THE FALLACY OF COMPOSITION: A REVIEW OF THE LITERATURE

Joerg Mayer

No 166, UNCTAD Discussion Papers from United Nations Conference on Trade and Development

Abstract: The paper reviews the literature on the fallacy of composition with an emphasis on labour-intensive manufactures. It briefly addresses the protectionist and the partial-equilibrium versions of the argument before focusing on general-equilibrium considerations and the debate on the manufactures terms of trade of developing countries. The review indicates a potential fallacy of composition problem in labour-intensive manufactures, where competition among different groups of developing countries for export market shares may constitute a new form of the fallacy of composition. The likelihood of a country that exports labour-intensive manufactures to become subject to the fallacy of composition rises with the increasing integration of several strongly populated low-income countries into world markets, while it declines with continuous structural change and favourable aggregate demand conditions particularly in developed and the advanced developing countries.

Date: 2003
New Economics Papers: this item is included in nep-hpe
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Citations: View citations in EconPapers (51)

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Persistent link: https://EconPapers.repec.org/RePEc:unc:dispap:166

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