(De)Industrialization, Technology and Transportation
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(De)Industrialization, Technology and Transportation Armando J. Garcia Pires 1
& José
Pedro Pontes 2
# Springer Science+Business Media, LLC, part of Springer Nature 2020
Abstract The transition from a traditional, constant returns technology to modern, increasing returns methods of production in manufacturing not only widens the scale of production but more crucially, it enhances product quality. Such a quality improvement consists mainly in a much higher level of transportability. The fact that products become “lighter” and easier to carry opens foreign markets to manufacturers thereby supporting larger scales of production. We model this situation through a one-stage game where firms distributed across two countries select technologies and fob mill prices. Contrasting with the Big Push approach, such a game is never a coordination game. In addition to cases where all firms adopt either modern or traditional technologies, the standard outcome is an asymmetric situation, where the modern firms in a country eliminate traditional units in the other country. Starting from a situation where all productive activity is traditional, deindustrialization can be viewed as a situation where firms in a country switch to more modern technologies while industrial units in the other country are unable to participate in this movement. Keywords Deindustrialization . Technological development . Globalization .
Transportation JEL Classification F15 . F60 . O14 . R12 . R40
* Armando J. Garcia Pires [email protected] José Pedro Pontes [email protected]
1
Centre for Applied Research at NHH (SNF), Helleveien 30, 5045 Bergen, Norway
2
Instituto Superior de Economia e Gestão, University of Lisbon, Rua Miguel Lupi 20, 1249-078 Lisbon, Portugal
Garcia Pires A.J., Pontes J.P.
1 Introduction The growth of manufacturing in relation to overall productive activity has been viewed as a core factor of economic development. Since the seminal work of Rosentein-Rodan (1943) and Murphy et al. (1989), industrialization has been described as the outcome of a coordination process among industrial units that are concentrated within a well-defined geographical area (a nation or a region). These firms are assumed to have a small scale and use traditional, constant returns from the start. Each firm cannot switch individually to a modern technology entailing scale economies since the related increase in output would not be matched by an equally sized rise in demand. However, if all firms change their technology simultaneously, aggregate productivity will rise leading to the increase of wages and profits. Higher individual incomes raise the overall demand for manufactured products, thereby allowing each firm investing in increasing returns technology to break even. Such model of industrialization is usually named as the Big Push and it has been developed in the literature (see, among others, Matsuyama 1992; Wang and Xie 2004; Daido and Tabata 2013). It shows two main features. Firstly, with the exception of Rodrik (1996), who regards coord
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