Quaderni di Dipartimento. Structural Change, Economic Growth and Natural Resource Booms: A Structuralist Perspective

Transcription

1 Quadrni di Dipartinto Structural Chang, Econoic Growth and Natural Rsourc Boos: A Structuralist Prspctiv Albrto Botta Univrsità di Pavia # Dipartinto di conoia politica todi quantitativi Univrsità dgli studi di Pavia Via San Flic, 5 I-271 Pavia Giugno 28

2 Econoic Growth, Structural Chang and Natural rsourc boos: A Structuralist Prspctiv Albrto Botta Abstract Th rcnt incras in th world pric of priar cooditis has brought bac to th foru th issu of th rol of natural rsourcs in th dvlopnt procss. Whilst iproving trs of trad a hlp dvloping countris to grow fastr in th short run, doubts still xist on th long-run consquncs of natural rsourc boos. In this wor, w prsnt a structuralist two-sctor odl on conoic growth, anufacturing dvlopnt and th Dutch disas. W dscrib a ultipl quilibria scnario, in which anufacturing dvlopnt and labour productivit dnaics fd bac ach othr. Natural rsourc boos, b affcting invstnt dcisions and odifing th productiv structur of bacward conois, a st dstabilising forcs. D-industrialization procsss a ta plac, shifting and confining dvloping countris in undrdvlopnt traps. Public intrvntion in th conoic sphr a b rquird in ordr to fr th cono fro th povrt trap. Both short-run acro policis and long-run dvlopnt stratgis a pla a rol in fding conoic dvlopnt. Kwords: Structuralis, Structural Chang, Manufacturing Dvlopnt, Dutch Disas JEL Classification: B5, O14, Q33 1. Introduction Econoic growth has considrabl acclratd during th last fiv ars in ost dvloping countris. According to UNCTAD 27, btwn 23 and 27, pr capita GDP has grown b 3. prcnt and 3.5 prcnt arl in Africa and Latin Arica rspctivl, signing th bst rcord fro th arl 8s. Th hug incras in th intrnational prics of raw atrials andor agricultural products is at th bas of such an conoic ontu. High priar coodit prics hav rlaxd th xtrnal balanc constraint of svral dvloping countis; hav boostd thir accuulation of iportd capital goods; hav allowd for production xpansion, job cration and, ultiatl, fast conoic growth. Notwithstanding th widsprad nthusias about such rarabl conoic prforancs, thr is still th possibilit for long-run ngativ consquncs of high coodit prics on th dvlopnt procss. In th conoic jargon, such an argunt gos undr th rubric Dutch disas. Actuall, vn if incrasing coodit prics and iproving trs of trad a fostr growth in th short run, th a also hav vicious long-run ffcts. D-industrialization, narrowing productiv structurs and, ultiatl, a prannt slowdown in th pac of tchnological progrss constitut so xapls. Dpartnt of Econoics, Univrsit of Pavia, via San Flic 5, Pavia..ail: albrtobotta@hotail.co. 1

3 According to th rcnt pirical litratur on industrial dvlopnt and conoic growth, such long-run ngativ ffcts a b far or rlvant than th positiv short-run ons 1. In this papr w tr to laborat a structuralist approach on conoic growth, industrial dvlopnt and th potntial Dutch disas ffct of incrasing coodit prics. In th first part of th papr, w build up a gnral two-sctor structuralist odl on conoic dnaics and industrial dvlopnt. Th attntion is on structural chang and anufacturing dvlopnt as lading ngins of productivit growth. Th thortical frawor w assu is structuralist. A quantit-adjusting dand-constraind anufacturing sctor is assud, as opposd to a pric-adjusting supplconstraind nclav sctor. Morovr, an indpndnt invstnt function drivs capital accuulation in th anufacturing sctor. In th scond part of th papr w addrss th ffcts of incrasing coodit prics on th dvlopnt procss of bacward conois. According to th vr traditional Dutch disas argunt, hr swtnd in a structuralist sauc, whilst natural rsourc boos a hlp accuulation in th short run, th a also triggr off d-industrialization and conoic bacwardnss in th long run. So plausibl polic considrations ar finall drawn on th bas of th rsults our odl lads to. 2. A sipl odl on structural chang and conoic dvlopnt Lt s assu a dual dvloping cono. On th on hand, an nclav sctor xists, producing cooditis or natural rsourc-basd goods through a Lontif production function. Its production is totall xportd and firs do not hav production linags with th raining of th dostic cono 2. Following Talor 23, th nclav sctor wors in a noclassic fashion. Th pric of th nclav good adjusts to nsur th art quilibriu. Whil firs in th nclav sctor full utilis th installd capacit, th quilibriu pric basicall dpnds on dand conditions on th intrnational arts 3. On th othr hand, a ho anufacturing sctor is assud. A Lontif-tp production function dtrins th anufacturing aggrgat suppl. Contrar to th nclav sctor, anufacturing bhavs a là Kalci. Whilst th anufacturd good s pric is st according to a fixd ar-up rat on variabl costs, production and capacit utilization adjust in ordr th t th aggrgat dand for anufacturd goods. Th ho-cono anufacturd good is both xportd 1 According to Rodri 27, high-growing dvloping countris hav anagd to dvlop a wid industrial and anufacturing bas. Morovr, anufacturing growth d-industrialization is positivl lind with growth acclrations conoic dclins - a 2% incras in th growth rat of pr-capita GDP lasting 8 ars or or. 2 Th issu of th poor productiv linags btwn natural rsourc-basd sctors and th raining of th dostic cono is a wll-now stor in th fild of dvlopnt conoics. S Hirschann 1958, Srs 1964 and Baldwin S also Albala-Brtrand 26 on Chil and UNCTAD 25 on Africa. 3 Th rlianc of th pric of th nclav sctor s good on dand conditions on th intrnational arts is ainl du to th pculiar charactristics of priar coodit arts. On th on hand, th intrnational dand for priar cooditis is historicall subjctd to abrupt fluctuations. On th othr hand, du to th frtilit constraints of th availabl lands andor th production coplxit of th ining sctor, th suppl of priar cooditis is fairl inlastic. It a rspond sluggishl to pric incrass, also in th diu run. In this contxt, th quilibriu pric of priar cooditis largl dpnds on dand fluctuations rathr than on suppl-sid factors. 2

