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Industrialization and growth: A comparative study
JOURNAL
OF COMPARATIVE
ECONOMICS
13,
59 l-596 (1989)
CHENERY, SHERMAN ROBINSON, AND MOSHE SYRQUIN, Industrialization and Growth: A Comparative Study. New York: Oxford University Press, 1986. x + 387 pp., index, $29.95.
HOLLIS
This study is an important one in several ways. First, it represents another important milestone in the articulation of structural changes in the process of development. Second, it is one of the most comprehensive and ambitious attempts to date in providing convincing empirical evidence as well as theoretical underpinnings for the view, which has long been advocated by the World Bank and now seems to have become increasingly accepted in the world as a whole, that openness and trade are necessary conditions for successful development. Third, it demonstrates the usefulness and complementarity of a wide variety of modeling approaches ranging from partial equilibrium trade models through input-output and dynamic computable general equilibrium (CGE) models. Finally, it comes closer than most studies to successfully bridging the gap between descriptive case studies that are full of real world realities and complexities on the one hand and the totally sanitized and artificial world of theoretical abstractions on the other. The study artfully combines the analysis of international cross sections with that of single country time series and at the same time the analysis of individual sectors with that of macroeconomic aggregates, in virtuahy ah cases from a comparative perspective. With respect to country coverage, the analysis varies from that of a single country (as in the case of Korea in Chapter 11) through the 4 semi-industrial countries for which almost all the substantial data requirements are satisfied (Korea, Japan, Turkey, and Yugoslavia in Chapter 10) and the specially selected sample of 9 semi-industrial countries (the aforementioned four plus Colombia, Israel, Mexico, Norway, and Taiwan) to the fuller sets of 34 semi-industrial countries in Chapter 9 and 38 in Chapter 4 and the sample of 39 countries of all types (in Chapter 2). With respect to sectoral coverage the analysis is mercifully relatively parsimonious, varying from the aggregate level to the level of 3,4, or 8 global sectors and generally up to 4 manufacturing sectors. In one chapter (Chapter lo), however, the number of manufacturing sectors ranges up to 13 (in my opinion without advantage). In most cases, these choices seem judicious, being dictated by the relevance and importance of sectoral detail to the issue at hand and, of course data availability. In some cases, however, one suspects that the tastes or working definitions which the collaborators may have used in other research using the same data sets may also have played a role. 591
0141-5961/89/$3.00 Copyright 8 1989 by Academic Press, Inc. All rights of reproduction in any form reserved.
592
BOOK REVIEWS
The basic purpose as stated on page 1 is “to clarify the role of industrialization in development by conducting a series of comparative studies of semiindustrial economies.” Semi-industrial economies (SIEs) are those which are no longer typical low-income developing countries (LDCs) but not yet developed countries (DCs). The SIEs are growing in number and can be distinguished from the LDCs below them and the DCs above them on the basis of lower and upper bounds with respect to several quantitative criteria. In general, SIEs should have (a) per capita GNP in 1970 prices of between $300 and $2000, (b) a manufacturing share in GNP of between 14 and 3596, and, most importantly, (c) a manufactures share of the increment to exports of at least 50%. There are, of course, borderline cases of countries which satisfy some of these criteria but not others and indeed the authors, themselves, choose to SIEs. distinguish among “standard, ” “large,” and “primary-oriented” More specifically, the objectives of the study are to address three types of questions of relevance to SIEs, namely (a) those concerning the relative importance of the different factors responsible for structural change in general and industrialization in particular, (b) those concerning the degree to which structural change contributes to productivity growth, factor reallocation, and overall growth, and (c) those pertaining to the relative effectiveness of alternative development policies and strategies and their transmission mechanisms. Despite the considerable range of issues addressed, methods employed, and countries and sectors studied, thanks to their careful introductions to the various parts and chapters and to an impressive concluding chapter, the authors manage both to give their readers their bearings along the way and then to bring all their results together in the end. Hence, it reads as a book, not just a series of essays and experiments by the many authors involved. Following the introduction, Chapter 2 (by Chenery) reviews the relevant literature on the sources of growth for DCs and LDCs and especially the findings with respect to the relative contributions of factor input growth and productivity growth to overall income growth. Typically productivity growth has been shown