Intermediate Goods and Weak Links in the Theory of Economic Development
- (pp. 1-28)
Abstract
What explains the enormous differences in incomes across countries? This paper returns to two old ideas: linkages and complementarity. First, linkages between firms through intermediate goods deliver a multiplier similar to the one associated with capital in a neoclassical growth model. Because the intermediate goods share of output is about one-half, this multiplier is substantial. Second, just as a chain is only as strong as its weakest link, problems along a production chain can sharply reduce output under complementarity. These forces considerably amplify distortions to the allocation of resources, bringing us closer to understanding large income differences across countries.(JEL: D57, E23, O1O, O47)Citation
Jones, Charles I. 2011. "Intermediate Goods and Weak Links in the Theory of Economic Development." American Economic Journal: Macroeconomics, 3 (2): 1-28. DOI: 10.1257/mac.3.2.1Additional Materials
JEL Classification
- D57 General Equilibrium and Disequilibrium: Input-Output Tables and Analysis
- E23 Macroeconomics: Production
- O10 Economic Development: General
- O47 Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
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