Industrialization and Growth The Experience of Large Countriest Hollis B. Chenery SWP539 WORLD BANK STAFF WORKING PAPERS Number 539 FILE COPY M WORLD BANK STAFF WORKING PAPERS Number 539 Industrialization and Growth The Experience of Large Countries Hollis B. Chenery The World Bank Washington, D.C., U.S.A. Copyright 0 1982 The International Bank for Reconstruction and Development / THE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. All rights reserved Manufactured in the United States of America This is a working document published informally by The World Bank. To present the results of research with the least possible delay, the typescript has not been prepared in accordance with the procedures appropriate to formal printed texts, and The World Bank accepts no responsibility for errors. The publication is supplied at a token. charge to defray part of the cost of manufacture and distribution. 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Library of Congress Cataloging in Publication Data Chenery, Hollis Burnley. Industrialization and growth. (World Bank staff working papers ; no. 539) Bibliography: p. 1. Economic development. 2. Industrialization. I. Title. II. Series. Hb82.C472 1982 338.9 82-15961 ISBN 0-8213-0097-O This paper discusses common elements of the experience of large developing countries with industrialization, drawing on the World Bank's research project on "The Sources of Industrial Growth and Structural Change." The paper, which was presented to a conference of the Chinese Academy of Science, is designed to provide a comparative framework for assessing the performance of the Chinese economy. It shows that, despite its unique features, China shares many characteristics with other large semi- industrial countries. Some implications for trade policy and future growth are noted. Formerly vice president for development policy at The World Bank, the author is now Thomas B. Cabot professor of economics at Harvard University. CONTENTS ABSTRACT Paize I. THE STRUCTURAL TRANSFORMATION .................... 3 - Demand Effects of Rising Income ............. 5 - Sectoral Balance ... ........................... 6 - Patterns of Production ...................... 8 - Effects of Large Size ............. 9 II. THE LARGE SEMI-INDUSTRIAL COUNTRIES ............. 13 - The Transformation of Production ............ 14 - Effects of Trade Policies ................... 17 III. GROWTH AND TRANSFORMATION ...................... 18 Comparative studies of countries at different levels of income have revealed a number of common features of the process of development. One of the most pervasive is the transformation of the structure of production, in which the industrial sectors typically grow more rapidly than agriculture. Associated with the rise of industry are changes in the composition of demand, international trade, and the occupation of the labor force. These changes in the use of economic resources are influenced in various ways by government policies and constitute the core of a strategy of development. Different aspects of development strategies have been widely studied in order to learn from the experience of other countries. Although there is no single country that combines the major features of the Chinese economy, common characteristics can be found in several groups of developing countries. The purpose of this paper is to identify a set of countries that provide a basis for such comparisons and to try to draw some lessons from their experience that may be helpful to scholars and policy makers in the People's Republic of China. The countries that seem to be most useful for this pur- pose share the following characteristics: a large population, intermediate income levels, and substantial progress in indus- trialization. On this basis, a group of sixteen large semi- - 2 - industrial countries can be identified. They contain more than half of the population of the developing countries -- two-thirds if China is included. While study of the earlier history of the most advanced industrial countries is also valuable, their present problems are quite different from those of China and other industrializing countries. I shall therefore concentrate on analogies from the large, semi-industrial countries, which range in income levels from India and China to Brazil, Yugoslavia, and Spain. Statistical studies have shown that while there are con- siderable similarities among the patterns of structural change in this and other groups of SIeveloping countries, there are also systematic differences that can be associated with government policies. The similarities among the large semi-industrial coun- tries will be brought out in the first section of the paper; variations associated with different resource endowments and trade policies are explorec, in the second. Some of the relations between the structural transformation and the rate of economic growth are discussed in the final section. This paper is based on a series of comparative studies of industrialization and development carried out under the research program of the World Bank. 1/ Starting from the work of 1/ Hollis B. Chenery and Moises Syrquin, Patterns of Develop- ment, 1950-1970, (1975); Hollis B. Chenery, "Transitional Growth and World Industrialization" (1977); Hollis B. Chenery and Moises Syrquin, "A Comparative Analysis of Industrial Growth" (1980); Hollis B. Chenery, "The Process of Indus- trialization" (1979); Hollis B. Chenery, Sherman Robinson, and Moises Syrquin (eds.), Industrialization: A Comparative Study (in preparation). -3- Simon Kuznets (1966), these studies describe the characteristic features of development patterns and then evaluate the experience of individual countries in a common analytical framework. I. THE STRUCTURAL TRANSFORMATION The transformation of an underdeveloped to a developed economy can be defined by the set of structural changes required to sustain a continuing increase in income and social welfare. Although these requirements vary with the natural endowments and social objectives of each country, there are a number of factors that produce a degree of uniformity in this transition. These include: similar changes in consumer demand with rising income, particularly the decline in the share of food; the necessity to accumulate physical and human capital in order to raise the level of output per capita; access to common sources of technology and international trade. Following Kuznets (1966), I will measure the principal dimensions of this transformation by the change in the composi- tion of aggregate demand, production, international trade, and the use of capital and labor as the level of income of a country rises. This procedure is illustrated in figures 1, 2, and 3, which show the average patterns of change in the composition of total demand, the rise in the share of capital accumulation (investment), and the increase in the share of industry in total output. Since in a given country these changes take place over a number of decades, they can best be estimated by a combination of cross-country and time series analysis over the postwar period. 1/ The following discussion takes up some of the aspects of the transformation that are most important to the design of development policy. The average relations between income growth and structural change will be presented first and then followed by illustrations of large semi-industrial countries that have been studied in some detail. The transformation of the structure of the economy is related to its aggregate growth in several ways. In the first place, the growth of output depends in large part on the accu- mulation of physical capital and the training of the labor force, and the growth rate responds to the proportion of the national product devoted to these activities. On the demand side, a rise in income can only be sustained if the goods and services made available correspond to the proportions in which consumers wish to spend their incomes. Finally, the ability to balance supply and demand for individual commodities is substantially affected by the magnitude and composition of international trade. The postwar experience of the transformation will be presented initially as a set of cross-country relations to the level of income. Some of the causal factors underlying these relations in individual countries are then discussed. The major difference between large and small economies will be shown to be 1/ The patterns shown here are taken from Chenery and Syrquin (1975). They are estimated from multiple regressions in which population size is held constant and only the level of income varies. The effects of size are discussed below. -5- the extent of their reliance on international trade, which in turn affects many other aspects of development strategy. Demand Effects of Rising Income The most important effect of rising income on demand is to reduce the share of food in the total, which frees resources for investment and other forms of consumption. Figure 1 shows the average division of total demand (including i vestment as well as consumption) between food and all other u/ses and also includes historical changes in a set of developinkg countries that have been studied in detail. At the lowest level'of income, food accounts for between 40 and 50 percent of total expenditures. By the middle of the transformation -- which is typically at a per. capita income of $400 to $500 (dollars of 1970) 1/ -- this share falls to about 25 percent. This phenomenon is a reflection of Engel's law, which states that the demand for *food rises less rapidly than total consumer demand. 2/ In relation to national income, the implied income elasticity of food demand shown in figure 1 is about .7. The illustrative countries -- to be discussed below -- all follow a similar pattern, with more rapid declines in Korea and Turkey. 1/ The analyses in this paper are based on the conversion of local currencies into dollars at average exchange rates, as published in the World Bank's World Tables and World Development Reports, using prices of 1970. 2/ This relationship has been verified in virtually all studies of consumer behavior, using both cross-section and time series data. See Houthakker (1957) and Lluch, Powell and Williams (1977). - 6 - The rise in non-food demand is typically divided fairly evenly between investment and consumption, as shown in figure 2. In Japan and Korea (and probably China), most of the increase went to investment, while Yugoslavia, Colombia, Turkey, and Mexico were closer to the average cross-country pattern. The rise in the share of investment typically leads to an accelera- tion of the rate of growth unless it is offset by an imbalance between demand and supply, which is then reflected in rising capital-output ratios. The size of a country has little relation to the com- position of domestic demand at a given level of income. This finding results from econometric tests of large samples of coun- tries and is illustrated by the selection of countries included here. Sectoral Balance The changes in the composition of demand just described must be balanced by corresponding