4 and dandd on th dostic art. Morovr and forost, it is usd both for consuption and invstnt purposs, this last point foralising th intra-industr productiv linags pculiar to anufacturing productions. Two social classs xist into th cono: capitalists and worrs. Profits arnrs and wag arnrs hav diffrnt consuption pattrns. Profits ar full savd and r-invstd in capital accuulation. Du to tchnological rstrictions or oligopolistic barrirs to ntr, capitals ar not obil across sctors. Whil th nclav sctor profits financ capital goods iports in th nclav, anufacturing profits fd th dand for th ho-producd invstnt good. For th sa of siplicit, w assu an institutionall dtrind wag rat. Wags ar totall consud. Th ar spnt both on iportd goods and on th dostic anufacturd good, according to a fixd spnding shar. According to th assuptions abov, tabl 1 in appndix A rcollcts th ain variabls of th odl. Equations 1-9, instad, foralis th ain faturs of our two-sctor dvloping cono. P 1 τ 1 ar-up pricing rul in th anufacturing sctor wb P X wl r P K 2 Inco distribution in th anufacturing sctor P X wl r P K 3 Inco distribution in th nclav sctor i X a K 4 Aggrgat suppl in th nclav sctor X uk 5 Aggrgat suppl in th anufacturing sctor L b a K 6 Eplont in th nclav sctor L b uk 7 Eplont in th anufacturing sctor P C 1α wl wl 8 Consuption xpnditurs on th ho-producd anufacturd good P C α w L L 9 Consuption xpnditurs on th iportd anufacturd good i i 2.1 Th Short-run Equilibriu In th short run, both th nclav sctor and th anufacturing sctor capital stocs ar givn b historical accuulation. Macroconoic quilibriu is achivd whn th arts for th nclav good 3

5 and th anufacturd good ar in quilibriu. Equations 1 and 11 rprsnt th xcss dand functions on th nclav good s art and on th anufacturd good s art, rspctivl. ED P X P E 1 ED P X P C P E P I 11 Adding up sid-b-sid quations 1 and 11; using quations 2, 3 and 8; noralising b th valu of th capital stoc in anufacturing and rinding that r P K P I i.. nclav sctor profits ar full usd to sustain capital accuulation in th nclav, w can obtain a uniqu xprssion for th short-run acroconoic quilibriu at ho. It can b dfind as follow: i i r g ε φρa ρg αω ba bu 12 In ordr to rach a usful xprssion for th short-run quilibriu in th ho cono, capital accuulation in anufacturing and in th nclav sctor ar to b dfind or in dpth. As far as g is concrnd, starting fro quation 3 and anipulating a bit, w gt: g r 1 b φa φρ ω An indpndnt invstnt dand function is assud in th anufacturing sctor. According to th structuralist thor, it is dfind as follow: g γ πu 13 γ 1 In quation 13, γ constituts th wll-nown autonoous coponnt in th invstnt dand function. It foraliss th Knsian-tp anial spirits b dostic ntrprnurs. Morovr, capital accuulation in anufacturing is a positiv function of th capacit utilization u, via th positiv ffcts that capacit utilization has on th anufacturing profits rat r i.. r πu. Putting th xprssions for g and g in quation 12, w can solv quation 12 for th capacit utilization u. [ γ ε 1 α ωba ] u [ α 1 α γ π ] 1 14 Th conoic aning of quation 14 is straightforward. Capacit utilization in th anufacturing sctor ust adjust to clar up th anufacturd good s art and to lad to th short-run 4

6 acroconoic quilibriu. It is a positiv function of th conoic injctions apparing at th nurator of quation 14: th xognous coponnt of th invstnt dand function γ ; th anufacturing sctor s xports ε; th dostic xpnditurs fro wag arnrs plod in th nclav sctor. At th sa ti, u is a positiv function of th ndognous coponnt in th invstnt dand function γ 1 π, which appars at th dnoinator of quation 14. Econoic laags, i.. savd profits and iport flows rduc capacit utilization. Bfor passing on to anals th long-run bhaviour of th odl, a fw words or ar to b said about capacit utilization in th anufacturing sctor. Spcial concrn is to b rsrvd to th conoic factors affcting anufacturing xports. Diffrntl fro th arl dvlopnt thoris, which wr ainl concntratd on dvloping dostic arts, currnt conoic thought strsss th rlvanc of non traditional xports as lading sourc of growth. Two fundantal assuptions can b don about anufacturing xports of th ho cono. ' 1 ε f, with f > : According to th odl st-up, th anufacturd good s pric is a positiv function of th labouroutput tchnological cofficint b which is fixd in th short-run and a ngativ on of th anufacturing sctor labour productivit 1b. If th ontar wag and th ar-up rat ar constant, a highr labour productivit ans lowr pric and a highr intrnational coptitivnss of th ho-producd anufacturd good. B incrasing th pric coptitivnss of th dostic anufacturd goods, a highr labour productivit a boost anufacturing xports, th xportcapital ratio ε and th capacit utilization u. ' 2 ε f, with f > : Export prforancs not onl dpnd on pric coptition. According to th volutionist thor Dosi and Sot 1988, Sot 1992, Montobbio and Rapa 24, tchnological factors such as product diffrntiation a b vn or rlvant xport-nhancing factors than pric coptitivnss. In this rgard, not all industris hav th sa proprtis in trs of tchnological innovation. Manufacturing activitis s to hav so pculiar faturs copard to othr sctors. According to Grnwald and Stiglitz 26, industrial ntrpriss usuall rquir a widr spctru of labour sills and coptncis, so that anufacturing dvlopnt is oftn a prcondition to th accuulation of huan capital and tchnological nowldg 4. Morovr, anufacturing activitis, or than othr industris, a support R&D fforts and gnrat tchnological innovations in trs of production fficinc, nw products, rising product qualitis. Following Young 1928, Kaldor 1967, McCobi and Thirlwall 1994, anufacturing is charactrisd b acroconoic incrasing rturns to scal, du to its own capabilitis to giv ris to an 4 Following Rodri 24, th accuulation of huan capital is oftn dand-constraind rathr than suppl-constraind. Wh should popl invst in acquiring a highr foral nowldg if thr ar no opportunitis to xploit it in highl runratd jobs into coplx industrial ssts? A wll-laboratd training polic should also ta into account how ploing on th labour art th foral coptncis acquird during th schooling ars. Th ho cono productiv structur dfinitl attrs to stiulat and shap th accuulation of huan capital. 5