to be a considerably less important source of growth in LDCs than in DCs. Nevertheless, because unlike the situation for the DCs there is in the case of LDCs inconsistency between the findings of cross-section studies and time series, the author concludes that the essentially neoclassical sources-of-growth methodology should be modified in applications to LDCs. Building on the earlier work of Syrquin, Chenery suggests that attention needs to be given to the growth contribution of reallocating resources from the low productivity primary sector to the high productivity industrial sector. Such reallocations do not just happen, however; they have to be induced by demand changes. Hence, the sectoral reallocation aspect of the supply-side sources-of-growth methodology has to be merged with the analysis of changes in the sectoral composition of demand induced by changes in income, technology, and trade
BOOK
REVIEWS
593
orientation. This sets the stage for several of the remaining chapters of the book. While some readers of Chapters 1 and 2 may assume that the authors intend to resolve all of the issues and answer all the questions posed at the outset, a careful reading indicates that they make no such claim, Even if some readers might be disappointed that, despite its relative size and almost one hundred tables and half as many &ues, the book does not fully resolve the issues addressed, the authors can certainly not be faulted for their efforts. Indeed, in some cases they bring a number of alternative methods and perspectives to bear on a single issue. In virtually every chapter they suggest several interesting hypotheses. In some cases, moreover, they provide empirical evidence or analytical or simulation results in support of these hypotheses. Since there are too many such hypotheses to make it feasible in the available space to explain what authors do to arrive at them or to support them, what follows is simply a highly selective list of those that emerge. Included in this list are those that, in the reviewer’s judgment and also in his own words, are probably the most interesting and controversial. (1) Industrialization is a necessary condition for growth; the only room for discretion is with respect to timing and strategy. (2) A strategy of manufactures export expansion (EE) can succeed only if a certain critical level of industrial development has already been achieved by way of import substitution (IS). (3) Once that critical minimum has been achieved, however, continued emphasis on IS is likely to retard productivity growth and overall growth whereas EE is likely to raise them. (4) Once the effects of development strategy on productivity growth and resource allocation among sectors are fully considered, these effects on growth may dominate over those of ordinary factor accumulation in SIEs. (5) An accelerated industrialization program via IS, EE, and foreign capital inflow may be a more effective means for SIEs to achieve long-run balance of payments equilibrium than a more gradual approach. (6) The mechanisms through which the productivity effects of trade strategy are transmitted lie in the incentives for dynamic efficiency and in the flexibility attributable to relaxation of the foreign exchange constraint rather than in either the static resource reallocation or economies of scale (“Verdoom”) effects. (7) The changing composition of trade is more important in explaining industriahmtion in SIEs than the Engel effects of rising income on the structure of demand which are emphasized in most studies. (8) The deepening of the input-output structure which comes, in part, by
594
BOOK
REVIEWS
way of IS into intermediate and capital goods constitutes an important though by no means dominant source of changes in the structure of demand. (9) Dynamic CGE models constitute a useful tool for comparing the longrun efficiency effects of alternative development strategies. (10) Even though, as mentioned above, the contribution of productivity growth to overall growth tends to be considerably less important in LDCs than in DCs, intercountry differences in productivity growth contribute very substantially to the differences in overall growth rates among LDCs and SIEs. (11) Since successful EE in SIEs tends to be import-intensive, in its beginning stages EE may have a net negative influence on the balance of payments. As a result, complementary efforts to achieve a simultaneous expansion of primary exports or foreign capital inflows may be desirable. (12) The contribution of resource reallocation (i.e., from agriculture to manufacturing) to productivity growth and overall growth varies with the productivity differential between the two sectors and the rate of growth of manufacturing employment. While every chapter in the book has its highlights and hypotheses, some readers may wish to concentrate on those dealing with the specific issues in which they are interested. For example, those interested in structural transformation in general and its components in the world as a whole will want to concentrate on Chapters 2 and 3. Those interested in those processes in the SIEs in particular will want to concentrate on Chapters 4 and 6. Those interested in the identification of trade policy regime episodes