changes in the composition of domestic supply and international trade. These relations can be specified most simply by a set of input-output or commodity balance equations of the following form for any given time period: Xi = (Ci + Ii) + Wi + (Ei - Mi) (1) where Xi is the gross output of sector i, Ci is consumption use, I, is investment use, Wi is intermediate use by other sectors of the economy, Ei is exports and Mi is imports. These five compo- nents can be grouped for analytical purposes as shown into three -7- factors: domestic final demand (Ci + Ii), domestic inter- mediate demand (Wi), and net international trade (Ei - Mi). Total intermediate demand for a commodity, Wi, is related to the production levels of other sectors by a set of input-output relations of the form: ii (2) where the parameters aij represent the input-output coefficients measuring the use of input from sector i per unit of output of sector j. 1/ When equation (2) is substituted into equation (1), the result is the Leontief open input-output, model, which deter- mines levels of output in each sector as a function of domestic final demands and net international trade in all sectors. To compare the structural transformation experienced by different countries, this model has been applied to historical data for a number of industrializing countries over the postwar period. 2/ While the change in the composition of domestic demand is the most important factor in explaining the rising share of industry in all the large countries studied, it accounts for only half of the total increase. As explained below, changes 1/ The coefficients are assumed to be measured in value terms at constant prices, although they can be initially stated in physical units, such as tons of coal required per ton of steel produced. 2/ The model and preliminary results of its application to historical analysis are given in Chenery and Syrquin (1980) and Chenery (1980). The large countries analyzed under the World Bank project include Japan, Yugoslavia, Turkey, Korea and Mexico. -8- in trade patterns -- export expansion and import substitution -- typically account for 25-30 percent of the rise of industry. The remainder is due to changes in technology, which are reflected in the increase in intermediate use of commodities per unit of output. The main difference between large and small countries revealed by comparative studies of this kind lies in the role of international trade. In smaller countries, the degree of specialization is much greater, and there need not be a close correspondence between supply and demand in each sector. In large countries -- defined here as those with more than 20 million inhabitants -- imports are typically only 10-15 percent of the gross national product, as compared to 20-30 percent for smaller countries. The effects of this difference in the degree of openness of the economy are explored in section II. Patterns of Production An input-output model similar to that described above has also been used to explain the average changes that are observed in the structure of production in a representative country. Based on generalization from individual country studies, a prototype developing country has been created by estimating the relations of each of the exogenous variables in equation (1) to the level of income. Similarly, a representative set of input-output coefficients for 23 sectors of the economy is used in equation (2) to determine the changes in levels of output that are consistent with average changes in internal and external - 9 - demand. Net output (value added) by sector is then measured as a proportion of gross output. The changes in the composition of net output that are determined from this simulation of the transformation are shown in figure 3. Although there are differences of detail, the over- all results of this experiment are quite close to the pattern observed directly. 1/ This result permits us to use the cross- country simulation model as a basis for explaining differences in the structural transformation that can be associated with systematic variation in one or more of its components. In particular, this procedure will be used to explain the distinc- tive features of the transformation that are observed in large countries, based on the characteristic trading patterns of this set of countries. This procedure helps to identify the ways in which the Chinese economy differs from what might be expected of a typical large developing country. Effects of Large Size There are a number of reasons for the structural trans- formation of countries with large populations (and usually more diversified natural resources) to be somewhat different from the average for all developing countries. Perhaps most important is the existence of a larger domestic market, which makes it economical to establish industries having economies of scale at lower levels of income than is normally the case. This tendency 1/ This cross-country simulation model is described in Chenery and Syrquin (1980), which also gives a comparison to the observed patterns. - 10 - is reinforced by higher internal transport costs, which have the same effect as tariffs in favoring local suppliers. It is therefore logical for countries such as Brazil, India and China to develop a larger and more diversified industrial structure than smaller countries at the same level of income. These natural tendencies are reinforced in almost all large countries by deliberate government policies of favoring domestic production over imports in both manufacturing and agri- culture. Although