* Prepared for New Palgrave: A Dictionary of Economics
نویسنده
چکیده
Economic activity in different industries is linked to each other through aggregate income (horizontal linkages) and input-output relationships (vertical linkages). Could such linkages give rise to vicious circles of underdevelopment or virtuous circles of development when there are increasing returns to scale at the firm level? We show that vicious or virtuous circles based on demand linkages are subject to a simple fallacy if increasing-returns-to-scale technologies only differ from pre-industrial technologies in that they are more productive at large scale. But vertical demand linkages may give rise to vicious or virtuous circles if increasing-returns-to-scale technologies use intermediate inputs more intensively than pre-industrial technologies; horizontal demand linkages may do so if firms adopting increasing-returns-to-scale technologies must pay a compensating wage differential. Moreover, when there are both vertical demand and cost linkages, underdevelopment traps can be consistent with economic principles even if increasing-returns-to-scale technologies only differ from pre-industrial technologies in that they are more productive at large scale. * Prepared for New Palgrave: A Dictionary of Economics Author’s address: Department of Economics and Business UPF Ramon Trias Fargas 25-27 08005 Barcelona, Spain [email protected] http://www.crei.cat/people/ciccone/welcome.html
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