will be most interested in Chapters 6 and 7, and those interested in the effects of such policy regimes in Chapters 7,9, 10, and 17. Those interested in productivity growth and resource reallocation will want to concentrate on Chapters 8 and 10, and those interested in methodology may prefer Chapters 5, 10, and 11. Those chapters from which this reader learned most included Chenery’s Chapter 2, the deviations from balanced growth analysis of Kubo, DeMelo, Robinson, and Syrquin in Chapter 7, Feder’s statistical analysis of disequilibrium growth in Chapter 9, the detailed econometric analysis of productivity growth in Chapter 10 by Nishimizu and Robinson and the application of CGE simulations to long-run analysis of alternative trade strategies in Chapter 11 by Chenery, Lewis, DeMelo, and Robinson. Several of the chapters in this short list, however, have been published earlier. In any case, the reader will find all chapters clearly written and explained and, as indicated above, well integrated into the collective whole. The presentation is buttressed by a magnificent set of figures, tables, and diagrams. Not surprisingly in a book of this size and scope, the reader may be bothered by a number of inconsistencies and also some conspicuous omissions. Here
BOOK
REVIEWS
595
and there, also, the reader may have preferred a somewhat different emphasis, different procedure, or different experiment. With respect to inconsistencies, Chapters 8 and 9 differ in the allowances made for intercountry differences in impacts of factor growth on productivity growth. Chapter 10 shows that productivity growth varies rather substantiahy among sectors in Korea as well as in other countries but then in Chapter 11 such differences are ignored in the simulation experiments. On occasion, Israel’s heavy capital inflow is acknowledged but elsewhere only its increased openness is recognized. Among the issues to which insufficient attention is directed are (1) changes in relative prices, (2) growth in skills, human capital, and labor quality, (3) the character of migration, (4) capital formation, (5) other closely related structural features of industrialization such as the size distribution of establishments and firms, (6) the political economy and institutional determinants of industrialization policy and trade strategy, and (7) the time required for adjustments to exogenous changes and various dynamic sequences. In this reader’s mind, each of these omissions or underemphases could have consequences for the validity of one or more of the aforementioned principal hypotheses. Due to space limitations only two of these will be explained. With respect to deficiency (l), one change in relative prices that could be important is the rise in the price of nontradables relative to tradables as development proceeds. Although discussed briefly in the appendix to Chapter 3, further consideration of this change was dismissed on the grounds that the effects on the rest of the analysis should be neutral. But in view of the fact that alternative trade strategies are clearly not neutral with respect to this relative price, as becomes apparent in Chapter 11, the explicit inclusion of this change in relative prices in the rest of the analysis could aEiect the relative contributions to growth and some of the transmission mechanisms. With respect to omission (2), i.e., the omission of skills and human capital, from the analysis, once again several implications might be affected. First, it might have the effect of attributing to resource reallocation and hence to productivity growth arising from the switch from agriculture to manufacturing what should more appropriately be assigned to this form of factor accumulation. Second, to the extent that skill acquisition is correlated with industrialization, as surely it is from the demand side, then the authors might be attributing to IS and to the achievement of a critical minimum of industrialization what should be attributed to human capital formation. Third, changes in the skill composition of the labor force would also have implications for and changes in the composition of final demand which at present are glossed over. Naturally, in view of all that is accomplished in this important book, these various omissions, some of which in my opinion are relatively serious, might
596
BOOK REVIEWS
well be added to the authors own list of suggestions for future research. Also, in view of its relevance to proposition 2 on the above-mentioned list, it might also be useful to add to the list of simulation experiments for the CGE model of Chapter 11 a dynamic efficiency comparison between an IS-EE sequence and an EE-EE sequence. In any case,Industrializationand Growth:A ComparativeStudyis a valuable reference to scholars and practitioners interested in intercountry and intertemporal analysis of industriahzation, productivity growth, and development strategies, and it is likely to remain so for some time to come. JEFFREY B. NUGENT University of Southern California Los Angeles, California 90089-0035
OF COMPARATIVE
ECONOMICS
13,
59 l-596 (1989)
CHENERY, SHERMAN ROBINSON, AND MOSHE SYRQUIN, Industrialization and Growth: A Comparative Study. New York: Oxford University Press, 1986. x + 387 pp., index, $29.95.