most developing countries have followed a policy of import substitution in the early stages of industrial- ization, the larger countries have tended to maintain it longer and to extend it to bran&l1es of heavy industry that would not be feasible for a small economy. The corollary of this policy is to discriminate against exports through overvalued exchange rates and direct incentives, and hence to diminish the volume of trade even more than would result from economies of scale and a large domestic market. In this respect there were similarities between the autarkic Chinese policies of the fifties and sixties and those of some other large countries, such as Brazil, Turkey and India. The result of natural forces reinforced by autarkic policies has been to limit the share of exports in the gross national product in large countries that are not substantial mineral exporters to less than half of the levels that are typical for smaller economies. This effect is particularly notable in primary exports. In several extreme cases discussed below -- including China -- exports have been limited to 5-6 - 11 - percent of GNP. The major exception to this generalization is the Republic of Korea, which has emphasized manufactured exports and has a structure typical of a smaller, more specialized economy. Before turning to individual country experience, it is useful to examine the effects of limiting trade in more general terms. This can be done by simulating alternative trading patterns in the cross-country model, with the level and composi- tion of total demand held constant. To abstract from factors other than trade, I assume the same input-output coefficients as well as constant demand vectors in equations 1 and 2. The adjustment to lower levels of exports takes place through pat- terns of import substitution that are typical of large countries, with capital inflows held relatively constant. Following this procedure, I have first simulated the production levels that are consistent with the average patterns of exports and imports of large countries and compared them to the value added by sector in the prototype model at an income level of $400 -- near the midpoint of the structural transforma- tion. 1/ A summary of the results is given in columns (1) and (2) of Table 1. Since domestic demand and technology are heid con- stant, the differences betwen the two solutions are attributable entirely to the reduction in exports from 25 percent of GNP to 12 percent. The bulk of the reduction in exports in large countries typically takes place in primary products, while the bulk of the 1/ This simulation experiment is described in Chenery (1979), pp. 90-99. - 12 - corresponding adjustment of imports takes place in manufactured goods. The main effects of this difference in trade patterns on production levels are to reduce agriculture by about 25 percent (or 5 percent of GNP) and to increase heavy industry by 50 percent (4 percent of GNP) in large countries. Light industry is affected much less, since the scope for further import substitution at this stage of the transformation is relatively limited. The remaining nontraded sectors of construction, utilities and services are little affected in aggregate terms. The second experiment of simulating a relatively closed economy was based on the experience in the 1950s and 1960s of the more autarkic of the large countries discussed below -- India, Brazil, Turkey, Mexico and Argentina. In the simulation of Table 1 the level of exports was cut further from 12 percent to 6 percent of GNP. However, this additional reduction in trade has considerably less effect on the structure of production than did the shift from the average pattern to the typical large-country pattern because the scope for further import substitution is much less. The further shift of resources from primary production to heavy industry in this case is only 1 percent of GNP, as shown in column (4) of Table 1. At this point the structure of production corresponds closely to the structure of demand. Even the elimi- nation of all trade -- assuming it were possible -- would have little effect on the aggregate composition of value added. Although the substitution of industrial production for primary exports has considerable appeal to a large country with - 13 - limited agricultural resources, these simulations show that this type of substitution is already fairly well exhausted in the typical trading patterns of large countries. A further shift to the semi-closed structure of case 2 -- which bears a considerable resemblance to India and China -- requires an increase in capital per unit of output, both because of the higher capital coeffi- cients of individual sectors of heavy industry and because of the greater difficulty of maintaining balance among sectors in a closed economy. II. THE LARGE SEMI-INDUSTRIAL COUNTRIES The great diversity of developing countries makes it difficult to generalize from their experience. One approach to this problem has been illustrated in the previous section -- to identify uniform features of growth processes that are reflected to some extent in the experience of all countries. This approach needs to be supplemented, however, by studying individual coun- tries whose problems are similar, so that the alternative policies relevant to particular situations can be evaluated. These two approaches lead to the identification of more homo- geneous groups of developing countries whose experience can be compared in more detail. In the case of China, industrialization has proceeded much further