7 xtnsiv social division of labour. Whilst this aspct has iportant iplications on th labour productivit dnaics, to s blow, it is also fundantal for tchnological progrss, which largl dpnds on dns productiv linags btwn intrconnctd activitis. According to this prspctiv, diffrnt productiv structurs, and diffrnt dgrs of anufacturing dvlopnt, a produc diffrnt pattrns in th accuulation of fundantal conoic assts such as labour sills, tchnological nowldg, and innovation capabilitis. Ths factors, in turn, affct th intrnational coptitivnss of an conoic sst and its xport prforancs 5. In our odl, such an aspct ight b foralisd through a positiv rlationship btwn anufacturing xports ε and th anufacturing sctor s capital stoc K. Nvrthlss, w prfr assuing ε to b positivl influncd b th capital stoc ratio. On th on hand, th positiv rlationship btwn ε and prsrvs th dirct positiv ipact K a hav on anufacturing xports now scald for th capital stoc in th nclav sctor. On th othr hand, it a bttr foralis th rol of diffrnt productiv structurs and diffrnt lvls of anufacturing dvlopnt in affcting th intrnational coptitivnss and th conoic prforancs of th ho cono. On th basis of ths assuptions, w can now go on and considr th long-run iplications of anufacturing dvlopnt and structural chang on th dvlopnt procss of bacward conois. 3. Manufacturing dvlopnt and conoic dnaics Following Ros and Sott 1998, conoic dnaics can b foralisd through a two-b-two dnaic quation sst for th growth rat of th labour productivit and for th capital stoc ratio. For th sa of siplicit, lt assu that th labour productivit in th nclav sctor is constant 6. Th labour productivit in th anufacturing, instad, volvs according to th following sipl linar dnaic quation: ϕ ξ θ 15 hat variabls standing for prcntag growth rats. 5 In sight of futur rfrncs on anufacturing dvlopnt and th labour productivit dnaics, s also Glfason 21 on th ngativ affcts of natural rsourc boos on th accuulation of huan capital and tchnological innovations. 6 This assuption rflcts th vast thortical litratur on dcrasingconstant rturns to scal in natural rsourc-basd productions and incrasing rturns to scal in anufacturing Matzujaa, 1991; Ros, 2. Morovr, it a foralis th pirical vidnc on th productiv ssts of ost dvloping countris. In svral bacward conois, whilst natural rsourc-basd productions us odrn capital intnsiv production procsss, an dostic anufacturing activitis li far bhind th worldwid tchnological frontir Katz and Stupo, 21. Labour productivit in natural rsourc-basd nclav sctors a b vn highr that anufacturing labour productivit. Fro a dnaic prspctiv, howvr, anufacturing sctors offrs gratr opportunitis for th gnration of valu addd than th priar sctor UNCTAD, 26. Th rlativ undrdvlopnt of anufacturing in ost dvloping countris vn widns th possibilitis for gratr incrass in anufacturing labour productivit copard to th labour productivit dnaics in th nclav sctor. 6

8 According to Hausann and Klingr 27, th volution and th transforations of an conoic sst ar strongl path-dpndnt. Th xisting productiv pattrn affcts th ovrall larning capabilitis of th cono, as wll as th scop for tchnological innovations and nw industris to ta plac. In a wa, what is currntl producd dtrins what could b producd in th futur. Onc again, anufacturing productions and industrialisd productiv structurs s to show or opportunitis that othr sctors to acquir nw coptncis, to accuulat tchnological nowldg, to gnrat an xtndd social division of labour and, ultiatl to sustain th labour productivit dnaics. In our odl, such a rlationship btwn anufacturing dvlopnt and th labour productivit dnaics is caught in quation 15 through th positiv ffcts that th rlativ capital stoc ratio has on th growth rat of th labour productivit in th anufacturing sctor 7. Th positiv rlationship btwn and notwithstanding, labour productivit dnaics a not b unboundd. Th ngativ ffct of on its own growth rat in quation 15 constituts a stabilising lnt in th labour productivit dnaics. In quation 15, th paratr ϕ constituts an xognous coponnt in th labour productivit dnaics. As to structural chang and th dgr of anufacturing dvlopnt in th ho cono, straightforward calculations lad us to quation 16: g g 16 Equations 15 and 16 giv ris to a two-b-two dnaic quation sst. Its stabilit proprtis can b analsd b considring th corrsponding Jacobian atrix. Th stabilit analsis of th odl is carrid out in th athatical appndix B to th wor. Fro a graphical point of viw, th dnaic bhaviour of our odl can b rprsntd through a phas diagra. Thr ar an diffrnt scnarios. First of all, th two loci for constant valus of and a not cross figur 1. Scondl, a uniqu quilibriu point a xist, th locus for bing tangnt to th locus for s figur 2. Finall, th two loci a cross twic, gnrating ultipl quilibria. 7 S also Sachs and Warnr 21 on th rlationships btwn natural rsourc-biasd productiv structurs, anufacturing dvlopnt and conoic growth. 7

