 THE QUANTITATIVE IMPORTANCE OF OPENNESS IN DEVELOPMENTWenbiao Cai, B Ravikumar and Raymond Riezman Economic Inquiry, 2015, vol. 53, issue 4, 1839-1849 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) Date: 2015 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:ecinqu:v:53:y:2015:i:4:p:1839-1849 Ordering information: This journal article can be ordered from Access Statistics for this article Economic Inquiry is currently edited by Tim Salmon More articles in Economic Inquiry from Western Economic Association International Contact information at EDIRC. |
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