than is typical for countries of its income level. The explanation of this phenomenon is largely- provided by the autarkic policies followed over the past 30 years, whose typical effects were illustrated in the preceding section. In the - 14 - present section China will be compared to other large semi- industrial countries, which share some of its problems. Semi-industrial (or "newly industrializing") countries are usually defined by the share of manufacturing in the gross national product, which is supplemented by the share of manu- factured goods in commodity exports. Although the relatively high prices of manufactured goods in China exaggerate its share of industry in relation to other countries, China clearly quali- fies as a semi-industrial country on any of the structural tests that have been suggested, as shown in Tables 2 and 3 below. As compared to smaller countries, the large semi-industrial coun- tries are a relatively homogeneous group because they are less affected by variations in resources and trade policies. The Transformation of Production The transformation of production in the large semi- industrial countries over the past 20 years is shown in Table 2. In this table countries are ordered by per capita income in the terminal year (1977). The group includes 14 large countries that had a share of industry and utilities of at least 25 percent of GNP by this time but had not completed the trans- formation prior to 1970. 1/ The general trends in production described in section I are evident in virtually all but the richest countries in 1/ India is included for comparison to China although it is somewhat below those limits. Japan will be included in some comparisons even though it completed the structural transfor- mation in the 1950s. Romania and Poland are omitted since comparative data are not readily available. - 15 - Table 2. At the upper income level, Spain and Yugoslavia had already reached a high degree of industrialization in 1960 and showed little further increase thereafter. This is consistent with the trend in the advanced industrial countries, where the share of industry in GNP has declined over the past 20 years, partly as a result of a relative rise in the price of services. The speed of the transformation from primary production to industry is related to three factors: (1) the initial devia- tion in the structure from the average pattern, (2) the rate of GNP growth, and (3) the trade policy followed. All three com- bined to produce the very rapid transformation of the South Korean economy, which is the most drastic observed. As is illustrated by the graphical presentation of the transformation in figure 4, the Republic of Korea followed the normal cross- country pattern quite closely with an additional shift toward manufacturing due to the rapid rise of manufactured exports. More typical examples of the structural transformation that accompanies growth at rates more comparable to China's are Mexico, Turkey and Thailand. In these countries the rise in industry is largely dependent on domestic demand rather than exports, as discussed below. Comparison of the transformation of production in China to that in other countries is complicated by several factors: (1). difference in accounting conventions (particularly the omission of non-productive services); (2) the relatively high prices of manufactured goods and low prices of agricultural products compared to other countries; (3) the vertical integra- - 16 - tion of the economy, which leads to reporting services under other sectors. The differences in accounting conventions are allowed for in Table 2, and the effect of more typical price relations at'e shown in parentheses (as estimated in the World Bank Report on China). With these adjustments, the share of industry in GNP in China in 1960 appears to have been some 30 percent higher than India and comparable to Egypt, the Philippines and other higher income countries. Table 2 shows that the postwar transformation of production in China was one of the most rapid among large coun- tries. The measures of change are less affected by differences in prices and accounting conventions than are comparisons of absolute levels. Combining the reduction in primary share (8 percent) and the increase in Industry (12 percent), the total shift of resources in China (20 percent) was second only to the Republic of Korea (33 percent) and comparable to Thailand and Turkey (18 percent). When the transformation of production is measured by employment rather than by value added, China is much closer to the typical pattern for its income level. Agriculture still accounts for 71 percent of employment, which is approximately the average for all low-income countries. The share of industry, at 17 percent, compares to 11 percent in India, 17 percent in the Philippines, and 20 percent in Pakistan. The differences from the production shares in Table 2 are primarily due to the large differences in relative prices. - 17 - Effects of Trade Policies A number of statistical studies have shown that higher export growth is one of the factors contributing to GNP growth, both as a source of demand and as a means of avoiding bottle- necks. This relationship is quite pronounced for the group of semi-industrial countries, both large and small. (See Feder, Exports and Growth, World Bank, 1982.) The composition and growth of exports in the large semi-industrial countries is shown in Table 3. In most semi-industrial countries, export growth has been concentrated in manufactured goods and has often led to a very rapid