9 Figur 1 No intrsction btwn th locus and th locus. Figur 2 Th cas for a uniqu quilibriu point Copatibl with th ai of th papr, th cas for ultipl quilibria turns out to b particularl intrsting. On th on hand, it strsss th possibilit for a povrt trap to xist, in which scant productiv structurs go hand in hand with a low labour productivit in anufacturing and low ral wags. On th othr hand, it witnsss that incrass in th nclav good s pric a hav significant long-run dstabilising ffcts. In what follows, w will focus our analsis on th ultipl quilibria scnario. Whn th two loci cross twic, two long-run quilibria xist. In th nighbourhood of th south-wst cornr in figur 3.a and 3.b, a low long-run quilibriu rgs E L in figurs 3.a and 3.b. It is charactrisd b a rlativl d-industrialisd productiv structur, as rprsntd b a low valu of th capital stoc ratio, and a low lvl of th anufacturing labour productivit. In th north-ast part of 8

10 th phas diagra, th intrsction btwn th locus and th locus gnrats a high long-run quilibriu E H in figurs 3.a and 3.b. Contrar to th forr on, it coupls a highl industrialisd productiv structur with high lvls of th anufacturing labour productivit. Th low and th high long-run quilibria show diffrnt dnaics s th athatical appndix B. At th low long-run quilibriu in figur 3.a and 3.b, a stabl dnaics rgs. Th trac of th corrsponding Jacobian atrix J EL is ngativ, whil its dtrinant is positiv. An shoc hitting th cono will b nutralisd and th conoic sst will autonoousl co bac to th low long-run quilibriu. At th high long-run quilibriu in figur 3.a, th signs of th partial drivativs containd in th Jacobian atrix J 1 EL ar qual to thos apparing in th Jacobian atrix J EL s th athatical appndix B. Th stabilit condition dt. J 1 EL >, howvr, is now violatd. A saddl path rgs. In figur 3.b, th high long-run quilibriu lis on th downward-sloping ar of th locus. Th capital stoc ratio positivl affcts its own dnaics. Th signs of th partial drivativs of th Jacobian atrix J 2 EH ar thrfor diffrnt fro thos includd in th atrics J EL and J 1 EL. Whil th sign of th atrix trac turns out to b uncrtain, th sign of th corrsponding dtrinant rains ngativ, giving ris, again, to a saddl path dnaics. E H E L Figur 3.a Multipl quilibria with E H crossing in th upward-sloping phas of th locus 9

11 E H E L Figur 3.b Multipl quilibria with E H ling on th downward-sloping ar of th locus Two points is worth strssing about th conoic iplications of th dnaic analsis abov. First of all, th positiv rlationship btwn structural chang, anufacturing dvlopnt and productivit growth stands up. According to our thortical frawor, conoic dvlopnt is anl a structural phnonon. On th on hand, a prsistntl poor productiv structur, whr nclav productions lad and anufacturing-tp production ntwors lac, havil hindrs conoic dvlopnt. On th othr hand, structural changs and, in particular, anufacturing dvlopnt, as rprsntd b a growing valu, is th ain sourc of log-run conoic dvlopnt. Scondl, structural changs and conoic dvlopnt ar not trivial issus. On th contrar, undivrsifid productiv structurs and a low anufacturing labour productivit a fd bac ach othr, gnrating vicious circl in which dvloping countris a rain stuc in. This is xactl th conoic aning of quilibriu E L in figurs 3.a and 3.b. In nclav sctor-biasd conoic ssts, whr anufacturing is substantiall absnt, th lilihood for product divrsification and tchnological innovation to ta plac is rducd. On th on hand, this has a ngativ and dirct ffct on th hocono xport prforancs. On th othr hand, it lowrs th anufacturing labour productivit, hnc pric coptitivnss. Both capacit utilization u and capital accuulation in anufacturing ar curtaild. Ctris paribus, a poorl dnaic anufacturing sctor vn xacrbats th bacwardnss of th ho-cono productiv structur. Ultiatl, a povrt trap ariss, in which productiv undrdvlopnt dapns productivit growth and vic vrsa. 4. Incrasing coodit prics, th Dutch disas and th long-run conoic dnaics Historicall, conoic litratur has idntifid th long-run dtrioration in th trs of trad of dvloping countris as a ain sourc of conoic ibalancs and turbulncs. This is th cas of Latin Arica in th aftrath of th Grat Dprssion, as wll as of an African countris in th 1

