Intermediate Goods and Weak Links in the Theory of Economic Development

Charles Jones

American Economic Journal: Macroeconomics, 2011, vol. 3, issue 2, 1-28

Abstract: What explains the enormous differences in incomes across countries? This paper returns to two old ideas: linkages and complementarity. First, linkages between firms through intermediate goods deliver a multiplier similar to the one associated with capital in a neoclassical growth model. Because the intermediate goods share of output is about one-half, this multiplier is substantial. Second, just as a chain is only as strong as its weakest link, problems along a production chain can sharply reduce output under complementarity. These forces considerably amplify distortions to the allocation of resources, bringing us closer to understanding large income differences across countries.(JEL: D57, E23, O1O, O47)

JEL-codes: D57 E23 O10 O47 (search for similar items in EconPapers)
Date: 2011
Note: DOI: 10.1257/mac.3.2.1
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Citations: View citations in EconPapers (275)

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