If the need for a „Big Push“ survives in an economy that is open to international trade
and capital movements, or if openness to trade and capital movements is sufficient to
overcome all poverty traps, these questions have daunted development economics
since its inception (Jaime et al. 1997).
In the last two hundred years, every country with high development and productivity
rates has industrialised. While in the eighteens century Britain, and in the twenties
century Korea and Japan grew rich, other countries remained poor. One of the
discussed causes for this underdevelopment might be the small domestic market.
While the idea started with Rosenstein-Rodan (1943)1, who thought the solution would
be aid and investment programs, since the 1960s advocates tend to the Idea that
openness of the economy resolve the problem of a small domestic market. The theory
is that openness would induce an export-led „Big Push“ in terms of simultaneous
growth over different sectors (Murphy et al.1989, p.1003).
In the current discussion the „Big Push“ induced by aid has its comeback in the
Millennium Development Goals from the UN (Easterly 2005, p.3). The focus of this
paper is on the East Asian countries, where the export-promotion-policy had had an
important role. But Trindade (2005, p.41) was the first author who interpreted the
coordination-problem as solvable with solely export-promotion, because of the naturally
coordination effect of exports (Asche, 2005, p.24 gloss 28). So the question is not if
exports are good for an economy, but if exports can induce a „Big Push“ and thus
making aid superfluously.
Table of Contents
1 INTRODUCTION
2 THE „BIG PUSH“ AND INTERNATIONAL TRADE
2.1 THE „BIG PUSH“
2.1.1 MULTIPLE EQUILIBRIA
2.1.2 THE MARKET SIZE AND COORDINATION FAILURE
2.2 THE „BIG PUSH“ AND INTERNATIONAL TRADE
2.2.1 THE MODEL OF TRINDADE
2.2.2 FREE TRADE RESTRICTIONS AND POSSIBILITIES
2.3 EVIDENCE FROM EAST-ASIA
3 CONCLUSION
Objectives and Topics
The primary objective of this paper is to examine the relationship between international trade and the "Big Push" theory of economic development. It explores whether an open economy is sufficient to overcome development traps or if government-led interventions remain necessary to initiate industrialization.
- Theoretical foundations of the "Big Push" and multiple equilibria.
- Analysis of market size, coordination failures, and industrialization.
- The role of export-promotion policies in Trindade’s dynamic growth model.
- Comparative empirical evidence from East Asian economies, such as Taiwan and South Korea.
Excerpt from the Book
2.1.1 Multiple equilibria
Murphy et al. (1989) observed that the idea behind the vicious circle is the multiplicity of equilibria. Countries with a low level of income or capital stock, tends to a lower steady state then countries with a high level, which tends to higher steady state equilibrium (Asche, p.8). That means that a vicious circle is an equilibrium on a low level of development. If the equilibrium is stabile it tends back to its steady state. So if it comes to an expansion, which is not high enough, the economy would grow shortly but then falls back to its old equilibrium.
Countries which are in vicious circles can’t elude from this situation by its own. This vicious circle according to Nurske (1961, p.4ff) and taken up by Timmermann (1982, p. 125) can be seen in Chart 1.
Summary of Chapters
1 INTRODUCTION: Outlines the research question regarding whether international trade openness is sufficient to escape poverty traps and introduces the paper's focus on East Asian empirical evidence.
2 THE „BIG PUSH“ AND INTERNATIONAL TRADE: Examines the theoretical framework of the "Big Push," addressing multiple equilibria and market coordination failures.
2.1 THE „BIG PUSH“: Defines the vicious circle of poverty and the conditions under which a coordinated investment effort becomes necessary to reach a higher economic equilibrium.
2.1.1 MULTIPLE EQUILIBRIA: Discusses how low-income economies remain stuck in stable, low-level steady states and why they struggle to escape without external intervention.
2.1.2 THE MARKET SIZE AND COORDINATION FAILURE: Analyzes how limited domestic demand prevents industrialization and the resulting coordination problems between sectors.
2.2 THE „BIG PUSH“ AND INTERNATIONAL TRADE: Investigates the shift from aid-based "Big Push" models toward export-led strategies for development.
2.2.1 THE MODEL OF TRINDADE: Presents Trindade's dynamic growth model, which argues that export-promotion policies can solve coordination failures through comparative advantage.
2.2.2 FREE TRADE RESTRICTIONS AND POSSIBILITIES: Critically reviews the limitations of free trade, particularly when non-tradable inputs are involved.
2.3 EVIDENCE FROM EAST-ASIA: Provides empirical support from East Asian countries to determine if export-oriented policies successfully drove their industrialization.
3 CONCLUSION: Summarizes the findings, noting that while openness is a key determinant for growth, specific conditions—such as a skilled workforce and tradable inputs—are required to induce a successful "Big Push."
Keywords
Big Push, International Trade, Economic Development, Poverty Trap, Coordination Failure, Multiple Equilibria, Export-Promotion, Industrialization, Comparative Advantage, East Asia, Market Size, Economies of Scale, Spillover, Growth Theory, Development Trap
Frequently Asked Questions
What is the core focus of this research paper?
The paper examines whether an open economy and international trade are sufficient to overcome underdevelopment traps or if a "Big Push" strategy, involving government coordination, is required.
What are the primary thematic areas explored?
The study covers the history of "Big Push" theory, the mechanics of poverty traps, the impact of export-led policies on industrialization, and evidence from East Asian development.
What is the primary research question?
The research asks if openness to international trade can induce a "Big Push" that overcomes developmental bottlenecks without relying exclusively on foreign aid or direct state planning.
Which scientific methodology is used?
The paper utilizes a literature-based theoretical analysis of economic growth models (specifically those by Murphy et al. and Trindade) combined with a critical review of empirical data from East Asian countries.
What topics are discussed in the main body?
The main body treats the theoretical conditions of multiple equilibria, the limitations of market size, the specific modeling of trade-induced "Big Push" by Trindade, and the historical successes of East Asian manufacturing.
Which keywords best describe this work?
Key terms include "Big Push," poverty traps, international trade, coordination failure, and export-promotion policies.
How does Trindade’s model differ from traditional "Big Push" theory?
Trindade’s model moves away from the need for foreign aid, arguing that an open economy and export-promotion can create the necessary coordination effect through comparative advantage.
Why are non-tradable inputs considered a limitation to the model?
If intermediate goods are non-tradable, mere trade liberalization may not solve the coordination failure, meaning the industrial network remains incomplete and a "Big Push" cannot be achieved by market forces alone.
What role does the domestic market play in these models?
In many developing countries, the domestic market is too small to support economies of scale, creating a coordination failure where industries cannot profitably expand unless they develop simultaneously.
- Quote paper
- Vivien Gröning (Author), 2006, Economic Growth and Development in China, Munich, GRIN Verlag, https://www.grin.com/document/142142