12 post-scond World War priod. In this sns, th rcnt upward trnd in th intrnational pric of priar cooditis should b rcivd as a good nws b dvloping countris. Incrasing trs of trad, b augnting th valu of svral dvloping countr xports, a rlax thir xtrnal balanc constraints and as forign dbt pants. Siilarl, th a fostr capital accuulation in xpanding industris. Th nsuing job cration a hlp popl to scap fro inforalit and to find a or productiv and bttr runratd foral plont. Bsids ths positiv ffcts, iproving trs of trad a also produc dpr and long-lasting consquncs in trs of changing productiv pattrns. Econoic litratur has long dbatd th proindustrialization or anti-industrialization consquncs of natural rsourc boos 8. Dutch disas is th tr coonl usd for th d-industrialization cas. According to this prspctiv, natural rsourc discovris or hug incrass in coodit prics rprsnt conoic shocs, which a affct agnts xpctations, conoic bhaviours and acro-aggrgat dnaics. B incrasing xpctd profits or futur inco flows, for instanc, rising coodit prics a ntail growing consuption xpnditurs andor nw invstnt projcts. Analogousl, th a incras th labour dand in natural rsourc-basd industris. In a noclassical stting, whr full plont holds tru, ths facts lad to rising ral wags, inflation acclration, ral apprciation and a lowr coptitivnss of th dostic anufacturd goods. Evntuall, anufacturd goods xports dcras and th ho-cono anufacturing sctor shrins. In this papr, w rconsidr th Dutch disas argunt in a prtt diffrnt and structuralist fashion. In particular, w addrss how incrasing coodit prics affct conoic dnaics b influncing capital accuulation in th nclav sctor and th volution of th ho cono productiv structur. This is how it gos. According to our odl, th pric of th nclav good affcts th nclav sctor profit rat. Highr P valus incras th nclav sctor profitabilit b raising P P i, that is th nclav good pric ratio in trs of th iportd capital good. Highr profits in th nclav in turn lad to fastr capital accuulation g in th nclav. Ctris paribus, for an givn lvl of capital accuulation in anufacturing, an incrasingl natural rsourc-biasd productiv structur rgs, as rprsntd b dcrasing valus. According to our odl, such a d-industrialization phnonon iplis wid and prvasiv conoic consquncs. First of all, th pac of tchnological innovation a slow down and th scop for product innovation and diffrntiation gts narrow. Th acquisition of nw labour sills, coptncis and tchnical nowldg a turn out to b hindrd. Evntuall, a dcrasing labour productivit in anufacturing gos hand-in-hand with dcrasing anufacturing xports, th ho cono gtting locd-in into a d-industrialization and undrdvlopnt trap. 8 S Ros 2 for a rviw and a thortical analsis of th various thoris supporting rjcting th ngativ consquncs of natural rsourc boos on conoic dvlopnt. 11

13 Analticall, th long-run consquncs of natural rsourc boos a b assssd through our twob-two dnaic quations sst. Lt s ta quations 15 and 16 and totall diffrntiat th with rspct to and P. As to quation 16, nothing rlvant happns. Indd, th pric of th nclav good dos not dirctl affct th labour productivit dnaics in th anufacturing sctor, so that: P A copltl diffrnt pictur appars whn quation 16 is tan into account. Procding as bfor, w hav: P γ π 1 g P [ α 1 α γ 1 π ] { ε [1 α a b ω ] } > A highr P valu undrpins th nclav sctor profit rat and th nsuing capital accuulation b iproving th pric ratio P P i. Givn th positiv rlationship conncting g to, th anufacturing labour productivit ust incras in ordr to rais anufacturing invstnts and to p constant. In trs of figurs 3.a and 3.b, whil th locus for dos not chang, th locus for shifts upward. Th nsuing dnaic ffcts ar portrad in figur 4. Du to th upward shift in th locus for, two nw long-run quilibria appar, i.. E L and E H in figur 4. Mor rlvantl, a dstabilising dnaics a b st in. Actuall, point A dos not rprsnt an quilibriu point an longr. On th contrar, du to th dnaic forcs woring at it, th ho cono a ntr a prvrs dnaic path shifting it fro point A to th low quilibriu E L. Onc rachd th quilibriu point E L, th ho cono finds itslf stuc in an undrdvlopnt trap. D-industrialization and prannt rductions in th anufacturing labour productivit constitut th ain faturs of th nw stabl quilibriu point. In such a contxt, also turnaround and downturns in coodit prics a lil b uslss to bring th cono bac on a sustaind dvlopnt procss. Mor asil, th will just produc tporar ccls and fluctuations nding up in th low stabl quilibriu E L. If so, th long-run ngativ ffcts of tporar natural rsourc boos turn out to b clar. 12

14 E H A E L Figur 4 Long-run Dstabilising ffcts of natural rsourc boos 5. Multipl quilibria, povrt traps and th rol of conoic policis Th xistnc of povrt traps is usuall considrd a good rason to justif th public intrvntions in th conoic sphr. Th Big Push stratg proposd b ost dvlopnt conoists at th bginning of th 5s was xactl concivd so as to fr dvloping countris fro undrdvlopnt traps. Following this approach, th ultipl quilibria scnario dscribd in our odl opns wid roo for a broad st of polic asurs aiing to bra prvrs conoic ccls and boost conoic dvlopnt. Both short-run anti-cclical acroconoic policis and long-tr dvlopnt asurs a b tan into account. As to short-run acro policis, a sound acroconoic frawor is gnrall considrd a ncssar rquirnt to sustain conoic growth and dvlopnt. In particular, anti-cclical acro policis, b rducing conoic ibalancs and fluctuations, a lowr th uncrtaint associatd to invstnt dcisions and stiulat nw ntrprnurial initiativs. In trs of our odl, givn capital accuulation in th nclav sctor, which basicall dpnds on xognous factors i.. th intrnational pric of priar cooditis, countr-cclical acro policis a stiulat th anial spirits of dostic ntrprnurs, lading th to fostr capital accuulation in th anufacturing sctor. Paratr γ in th invstnt dand quation 13 jups up. Th long-lasting consquncs of a wll-calibratd short-run acroconoic anagnt ar clar. In figur 5, whil th locus for dos not chang, th locus for shifts downward. Two nw long-run quilibria points E L and E H appar. Fro a dnaic point of viw, th anufacturing labour productivit undoubtdl incrass. Should th ho cono originall b at point A in figur 5, an iprovd short-run acroconoic anagnt would shift it to th nw low long-run 13