transformation of the composition of exports. Even some of the more closed economies -- Argentina, Turkey, Colombia, the Philippines and India -- have made a substantial move in this direction with high growth rates of manufactured exports starting from a very low base. There is also a notable difference in the composition of exports between the large and small SICs. While the successful small countries have continued to specialize in light manu- factures, the larger countries have tended to diversify their exports into products having significant economies of scale. The latter pattern also appears to be promising for India and China as they increase their efforts to expand exports. The experience of the past several decades demonstrates that virtually all semi-industrial countries have been able to expand the growth of exports more rapidly than the growth of GNP when they have adopted policies favorable to exporters. (The - 18 - policy implications of these comparisons are taken up in other sessions of this conference.) III. GROWTH AND TRANSFORMATION Over the past 25 years there has been a tendency for middle income countries to grow more rapidly than either the richer industrial countries or the poorer -- largely agricultural -countries. The tendency for growth to accelerate in the transi- tional group of industrializing countries can be attributed to several factors: - a rise in the rate of accumulation of physical capital and skills; - a shift of labor and capital into sectors where they can be used more efficiently, and in which demand is increasing more rapidly; and - diversification of the economic structure of the semi- industrial countries, which makes them less vulnerable to changes in terms of trade or shifts in demand. China has been quite successful in raising its rate of accumulation to high levels but less so in allocating resources to the most productive sectors. Efficient resource allocation has been hampered by the lack of market signals to identify the more productive uses, by limited access to modern technology, and by a trade policy that has discriminated against exports. The result has been relatively inefficient use of resources, which is reflected in a very high incremental ratio of capital to increased output. In comparison to other poor countries, China's high rate of investment offsets its inefficient use of resources. Its - 19 - growth of per capita GNP of 2.7 percent since 1957 (corrected for relative price differences) compares favorably to 1.4 percent for India and 1.6 percent for all low-income countries. However, much of this improvement is due to the lower rate of population growth that China has experienced in recent years. Since China has achieved both the industrial structure and the investment rate of a middle-income country, it should now be able to attain higher levels of growth as,,well. Among the large semi-industrial countries, the ability to expand exports and avoid bottlenecks has been particularly important to sustained growth. This is indicated by the distinc- tion in Table 3 between countries with outward-oriented and inward-oriented trade policies. The five countries that have adopted relatively outward looking policies and achieved rapid export growth -- Spain, Yugoslavia, Brazil, Korea and Thailand -- have also had high growth of per capita GNP of 4.5 - 5.0 per- cent. The remaining large countries -- of which China is fairly typical -- have had lower growth rates of 2.5 to 3.0 percent. More open trade policies have also proved to be more effective in the past decade in facilitating the adjustments to balance of payments shocks and worsening terms of trade. The lack of detailed data on the structural transforma- tion in China makes it difficult to pursue this type of analysis much further. However, the relations between growth and structural change should provide promising topics for future research. - 20 - REFERENCES Chenery, H.B. 1977. "Transitional Growth and World Industrialization." In The International Allocation of Economic Activity, ed. B. Ohlin, P.O. Hesselborn, and P.M. Wijkman. London: Macmillan. . 1979. "The Process of Industrialization." In Structural Change and Development Policy, Chapter 3. New York: Oxford Press. . 1980. "Interaction Between Industrialization and Exports." In Proceedings, American Economic Association, 1980. World Bank Reprint Series No. 150, Washington, D.C.: World Bank. Chenery, H.B., and Syrquin, M. 1975. Patterns of Development, 1950-70. London: Oxford University Press. _ 1980. "A Comparative Analysis of Industrial Growth." In Economic Growth and Resources, ed. R.C.O. Matthews. New York: Macmillan. Chenery, H.B.; Robinson, S.; and Syrquin, M. Industrial ization: A Comparative Study. Forthcoming Feder, G. 1982. "On Exports and Economic Growth." World Bank Staff Working Paper No. 508. Washington, D.C.: World Bank. Houthakker, H.S. 1957. "An International Comparison of Household Expenditure Patterns: Commemorating the Centenary of Engel's Law." Econometrica 25 (October):532-51. Kuznets, S. 1966. Modern Economic Growth. New Haven: Yale ,University Press. Lluch, C.; Powell, A.A.; and Williams, R.A. 1977. Patterns in Household Demand and Saving. New York: Oxford University Press. - 21 - Table 1 Simulated Effects of Alternative Trade Patterns on Industrial Structure Constant Income Level of $400 (1964 Prices)- Case 1 Case 2 Case 3 Average Average Large Semi-Closed Country Country Economy Ratio to Ratio to Value Value Case 1 Value Case 1 (1) (2) (3) (4) (5) TRADE 1. a. Primary Exports 51.2 14.8 .29 3.1 .06 b. Manufactured Exports 21.4 18.2 .85 14.4 .67 c. Total Exports 96.5 46.0 .48 21.7 .22 2. a. Primary Imports 19.2 il.8 .61 7.8 .41 b. Manufactured Imports 65.0 31.8 .49 15.5 .24 c. Total Imports 101,4 52.5 .52 28.1 .28 PRODUCTION (Value Added) 1. Primary 82.6 65.6 .79 62.2 .75 2. a. Light Manufacture 63.2 66.6 1.05 67.4 1.07 b. Heavy Manufacturing 34.5 51.8 1.50 58.1 1.68 c. Construction & Utilities 60.2 62.8 1.04 61.6 1.02 d. Total Industry 157.9 181.2 1.15 187.1 1.18 3. Services 159.6 153.2 .96 150.8 .94 4. Total Value Added 400.0 400.0 400.0 Source: Hollis B. Chenery, "The Process of Industrialization," Table 3-7. In Structural Change and Development Policy. New York: Oxford Press. 