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Document That field no longer exists. There are, of course, many excellent people who work on the economics of developing countries. Some of the problems they address are essentially generic to all countries, but there are also issues that are characteristic of poorer countries in particular, and in this sense there is a field that focuses on the economics of underdevelopment. But it is a diffuse field: those who work on the economics of, say, Third World agriculture have little if any overlap with those who work on LDC trade in manufactures, and these in turn hardly talk to those who focus on the macroeconomics of debt and hyperinflation. And very few economists would now presume to offer grand hypotheses about why poor countries are poor, or what they can do about it. In effect, a counterrevolution swept away development economics. Page 7 And yet there is now a growing sense that this counterrevolution went too far. In the last few years it has become apparent that during the 1940s and 1950s, a core of ideas emerged regarding external economies, strategic complementarity, and economic development that remains intellectually valid and may continue to have practical applications. This set of ideas which I will refer to as "high development theory" 2 anticipated in a number of ways the cutting edge of modern trade and growth theory. But these ideas have had to be rediscovered. Between 1960 and 1980 hïgh development theory was virtually buried, essentially because the founders of development economics failed to make their points with sufficient analytical clarity to communicate their essence to other economists, and perhaps even to each other. Only recently have changes in economics made it possible to reconsider what the development theorists said, and to regain the valuable ideas that have been lost. file:///D|/Export1/www.netlibrary.com/nlreader/nlreader.dll@bookid=409&filename=page_7.html [4/18/2007 10:28:41 AM]
Document The Big Push Page 8 A good place to start our discussion is with the paper that really began the golden age of development economics: Paul Rosenstein-Rodan's "Problems of Industrialization of Eastern and South-Eastern Europe." It is a quite straightforward paper, yet it has inspired astonishingly many interpretations. Some economists read it as essentially Keynesian, a story about interactions between the multiplier and the accelerator. Rosenstein-Rodan himself seems to have had a more or less Keynesian idea about effective demand in mind, with (as we will see) considerable justification. Other economists saw it as an assertion that growth must be somehow "balanced" in order to be successful indeed, Albert Hirschman cast his celebrated The Strategy of Economic Development as a refutation of Rosenstein-Rodan and others of the balanced growth school, which I will argue was both a misunderstanding and selfdestructive. Yet other economists tried to generate low-level equilibrium traps by invoking such mechanisms as interactions among income, savings, and population growth (e.g., Leibenstein 1957, Nelson 1956); such mechanisms can also justify a Big Push, but they are very far from the spirit of the original story. In the late 1980s, however, Murphy, Shleifer, and Vishny (1989) offered a formalization of the Big Push that is quite close to the original spirit, and that is also quite revealing about the essential aspects of high development theory. Let me offer a slightly streamlined presentation of their model, and then ask what it tells us. Imagine, then, an economy that is closed to international trade. (This sounds archaic and way off the point in our current age of export-led economic miracles, and perhaps file:///D|/Export1/www.netlibrary.com/nlreader/nlreader.dll@bookid=409&filename=page_8.html [4/18/2007 10:28:42 AM]
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