HOLLIS
This study is an important one in several ways. First, it represents another important milestone in the articulation of structural changes in the process of development. Second, it is one of the most comprehensive and ambitious attempts to date in providing convincing empirical evidence as well as theoretical underpinnings for the view, which has long been advocated by the World Bank and now seems to have become increasingly accepted in the world as a whole, that openness and trade are necessary conditions for successful development. Third, it demonstrates the usefulness and complementarity of a wide variety of modeling approaches ranging from partial equilibrium trade models through input-output and dynamic computable general equilibrium (CGE) models. Finally, it comes closer than most studies to successfully bridging the gap between descriptive case studies that are full of real world realities and complexities on the one hand and the totally sanitized and artificial world of theoretical abstractions on the other. The study artfully combines the analysis of international cross sections with that of single country time series and at the same time the analysis of individual sectors with that of macroeconomic aggregates, in virtuahy ah cases from a comparative perspective. With respect to country coverage, the analysis varies from that of a single country (as in the case of Korea in Chapter 11) through the 4 semi-industrial countries for which almost all the substantial data requirements are satisfied (Korea, Japan, Turkey, and Yugoslavia in Chapter 10) and the specially selected sample of 9 semi-industrial countries (the aforementioned four plus Colombia, Israel, Mexico, Norway, and Taiwan) to the fuller sets of 34 semi-industrial countries in Chapter 9 and 38 in Chapter 4 and the sample of 39 countries of all types (in Chapter 2). With respect to sectoral coverage the analysis is mercifully relatively parsimonious, varying from the aggregate level to the level of 3,4, or 8 global sectors and generally up to 4 manufacturing sectors. In one chapter (Chapter lo), however, the number of manufacturing sectors ranges up to 13 (in my opinion without advantage). In most cases, these choices seem judicious, being dictated by the relevance and importance of sectoral detail to the issue at hand and, of course data availability. In some cases, however, one suspects that the tastes or working definitions which the collaborators may have used in other research using the same data sets may also have played a role. 591
0141-5961/89/$3.00 Copyright 8 1989 by Academic Press, Inc. All rights of reproduction in any form reserved.
592
BOOK REVIEWS
The basic purpose as stated on page 1 is “to clarify the role of industrialization in development by conducting a series of comparative studies of semiindustrial economies.” Semi-industrial economies (SIEs) are those which are no longer typical low-income developing countries (LDCs) but not yet developed countries (DCs). The SIEs are growing in number and can be distinguished from the LDCs below them and the DCs above them on the basis of lower and upper bounds with respect to several quantitative criteria. In general, SIEs should have (a) per capita GNP in 1970 prices of between $300 and $2000, (b) a manufacturing share in GNP of between 14 and 3596, and, most importantly, (c) a manufactures share of the increment to exports of at least 50%. There are, of course, borderline cases of countries which satisfy some of these criteria but not others and indeed the authors, themselves, choose to SIEs. distinguish among “standard, ” “large,” and “primary-oriented” More specifically, the objectives of the study are to address three types of questions of relevance to SIEs, namely (a) those concerning the relative importance of the different factors responsible for structural change in general and industrialization in particular, (b) those concerning the degree to which structural change contributes to productivity growth, factor reallocation, and overall growth, and (c) those pertaining to the relative effectiveness of alternative development policies and strategies and their transmission mechanisms. Despite the considerable range of issues addressed, methods employed, and countries and sectors studied, thanks to their careful introductions to the various parts and chapters and to an impressive concluding chapter, the authors manage both to give their readers their bearings along the way and then to bring all their results together in the end. Hence, it reads as a book, not just a series of essays and experiments by the many authors involved. Following the introduction, Chapter 2 (by Chenery) reviews the relevant literature on the sources of growth for DCs and LDCs and especially the findings with respect to the relative contributions of factor input growth and productivity growth to overall income growth. Typically productivity growth has been shown to be a considerably less important source of growth in LDCs than in DCs. Nevertheless, because unlike the situation for the DCs there is in