15 quilibriu point E L in figur 5, thus incrasing th long-run valu of th anufacturing labour productivit. Should th cono initiall b at th high long-run quilibriu, countr-cclical acro policis a bring about a virtuous procss btwn anufacturing dvlopnt and prannt incrass in th labour productivit. Point B bing on th right of th quilibriu point E H, capital accuulation in th anufacturing sctor constantl outstrips capital accuulation in th nclav. Whil th capital stoc ratio incrass and anufacturing dvlopnt tas plac, th anufacturing labour productivit constantl riss. An incrasing labour productivit in turn raiss th coptitivnss of th ho-producd anufacturd good. Th ho-cono anufacturing xports incras as wll. Highr dand injctions ultiatl lad to a rising capacit utilization of th installd capacit via quation 14, this wa sustaining capital accuulation vn furthr. Manufacturing dvlopnt and incrasing labour productivit go hand-in-hand in an unboundd growth procss. B E H A E L Figur 5 Th long-run ffcts of short-run countr-cclical acro policis Long-tr dvlopnt policis gnrall ai to incras th growth potntial of an conoic sst. In th noclassical prspctiv, prfctl coptitiv arts constitut th bst conoic nvironnt to proot conoic fficinc, innovation, and productivit growth. In such a contxt, th stat should not intrfr with th art chaniss. Its intrvntion in th conoic sphr should b rstrictd to rov art iprfctions and to provid so fundantal productiv inputs and infrastructur 9. Th structuralist standpoint is uch widr. According to it, a wll dsignd dvlopnt polic is a coplx ix of stratgic trad asurs, tchnolog and industrial policis. In this frawor, also art-distorting asurs a b tan into account. 9 According to Sachs and at 24, an intrnational aid-ld progra of productiv invstnts in basic infrastructurs is th cor of th Big Push stratg dsignd to fostr th African dvlopnt towards th Millnniu Goals. 14

16 Indpndntl fro th dbat on th ost proising long-tr dvlopnt stratg, in our odl ths inds of policis a b assud to influnc th valus of th paratrs affcting th labour productivit dnaics. A sound long-tr dvlopnt polic, for instanc, a rasonabl incras paratr ϕ in quation 15, i.. th xognous coponnt in th growth rat of th anufacturing labour productivit. Altrnativl, or prhaps coplntaril, succssful long-tr dvlopnt policis a rais paratr ξ, i.. th ffcts of th ho-cono productiv structur on th labour productivit dnaics. In th following figur 6 w portra th joint ffcts of ths polic-inducd paratrical shifts. Whilst a highr ϕ valu shifts th locus for up, an incras in ξ raiss its slop. E H B A E L Figur 6 Th long-run ffcts of long-tr industrial policis Th conoic consquncs ar prtt siilar to thos analsd bfor. Th low long-run quilibriu ovs to th right fro point A to point E L. At th high long-run quilibriu dstabilising but positiv forcs ar st in. A constantl incrasing anufacturing labour productivit coupls with an conoic sst that progrssivl ovs awa fro rling on th nclav sctor. In this last scnario, th prsistnt incrass in th anufacturing labour productivit a b vn strongr than thos obsrvd in th cas of sipl short-run acro policis. Du to th highr ξ valus, long-run dvlopnt policis a prsistntl iprov th labour productivit dnaics associatd to anufacturing dvlopnt 1. According to th analsis abov, a ix of anti-cclical short-run policis and long-run dvlopnt asurs a b th ain wa to radicat th obstacls to conoic dvlopnt and to push 1 Incrass in paratr ϕ hav an analogous ffct on th long-run growth rat of th anufacturing labour productivit. 15

17 dvloping countris out of povrt traps. In our odl, a vigorous upward ovnt in th dnaic quation for th labour productivit and a contporanous downward shift in th dnaic quation for th capital stoc ratio a lad th two curvs not to intrsct an longr. If so, th low longrun quilibriu and th povrt trap in th ultipl quilibria scnario would sipl disappar. At th sa ti, an conoic dnaics siilar to that dpictd in figur 1 would b stablishd. Th dnaic forcs at th basis of a prsistnt anufacturing dvlopnt and of th labour productivit growth a b st in otion. A lft-to-right unboundd dvlopnt procss a ta plac, faturing constant incrass in th capital stoc ratio and in th anufacturing labour productivit. Conclusions Fro th arl 2s on, conoic growth in ost dvloping countris has gaind ontu. Th hug incras in th intrnational prics of thir priar coodit xports lis bhind thir rarabl conoic prforancs. Iproving trs of trad hav allowd svral dvloping countris to rlax thir trad balanc constrains and to rais capital goods iports. Such positiv facts notwithstanding, th conoic pictur of ost dvloping countris also prsnts so shadows and riss. Whn associatd to d-industrialisation procsss and to th ovrdpndnc on natural rsourcbasd productions, natural rsourc boos a b a curs rathr than a blss for th conoic dvlopnt of bacward conois. In this wor, w dvlop a sipl structuralist odl on th long-run dvlopnt ffcts of natural rsourc boos. A two-sctor frawor has bn adoptd. A Kalcian anufacturing sctor stands alongsid a noclassical-tp natural rsourc-basd nclav sctor. Du to th productivtchnological proprtis pculiar to anufacturing, anufacturing dvlopnt is dsignd as th driving forc of long-run conoic dvlopnt. Th rlativ xpansion of th anufacturing sctor vis-à-vis th nclav sctor dtrins th growth rat of th anufacturing labour productivit. Thr rsults of our odl ar worth strssing. 1 Du to th fdbacs btwn anufacturing dvlopnt and th labour productivit dnaics, ultipl long-run quilibria a appar. Both a stabl low long-run quilibriu and a high unstabl long-run quilibriu xist. In th low quilibriu, a poorl dvlopd anufacturing sctor copard to th nclav sctor giv ris to a povrt trap in which dvloping countris a b stuc in. A low lvl of anufacturing productivit charactriss th low quilibriu. In th high quilibriu, high labour productivit in th anufacturing is th rsult of an industrialisd productiv structur shiftd awa fro rling on natural rsourc-basd productions. 2 Natural rsourc boos affct conoic dvlopnt b changing th sctoral pattrn of productiv invstnts and odifing th productiv structurs of dvloping countris. In particular, hug incrass in th intrnational prics of priar cooditis rais th profitabilit of 16

