the International Economic Asso
ciation, st. Martin's Press, Inc., and Macmillan & Co., London and
Basingstoke.
"Comparative Advantage and Development Policy" by Hollis B. Chenery.
Reprinted by permission from American Economic Review, vol. 51, no.
I (March 1961), © 1961 by the American Economic Association.
"Development Alternatives in an Open Economy: The Case of Israel" by
Hollis B. Chenery and Michael Bruno. Reprinted by permission from
The Economic Journal, vol. 72, no. 285 (March 1962), © 1962 by
Cambridge University Press.
"Optimal Patterns of Growth and Aid: The Case of Pakistan" by Hollis
B. Chenery and Arthur MacEwan. Reprinted by permission from The
Theory and Design of Economic Development, edited by Irma Adelman
and Erik Thorbecke. © 1966 by The Johns Hopkins University Press.
"Foreign Assistance and Economic Development" by Hollis B. Chenery
and Alan M. Strout. Reprinted by permission from American Economic
Review, vol. 56, no. 4 (September 1966), © 1966 by the American
Economic Association.
"Growth and Poverty in Developing Countries" by Montek S. Ahluwalia,
Nicholas G. Carter, and Hollis B. Chenery. Reprinted from The Jour
nal of Development Economics, vol. 6, no. 3 (September 1979) by
arrangement with the publisher, North-Holland Publishing Company.
© 1979 by the International Bank for Reconstruction and Development.
v

Contents
List of Figures x
List of Tables xiii
Preface xvi
Part One. A Framework for Policy
Introduction 1
1. Economic Growth and Structural Change 5
Dimensions of the Transition 6
Alternative Patterns of Specialization 21
Transitional Countries 29
Implications 44
2. Models of the Transition 46
Alternative Modes of Analysis 47
Development Phenomena 55
An Approach to Policy 60
Part Two. Internal Structure
Introduction 67
3. The Process of Industrialization 70
A Model of Industrialization 71
Patterns of Specialization 90
Sources of Industrialization 108
Overview 140
vii
viii CONTENTS
4. Substitution and Structural Change 143
WITH WILLIAM J. RADUCHEL
Substitution among Commodities and Factors 144
A Planning Model with Substitution 146
Surplus Labor and External Capital 165
Implications 172
5. The Interdependence of Investment Decisions 173
The Problem 174
The Model 177
Measurement of the Effects of Interdependence 188
Evaluation 204
Appendix. The Calculation of Prices and Total Costs 213
6. Economies of Scale and Investment over Time 217
WITH LARRY E. WESTPHAL
Statement of the Problem 218
Formulating the Model 221
Investment Patterns 235
Conclusions 266
Part Three. External Structure
Introduction 269
7. Comparative Advantage and Development Policy 272
Conflicts between Trade Theory and Growth Theory 273
The Measurement of Optimum Resource Al1ocation 281
Comparative Advantage and Balance in Development Programs 299
Conclusions 306
8. Development Alternatives in an Open Economy:
The Case of Israel 309
WITH MICHAEL BRUNO
Limits to Growth in Israel 310
A Model of Development Alternatives 314
Bottlenecks and Sector Limitations 334
The Choice of Policy 337
The Productivity of Foreign Assistance 339
9. Optimal Patterns of Growth and Aid:
The Case of Pakistan 342
WITH ARTHUR MACEWAN
The Analytical Framework 343
The Model 347
Growth Alternatives for Pakistan 355
Development and Assistance Strategy 376