the case of LDCs inconsistency between the findings of cross-section studies and time series, the author concludes that the essentially neoclassical sources-of-growth methodology should be modified in applications to LDCs. Building on the earlier work of Syrquin, Chenery suggests that attention needs to be given to the growth contribution of reallocating resources from the low productivity primary sector to the high productivity industrial sector. Such reallocations do not just happen, however; they have to be induced by demand changes. Hence, the sectoral reallocation aspect of the supply-side sources-of-growth methodology has to be merged with the analysis of changes in the sectoral composition of demand induced by changes in income, technology, and trade
BOOK
REVIEWS
593
orientation. This sets the stage for several of the remaining chapters of the book. While some readers of Chapters 1 and 2 may assume that the authors intend to resolve all of the issues and answer all the questions posed at the outset, a careful reading indicates that they make no such claim, Even if some readers might be disappointed that, despite its relative size and almost one hundred tables and half as many &ues, the book does not fully resolve the issues addressed, the authors can certainly not be faulted for their efforts. Indeed, in some cases they bring a number of alternative methods and perspectives to bear on a single issue. In virtually every chapter they suggest several interesting hypotheses. In some cases, moreover, they provide empirical evidence or analytical or simulation results in support of these hypotheses. Since there are too many such hypotheses to make it feasible in the available space to explain what authors do to arrive at them or to support them, what follows is simply a highly selective list of those that emerge. Included in this list are those that, in the reviewer’s judgment and also in his own words, are probably the most interesting and controversial. (1) Industrialization is a necessary condition for growth; the only room for discretion is with respect to timing and strategy. (2) A strategy of manufactures export expansion (EE) can succeed only if a certain critical level of industrial development has already been achieved by way of import substitution (IS). (3) Once that critical minimum has been achieved, however, continued emphasis on IS is likely to retard productivity growth and overall growth whereas EE is likely to raise them. (4) Once the effects of development strategy on productivity growth and resource allocation among sectors are fully considered, these effects on growth may dominate over those of ordinary factor accumulation in SIEs. (5) An accelerated industrialization program via IS, EE, and foreign capital inflow may be a more effective means for SIEs to achieve long-run balance of payments equilibrium than a more gradual approach. (6) The mechanisms through which the productivity effects of trade strategy are transmitted lie in the incentives for dynamic efficiency and in the flexibility attributable to relaxation of the foreign exchange constraint rather than in either the static resource reallocation or economies of scale (“Verdoom”) effects. (7) The changing composition of trade is more important in explaining industriahmtion in SIEs than the Engel effects of rising income on the structure of demand which are emphasized in most studies. (8) The deepening of the input-output structure which comes, in part, by
594
BOOK
REVIEWS
way of IS into intermediate and capital goods constitutes an important though by no means dominant source of changes in the structure of demand. (9) Dynamic CGE models constitute a useful tool for comparing the longrun efficiency effects of alternative development strategies. (10) Even though, as mentioned above, the contribution of productivity growth to overall growth tends to be considerably less important in LDCs than in DCs, intercountry differences in productivity growth contribute very substantially to the differences in overall growth rates among LDCs and SIEs. (11) Since successful EE in SIEs tends to be import-intensive, in its beginning stages EE may have a net negative influence on the balance of payments. As a result, complementary efforts to achieve a simultaneous expansion of primary exports or foreign capital inflows may be desirable. (12) The contribution of resource reallocation (i.e., from agriculture to manufacturing) to productivity growth and overall growth varies with the productivity differential between the two sectors and the rate of growth of manufacturing employment. While every chapter in the book has its highlights and hypotheses, some readers may wish to concentrate on those dealing with the specific issues in which they are interested. For example, those interested in structural transformation in general and its components in the world as a whole will want to concentrate on Chapters 2 and 3. Those interested in those processes in the SIEs in particular will want to concentrate on Chapters 4 and 6. Those interested in the identification