18 natural rsourc-basd productions. A highr nclav sctor profitabilit in turn stiulats invstnts in th nclav. Th nclav sctor xpands copard to anufacturing. Dindustrialization happns and a natural rsourc-biasd productiv structur rgs. Tporar natural rsourc boos a gnrat dstabilising forcs having long-lasting consquncs on th dvlopnt procss. A prvrs spiral btwn d-industrialization and a dcrasing anufacturing labour productivit a shift th ho cono towards th low long-run quilibriu and th connctd povrt trap. 3 Multipl quilibria cu povrt traps gnrall as for an intrvntion of public authoritis in th conoic sphr. A ix of anti-cclical acro policis and long-run dvlopnt stratgis a b th ost appropriat polic rcip to push dvloping countris out of povrt traps. Anti-cclical acro policis, b rducing conoic fluctuations and acroconoic uncrtaint, stiulat th ntrprnurs anial spirits and capital accuulation in anufacturing. Long-run dvlopnt policis incras th growth potntial of anufacturing labour productivit. If sufficintl strong, th joint ffcts of ths policis a st dvloping countris on a virtuous path. Th dpartur fro natural rsourc-basd productiv structurs and anufacturing dvlopnt a coupl with prannt incrass in labour productivit in an ndlss growth procss. Rfrncs Albala-Brtrand, M. 26. Changs in Chil s Production Structur, : Output and Industrial Intrdpndnc. Cpal Rviw, vol. 8, Baldwin, R.E Econoic Dvlopnt and Export Growth: A Stud of Northrn Rodhsia, Dosi, G., and Sot, L. Tchnical Chang and Intrnational Trad. In: Dosi, G., Fran, C., Nlson, R., Silvrbrg, G., and Sot, L., Eds Tchnical Chang and Econoic Thor, London: Francis Pintr, Grnwald, B., Stiglitz, J. 26. Hlping Infant Econois Grow: Foundations of Trad Policis for Dvloping Countris. Arican Econoic Rviw, vol. 96 2, Glfason, T. 21. Natural Rsourcs, Education and Econoic Growth. Europan Econoic Rviw, vol , Hirschan, A.O Th Stratg of Econoic Dvlopnt. Nw Havn CT: Yal Univrsit Prss. Hausann, R., and Klingr, B. 27. Th Structur of th Product Spac and th Evolution of Coparativ Advantags. CID Woring Papr n. 146, Harvard Univrsit. Kaldor, N Stratgic Factors in Econoic Dvlopnt. Ithaca: Nw Yor Stat School of Industrial and Labour Rlations. 17

19 Katz, J., and Strupo, G. 21. Sctoral Rgis, Productivit and Intrnational Coptitivnss. Cpal Rviw, vol. 75, Matsuaa, K Incrasing Rturns, Industrialization, and indtrinac of Equilibriu. Quartrl Journal of Econoics, vol. 16 2, McCobi, J.S.L., and Thirlwall, A.P Econoic Growth and Balanc of Pants Constraint. Houndills: Macillan. Montobbio, F., Rapa, F. 25. Th Ipact of Tchnolog and Structural Chang on Export Prforanc of Nin Dvloping Countris. World Dvlopnt, vol. 33 4, Rodri, D. 24. Industrial Polic for th Twnt-First Cntur, CEPR Discussion Papr n Rodri, D. Industrial Dvlopnt: So Stlisd Facts and Polic Dirction. 27. In: UNDESA Ed Industrial Dvlopnt for th 21th Cntur: Sustainabl Dvlopnt Prspctivs, Nw Yor: UN Publication, Ros, J., and Sott, P Dnaic Effcts of Trad Libralization and Currnc Ovrvaluation Undr Conditions of Incrasing Rturns. Th Manchstr School, vol. 66 4, Ros, J. 2. Dvlopnt Thor and th Econoics of Growth. Univrsit of Michigan Prss. Sachs, J., and Warnr, A. 21. Th Curs of Natural Rsourcs. Europan Econoic Rviw, vol , Sot, L. Tchnolog Gaps in Opn Econois. In: Dosi, G., Pavitt, K., Sot, L Th Econoics of Tchnological Chang and Intrnational Trad. Brighton: WhatshafHarvstr. Sachs, J., McArthur, J.W., Schidt-Traub, G., Kru, M., Bahadur, C., Fa, M., McCord, G. 24. Ending Africa s Povrt Trap. Brooing Paprs on Econoic Activit n.1, Brooing Institution Prss. Srs, D Th Mchanis of an Opn Ptrolu Econo. Social and Econoic Studis, vol. 13, Talor, L Structuralist Macroconoics: Applicabl odls for th Third World. Nw Yor: Basic Boos Publishrs. UNCTAD. 25. Econoic Dvlopnt in Africa: Rthining th Rol of Forign Dirct Invstnts. Nw Yor and Gnva: UN Publication. UNCTAD. 26. Trad and Dvlopnt Rport 26. Nw Yor and Gnva: UN Publication. UNCTAD. 27. Trad and Dvlopnt Rport 27. Nw Yor and Gnva: UN Publication. Young, A Incrasing Rturns and Econoic Progrss. Th Econoic Journal, vol ,

20 Appndix A In th appndix A to th wor, w rport a list of th ain variabls containd in th foral odl. Tabl 1 Econoic variabls of th odl P Pric of th nclav sctor good P Pric of th ho-producd anufacturd good P i Pric of th iportd anufacturd good X Aggrgat output of th nclav sctor X Aggrgat output of th dostic anufacturing sctor w Montar wag ω wp Ral wag rat in trs of th ho producd-anufacturd good P i P ρ Th iportd goodho-producd anufacturd good pric ratio P P i φ Th nclav goodiportd good pric ratio r Profit rat in th nclav sctor r Profit rat in th anufacturing sctor π Th short-run fixd anufacturing sctor profit shar K Installd capital stoc in th nclav sctor K Installd capital stoc in th anufacturing sctor K K Manufacturingnclav sctor capital stoc ratio L Eplod labour forc in th nclav sctor L Eplod labour forc in th anufacturing sctor b Labour-output tchnologic cofficint in th nclav sctor b Labour-output tchnological cofficint in th anufacturing sctor b i Labour-output cofficint in th forign anufacturing sctor a Output-Capital tchnological cofficint in th nclav sctor u XK Capacit utilization in th dostic anufacturing sctor E E E K ε I I I K g I K g α Exports of th nclav sctor Exports of th dostic anufacturing sctor Ratio btwn anufacturing xports and installd capital stoc K Invstnt dand in th nclav sctor Invstnt dand in th anufacturing sctor Capital stoc growth rat in th nclav sctor Capital stoc growth rat in th anufacturing sctor Consuption xpnditur shar on iportd anufacturd goods 19

