Industrialization and the Big Push

34 Pages Posted: 28 May 2004

See all articles by Kevin M. Murphy

Kevin M. Murphy

University of Chicago; National Bureau of Economic Research (NBER)

Andrei Shleifer

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Robert W. Vishny

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Date Written: September 1988

Abstract

This paper explores Rosenstein-Rodman's (1943) idea that simultaneous industrialization of many sectors of the economy can be profitable for all of them, even when no sector can break even industrializing alone. We analyze this ides in the context of an imperfectly competitive economy with aggregate demand spillovers, and interpret the big push into industrialization as a move from a bad to a good equilibrium. We show that for two equilibria to exist, it must be the case that an industrializing firm raises the demand for products of other sectors through channels other than the contribution of its own profits to demand. For example, a firm paying high factory wages raises demand in other manufacturing sectors even if it loses money. In a similar vein, a firm investing today in order to produce at low cost tomorrow shifts income and hence demand for other goods into the future and so makes it more attractive for other firms also to invest today. Finally, an investing firm can benefit firms in other sectors if it uses a railroad or other shared infrastructure, and hence helps to defray the fixed cost of building the railroad. All these transmission mechanisms that help generate the big push seem to be of some relevance for less developed countries.

Suggested Citation

Murphy, Kevin M. and Shleifer, Andrei and Vishny, Robert W., Industrialization and the Big Push (September 1988). NBER Working Paper No. w2708. Available at SSRN: https://ssrn.com/abstract=259417

Kevin M. Murphy (Contact Author)

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Andrei Shleifer

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Robert W. Vishny

University of Chicago - Booth School of Business ( email )

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