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3 - Economic Complexity as a Determinant of Industrialization of Countries: The Case of India

from Section 2 - Promoting Industrial Development for Sustaining High Growth Rates

Published online by Cambridge University Press:  08 February 2018

Emanuele Pugliese
Affiliation:
Institute for Complex Systems of the National Council of Research, Italy
Guido L. Chiarotti
Affiliation:
Managing Director of MaX, a European Centre of Excellence-Publisher at Scienza Express
Andrea Zaccaria
Affiliation:
Institute for Complex Systems (CNR)
Luciano Pietronero
Affiliation:
University of Roma ‘La Sapienza’
Pradeep Agrawal
Affiliation:
Institute of Economic Growth, Delhi
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Summary

INTRODUCTION

The industrialization of a country is an impressive process, deeply changing the population and the institutions of the country while new and old resources are tapped to achieve growth. During this transition, the growth rate of the economy is much higher than the global average and much higher than the past and future growth rates of that country.

It is, however, a transition, and as such, is limited in time. When the industrialization process has touched all the sectors, when most of the population is educated and near full employment and when all the scale economies have been fulfilled, the process loses its revolutionary power and the new society now sits among the developed countries.

Two questions have haunted economists since the beginning of the discipline, since Adam Smith and Max Weber. The first question concerns the drivers of this sudden spurt of growth: how can an entire society change dramatically in fifty years after being static for thousands of years? Moreover, why is this process suddenly interrupted after catching-up with the other developed countries? There are many competing answers to this part of the puzzle, the most basic being the poverty trap due to multiple equilibriums (Solow, 1956): the phenomenon is sudden because there is a barrier – a given level of wealth needs to be reached to start a quick transition to a different equilibrium. There are several alternative explanations, the most notable being the relation between increasing returns and demand, as in Rosenstein-Rodan (1943) and – more formally – in Murphy et al. (1988), in which the barrier to overcome is a minimum internal demand which inhibits scaling returns in manufacturing.

The second question is about the heterogeneity of the process among countries. England experienced its Industrial Revolution in the second half of the eighteenth century, followed by other Western countries. In the nineteenth century, the United States became industrialized too, other countries followed in the twentieth century, while others did not. What prevented countries lagging behind from moving towards prosperity? There are many alternative explanations, ranging from cultural (McCloskey, 2006; Weber et al., 2002) to geographic (Diamond and Ordunio, 1997) and even biological (Ashraf and Galor, 2011). Another explanation is political: to achieve growth the population has to be empowered through inclusive political institutions, leading to more inclusive economic institutions and widespread prosperity (Acemoglu et al., 2005).

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Publisher: Cambridge University Press
Print publication year: 2017

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