’Monopoly Capitalism’ and Public Policy in Developing Countries

Abstract

The purpose of this paper is to analyze some special features of industrial market power in the developing countries and their effects on economic development. Apart from an occasional article or monograph, questions of market power have often been neglected in the professional literature on economic development.¹ This neglect may stem from a belief that such questions are somehow less important in the less-developed economies, where the emphasis should be on the growth of output rather than on market distortions which inhibit allocational efficiency. Economic development, however, depends crucially on inter-activity linkages and external economies (see Rosenstein-Rodan 1943; Hirschman 1958). Consequently, we must be concerned with the extent to which competitive pressures lead to the actual transmission of pecuniary externalities in production and investment from one activity to another. Further, as we shall see, industrial market power also has important effects on dynamic efficiency, income distribution, the internal terms of trade, and macroeconomic conditions in the developing countries.

I am grateful to Tuvia Blumenthal, Neil Chamberlain, Christopher Clague, Frank Edwards, Fanny Ginor, Charles Kindleberger, Howard Pack, Kazuo Sato and John Sheahan for helpful comments on an earlier draft of this paper. I also thank the Faculty Research Program of the Columbia Business School for financial support of this project, and the Department of Developing Countries of Tel Aviv University, where the first draft of the paper was written, for the use of its excellent research facilities. I bear sole responsibility for any deficiencies in the paper.

Taken from: Kyklos, Vol. 32 (1979), Fasc. 4, 718–738.