of trade policy regime episodes will be most interested in Chapters 6 and 7, and those interested in the effects of such policy regimes in Chapters 7,9, 10, and 17. Those interested in productivity growth and resource reallocation will want to concentrate on Chapters 8 and 10, and those interested in methodology may prefer Chapters 5, 10, and 11. Those chapters from which this reader learned most included Chenery’s Chapter 2, the deviations from balanced growth analysis of Kubo, DeMelo, Robinson, and Syrquin in Chapter 7, Feder’s statistical analysis of disequilibrium growth in Chapter 9, the detailed econometric analysis of productivity growth in Chapter 10 by Nishimizu and Robinson and the application of CGE simulations to long-run analysis of alternative trade strategies in Chapter 11 by Chenery, Lewis, DeMelo, and Robinson. Several of the chapters in this short list, however, have been published earlier. In any case, the reader will find all chapters clearly written and explained and, as indicated above, well integrated into the collective whole. The presentation is buttressed by a magnificent set of figures, tables, and diagrams. Not surprisingly in a book of this size and scope, the reader may be bothered by a number of inconsistencies and also some conspicuous omissions. Here
BOOK
REVIEWS
595
and there, also, the reader may have preferred a somewhat different emphasis, different procedure, or different experiment. With respect to inconsistencies, Chapters 8 and 9 differ in the allowances made for intercountry differences in impacts of factor growth on productivity growth. Chapter 10 shows that productivity growth varies rather substantiahy among sectors in Korea as well as in other countries but then in Chapter 11 such differences are ignored in the simulation experiments. On occasion, Israel’s heavy capital inflow is acknowledged but elsewhere only its increased openness is recognized. Among the issues to which insufficient attention is directed are (1) changes in relative prices, (2) growth in skills, human capital, and labor quality, (3) the character of migration, (4) capital formation, (5) other closely related structural features of industrialization such as the size distribution of establishments and firms, (6) the political economy and institutional determinants of industrialization policy and trade strategy, and (7) the time required for adjustments to exogenous changes and various dynamic sequences. In this reader’s mind, each of these omissions or underemphases could have consequences for the validity of one or more of the aforementioned principal hypotheses. Due to space limitations only two of these will be explained. With respect to deficiency (l), one change in relative prices that could be important is the rise in the price of nontradables relative to tradables as development proceeds. Although discussed briefly in the appendix to Chapter 3, further consideration of this change was dismissed on the grounds that the effects on the rest of the analysis should be neutral. But in view of the fact that alternative trade strategies are clearly not neutral with respect to this relative price, as becomes apparent in Chapter 11, the explicit inclusion of this change in relative prices in the rest of the analysis could aEiect the relative contributions to growth and some of the transmission mechanisms. With respect to omission (2), i.e., the omission of skills and human capital, from the analysis, once again several implications might be affected. First, it might have the effect of attributing to resource reallocation and hence to productivity growth arising from the switch from agriculture to manufacturing what should more appropriately be assigned to this form of factor accumulation. Second, to the extent that skill acquisition is correlated with industrialization, as surely it is from the demand side, then the authors might be attributing to IS and to the achievement of a critical minimum of industrialization what should be attributed to human capital formation. Third, changes in the skill composition of the labor force would also have implications for and changes in the composition of final demand which at present are glossed over. Naturally, in view of all that is accomplished in this important book, these various omissions, some of which in my opinion are relatively serious, might
596
BOOK REVIEWS
well be added to the authors own list of suggestions for future research. Also, in view of its relevance to proposition 2 on the above-mentioned list, it might also be useful to add to the list of simulation experiments for the CGE model of Chapter 11 a dynamic efficiency comparison between an IS-EE sequence and an EE-EE sequence. In any case,Industrializationand Growth:A ComparativeStudyis a valuable reference to scholars and practitioners interested in intercountry and intertemporal analysis of industriahzation, productivity growth, and development strategies, and it is likely to remain so for some time to come. JEFFREY B. NUGENT University of Southern California Los Angeles, California 90089-0035