GOVERNMENT POLICY AND CAPABILITY-CREATING RESOURCES IN ECONOMIC-GROWTH

This paper analyzes the transition of an economy specializing in an existing, conventional industry to one also involving a new, high-tech sector (structural change). The conventional industry is characterized by constant returns while the high-tech industry posesses an initial range of resource use characterized by increasing returns, one following from the need of establishing a capability or infrastructure prior to engaging in production. Most of the analysis is static and assumes the existence of only one resource-skills. It focuses on the conditions under which unaided market forces will effect the structural change at the level of resources at which this phenomena is socially desirable. The possibility of market failure is raised, although this is not inevitable since there is scope for skilled wage bargaining and lump sum transfers to the (single) H-entrepreneur. Otherwise, market failure may exist, even when the emerging sector exploits its monopsony power in the skills market. A preliminary discussion of a potential market failure in skill accumulation (rather than allocation) is also presented. The paper presents an attempt to formalize aspects of the 'structuralist' perspective to economic growth and development, a perspective which focuses on the relationship between structural change, skill accumulation and economic growth. © 1991.