1979. Table 2 Transformation of Production (1960-1977) Growth. Per Capita Rate pqpulation primya i zSar Change in Share Share of IndustryŽ/ Change in Share Country (us$ 1977) (1960-79 1 1977 1977 1960-77 1960 1977 1960-77 *Spain 3,190 4.7 .36 23.3 11.0 -12,3 36.2 38.7 2.5 *Yugoslavia 1,960 5,4 22 24.0 15.2 -8.8 45.1 44.6 -0.5 Argentina 1,730 2.4 26 17.7 14.6 -3.1 36.3 43.2 6.9 *Brazil 1,360 4.8 116 17.3 13.2 -4.1 33.9 35.7 1.8 S. Africa 1,340 2.3 27 25.9 19.6 -6.3 26.2 31.6 5.4 Mexico 1,120 3.7 63 17.4 11.1 -6.3 27.7 35.0 7.3 Turkey 1,1.10 3.8 42 42.7 30.0 -12.7 18.7 24.2 5.5 *Korea 820 7.1 36 41.9 25.7 -16.2 16.5 33.0 16.5 Colombia 720 3.0 25 380 33.2 -4.8 21.8 25.6 3.8 Philippines 450 2.6 45 26.9 29.3 2.4 26.8 32.9 6.1 *Thailand 420 4.5 44 40.9 30.2 -10.7 17.6 25.4 7.8 Egypt 320 3.4 38 29.9 30.2 0.3 24.3 28.9 4.6 China c/ 200 (2.7) 930 40.0 (45) 34.0 (37) -6.0 30.0 (25) 44.0 (37) 14.0 India 150 1.4 632 50.8 41.8 -9.0 19.3 23.7 4.4 a/ Primary includes agriculture and mining. b/ Industry includes construction and utilities. / Data for China are for 1957 and 1977-79, The figures in parentheses are based on relative nricea that are more representative of other'countries, * Countries with outward-oriented trade pol4cies. Table 3 Transformation of Exports 1960-1977 Merchandise Annual Growth of Exports Exports as Growth of Manufactured 1977 Share of Share of Manufacture Exports Exports Country (Billion $) GDP 1960 1977 1960-77 1960-77 *Spain 10.2 10 22% 71% 11.1% 19.0% *Yugoslavia 5.3 11 37 69 6.8 10.8 Argentina 5.7 8 4 24 4.2 15.8 *Brazil 12.1 7 3 26 5.6 19.9 S. Africa 6.2 35 29 42 6.0 8.3 Mexico 4.1 7 .12- 29 27 8.2 Turkey 1.8 4 3 25 1.3 14.8 *Korea 10.0 25 14 85 33.3 48.2 Colombia 2.3 25 2 19 0.7 15.0 Philippines 3.2 16 4 25 3.3 15.1 *Thailand 3.9 19 2 19 8.0 23.3 Egypt 1.7 11 12 25 0.1 4.5 China 12.0 6 - .49 - - India 6.2 6 45 56 4.4 5.8 * Outward oriented policies. Source: World Bank, World Development Reports. - 24 - Figure 1 Shares of Food and Non-Food Consumption in Final Demand 90 - 70 10 z o I_ 40 30 _ _ _ 20 0l I I- -_ 100 150 200 300 400 500 600 700 800 900 1000 1500 2000 3000 Source: Sources Basic Date Base Per Capita GNP (US$ 1970) GOP by Expenditure World Bank-23970 Product of World Bank research project (RPO)No. 671-32. - 25 - Figure 2 Major Components of Demand 80 \ Turke') 4% ' 70 CONSUMPTION 60 _ l - _ 50 . _ ___ 40~~~~~~~~~~~~~~~4 . \ 9 2 ,- 200 X= X 80 - ~~~~~~~~~~~~~~~~~~~~~~~~~~A C-..Iop.d C.---rse 10 100 5:C 1000 1500 Value added manufacturing (Vm) Source: Chenery, H.B. "Transitional Growth and World Development." - 28 - manufacturing firms in the Assesses the extent and nature of World Bank Ivory Coast. industrialization in three African Publications World Bank Staff Working Paper No. countries dSumlompament during the of Related 465. July 1981. 45 pages. last twenty-five years and explores Stock No. WP-0465. $3.00. some of the issues facing these Interest countries as they design future industrial policies. Empirical Justification for World Bank Staff Working Paper No. Infant Industry Protection 457. May 1981. 63 pages (including Larry E. Westphal references, annex). Reviews the empirical evidence available concerning the nature of Stock No. WP-0457. $3.00. the costs and benefits of infant industry development and forms some hypotheses about policies to promote infant industries. Based on Korean Industrial Compe- research conducted under the tence: Where It Came From 'Sources of Industrial Growth and Larry E. Westphal, Capital Utilization in Structural Change" research project. Yung W. Rhee, and Manufacturing in Develop- World Bank Staff Working Paper No. Garry G. Pursell ing Countries: A Case Study 445. March 1981. 38 pages (including Discusses how Kucessfully an indepen- of Colombia, Israel, re . dent base of technological know-how Malaysia, and Philippines Stock No. WP-0445. $3.00. and marketing expertise in many Romeo M. Bautista, sectors during the past fifteen years Helen Hughes, David Lim, n and suggests how Korea's David Mo z avd IndustLmal Prospects and experiences might be useful in David *M.orawetz, and Policies in the Developed programming the development of Francisco E. Thoumi other countries that are currently at The authors surveyed 1,200 Countries earlier stages of industrialization. manufacturing firms in four develop- Bela Balassa e ing countries to establish actual Addresses the allegations that World Bank Staff Working Paper No. levels of capital utilization. The infor- increases in the import of manufac- 469. July 1981. 