Planning for an open economy: the analytical framework

Abstract

In the earlier development planning models, little attention was usually paid to foreign trade problems. With the gradual recognition of the crucial role of international trade in the process of development, however, it was increasingly realised that planning models based on closed economies could hardly be expected to be of much relevance for development policy. Instead, open-economy models had to be developed; when Tinbergen introduced the semi-input-output method in the 1960’s, one of the attractive and novel features of the method was its explicit treatment of efficiency in production and trade, the latter based on a country’s comparative advantages. Before presenting the semi-input-output method, its theoretical rationale as a planning method specifically designed for an open economy will therefore by analysed first. For this reason, the present chapter serves as the theoretical background to the semi-input-output method. The method itself will be presented in chapter 4.