21 Appndix B In th Appndix B to th wor, w prsnt th stabilit analsis of th odl. First of all, w driv th two loci for and. Scondl, w ta into account th dnaic proprtis of th ultipl long-run quilibria scnario dscribd in th ain txt. Drivation of th two loci for and Th stabilit analsis of quation 15 is prtt sipl. Putting quation 15 qual to zro and totall diffrntiating, w gt: F ϕ ξ θ Hnc: θ d ξd so that: d d ξ θ > B.1 Th locus is a sipl straight lin, having a constant positiv slop i.. ξθ and intrcpt qual to ϕθ. Th stabilit analsis of quation 16 gts slightl or coplicatd. First of all, th condition for to b constant rquirs g g. Such a condition can b rstatd as follow: γ ε, [1 α b a ω ] γ γ 1π g B.2 [ α 1 α γ 1 π ] Totall diffrntiating quation 16 with rspct to and, w gt: ε [1 α baω γ π [ α 1 α γ π ] ] ε d γ π [1 α ba ω [ α 1 α γ π ] ] d So that: d d ε 2 1 α b a ω { ε [1 α b a ω } B.3 Th sign of quation B.3 is not dfind. Whil th dnoinator is positiv, du to th positiv ffcts has on both ε and ω, th nurator has an uncrtain sign. Indd, whil ε 2 is surl positiv, th tr 1 - αb a ω is ngativ. In ordr to find a clar condition on th nurator sign, lt s ta th nurator of quation B.3 and anipulat a bit. On gts th following xprssion: 2

22 > ω α ε b a if z h > η B.4 With ] 1 [ a b h ω α ε γ ε ; { } ] [1 1 1 a b z ω α ε γ and ε ε η It is as to vrif that condition B.4 is nvr t whn is sall and tnds towards zro. In that cas, h is qual to zro whil z is qual to 1. Condition B.4 or lil holds whn incrass, bcoing tru whn tnds towards infinit. In that cas, whil h tnds towards εγ ε, z bcos qual to zro. If w assu that a thrshold lvl xists, according to which th nurator of quation B.3 passs fro bing ngativ to bing positiv, w gt: { } [1 1 2 > a b a b d d ω α ε ω α ε whn < and z h < η { } [1 1 2 < a b a b d d ω α ε ω α ε whn > and z h > η Th locus for appars as an invrtd U-shapd curv, having a axiu at th thrshold lvl. Stabilit proprtis of th long-run quilibria According to th analsis abov and th phas diagras in th ain txt, svral dnaic scnarios xist. Th cas for ultipl quilibria dsrvs spcial attntion. As shown in figur 3.a and 3.b, whn th locus for and th locus for cross twic, two diffrnt long-run quilibria appar. Th hav diffrnt dnaic proprtis. In ordr to asss th lt s considr th spcific Jacobian atrix associatd to ach quilibriu. As to th low quilibriu E L in figurs 3.a and 3.b, w hav: J EL

23 22 According to th signs of th partial drivativs includd in th atrix J EL, th atrix trac is surl ngativ. This is not th cas for th dtrinant, whos sign is uncrtain. Th standard stabilit condition rquirs th dtrinant to b positiv, so that:. dt > EL J if > B.5 This is xactl what happns in figur 3.a and 3.b, whn th locus for crosss th locus for fro blow. Actuall, condition B.5 a b asil t at th low quilibriu in th north-wst cornr of figurs 3.a and 3.b: th slop of tnds towards whn tnds towards zro. As to th high quilibriu E H, a distinction is to b don according to th slop of th locus. Two diffrnt Jacobian atrics, J 1 EH and J 2 EH, xist. Th Jacobian atrix J 1 EH rfrs to th high long-run quilibriu in figur 3.a, which lis on th upward-sloping sction of th locus for. J 1 EH Th Jacobian atrix J 2 EH, instad, rfrs to th high long-run quilibriu in figur 3.b, which lis on th downward-sloping ar of th locus for. J 2 EH Th signs of th partial drivativs includd in atrix J 1 EH ar qual to thos rfrring to th atrix J EL. In figur 3.a, at th high quilibriu point, th locus for is upward-sloping. Th rlativ capital stoc has a ngativ ipact on its own growth rat. Th locus for constant valus of, instad, slops upward. Whil th atrix trac is surl ngativ, th sign of th dtrinant dt.j 1 EH is

24 uncrtain. Diffrntl fro quilibriu E L, th condition B.5 is now violatd at th high long-run quilibriu in figur 3.b. Th locus for crosss th locus for fro abov, so that th dtrinant dt.j 1 EH of atrix J 1 EH turns out to b ngativ. As rprsntd in figur 3.a, a saddl-path dnaics rgs. In figur 3.b, th high long-run quilibriu lis on th downward-sloping ar of th locus. Th rlativ capital stoc positivl affcts its own dnaics. Th signs of th partial drivativs of th Jacobian atrix J 2 EH ar diffrnt fro thos includd in th atrics J EL and J 1 EL. Now, whil th sign of th atrix trac is uncrtain, th sign of th corrsponding dtrinant rains ngativ. Onc again, a saddl path dnaics charactriss th high long-run quilibriu in figur 3.b. 23