76 pages (including mation collected was the first and tured goods from developing coun- references). remains the only data base available tries adversely affect the industrial Stock No WP 0469 $5.00 for the study of capital utilization. It sector in the developed countries was found that capital utilization is and that growing protectionism in not as low as had been supposed. . the developed countries has made it The study is concerned with factors necessary for developing countries to that cause differences in levels of turn to domestic markets or to trade capital utilization and the policies among themselves in order to sell Made in Jamaica: that might be used to increase it. their manufactured goods. Argues The Development of the that trade with the developing coun- Manufacturing Sector Oxford University Press, February 1982. tries actually benefits the developed Mahmood Ali Ayub 288 pages (including bibliography, countries, that rates of industrial This book, the first detailed study of index). protection should be lowered, and Jamaica's manufacturing sector, pro- LC 81-9526. ISBN 0-19-520268-6, that an international safeguard code vides a comprehensive assessment $22.00 hardcover. should be instituted to smooth the of the important characteristics of process of adjustment to freer trade the sector and of its structure. It in the developed countries. relates the development of the sector Cost-Benefit Evaluation of World Bank Staff Working Paper No. during the past two decades, LDC Industrial Sectors 453. April 1981. 30 pages (including provided to the sector in 1978, and Which Have Foreign appendix). examines the prospects for growth of Ownership Stock No. WP-0453. $3.00. manufactured exports during the Garry G. Pursell coming years. Policy recommenda- Describes a methodology for treating Indutrial f Lat tions are made on the basis of foreign capital for cross-section cost- Snus ta rategy or ate this analysis. benefit studies when there is invest- Starters: The Experience The Johns Hopkins University Press, ment by foreigners that is specific to of Kenya, Tanzania 1981. 144 pages. a particular activity. Illustrates the and Zambia methodology by using the results FRavi Gulhati and LC 80-27765. ISBN 0-8018-2568-7, of a larger study of eighty-four Uday Sekhar $6.50 (£4.25) paperback. - 29 - Managerial Structures and Automotive Industries in ing countries to assist small Practices in Manufacturing Developing Countries enterprises and suggests that efTl- Enterprises: A Yugoslav Jack Baranson cient substitution of labor for capital Case Study is possible in a broad spectrum of Martin Schrenk The role of intemational corpora- small-scale manufacturing and other tions, the adaptation problems of activities that are able to absorb a Explores the managerial procedures their aiffliates, and the impact of rapidly growing labor force. and practices that have evolved in economic policy on market structure. Sector Policy Paper. February 1978 93 Yugoslavia's manufacturing industries The Johns Hopkins University Press, pages (including 3 annexes). English, under the Yugoslav system of "self- 1969. 120 pages (including statistical French, and Spanish. management socialism," discusses annex). the inferences that can be drawn Stock Nos. PP-7803-E, PP-7803-F, from these observations regarding LC 77-85339. ISBN 0-8018-1086-8, PP-7803-S. $5.00. economic efficiency, and concludes $5.00 (£3.00) paperback. with some observations on the Spanish: La industria automotriz en los strengths and weaknesses of this pafses en desarrollo. Editorial Tecnos, Esoduatingt Growthacnoa particular pluralistic system. p1971. troductivity Growth in a World Bank Staff Working Paper No. 320 pesetas. Developing Country 455. May 1981. iv + 100 pages Anne 0. Krueger and (including 4 appendixes). The Capital Goods Sector in Baran Tuncer Stock No. WP-0455. $5.00. LDCs: A Case for State World Bank Staff Working Paper No. Small Enterprises and Intervention? 422. October 1980. 64 pages (includ- Development Policy in the Jayati Datta Mitra ing references, appendix). 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Development Finance Industrialization and Why the Emperor's New Companies Employml nt: The Role of Clothes Are N4ot Made In Examines the role of development Smal and Medium Sized Colombia: A Case Study In finance companies as major mecha- M Latin American and East nisms for assisting medium-scale Barend A. de Vries Asian Manufactured productive industries, assesses their World Bank Reprint Series: Number Exports potential for aiding small enterprises 116. Reprinted from International David Morawetz in meeting socioeconomic objectives Economic Development and Resource David Morawetz ~~~of developing countries, andeop ntadRsuc discusses the evolution of World Transfer: Workshop 1978 (19 79):47-62. Focuses on the exports of a particu- Bank assistance to them. Stock No. RP-0116. Free of charge. lar commodity (clothing) from a par- ticular Latin American country Sector Policy Paper. April 1976. 68 (Colombia) in an attempt to under- pages (including 7 annexes). 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World Bank in encouraging develop- $5.00 paperback. - 30 - Interactions between The Planning of Investment Policies for Industrial Industrialization Programs Progress In Developing and Exports Alexander Meeraus and Countries lHollis Chenery Ardy J. Stoutjesdijk, editors John Cody, Helen Hughes, World Bank Reprint Series: Number Series comprising two volumes that and David Wall, editors 150. Reprinted from American describe a systematic approach to Analysis of the principal policy issues Economic Review 70, no. 2 (May investment planning, relying pri- -- that influence the course and pace of 1980):281 -287. marily on mathematical program- industrialization in the developing ming techniques. Includes both countries. The text, organized along Stock No. RP-0150. 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