Absorptive Capacity and Major Production Sectors
Hitherto the growth of production in developing economies has tended to follow fixed paths, with certain key sectors expanding at predictable rates as per capita income increases. In fact the predictability of such rates is sufficiently accurate for elasticities to be computed from historical data which illustrate the percentage change in the proportion of the national product arising from each sector of the economy for given percentage changes in per capita income.1 These data, however, are usually related to economies which have followed the accepted modes of development, with each economy starting from a low level and over time increasing its capital, this increase in capital being accomplished either by borrowing or saving. As income increases consumption patterns change to match the increased income and output patterns change to correspond to that changing demand spectrum. Such elasticities have been derived from cross-section studies of groups of economies in varying stages of development in the same way as the quoted work by Chenery. One of the main determinants of growth in most economies has been the speed at which capital can be mobilised.2 Indeed much of the activity of the world’s organisations devoted to assisting development is concerned with aid in providing capital in order to break the cycle between low income-low saving with low consumption-low investment-low income.
KeywordsForeign Investment Foreign Exchange Absorptive Capacity Foreign Asset Capital Shortage
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- 1.Chenery, Hollis B. ‘Land, the Effect of Resources on Economic Growth’ in Economic Development, edited by Kenneth Berrill (London: Macmillan, 1965).Google Scholar