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Ping Wang, Vanderbilt University and NBER. We have benefited from discussions with Bob Driskill, Andrew Feltenstein, Peter Howitt, and Reza Vaez-Zadeh.
For an illustration of the industrial transformation experiences in Japan, Korea, India and Taiwan Province of China, the reader is referred to Evans (1995). For micro patterns of job turnover and industrial productivity, see Roberts and Tybout (1996).
In Morawetz (1981), an interesting case study is provided, illustrating why Columbian apparel producers failed in competition with East Asian economies. Easterly (2001) contains a wealth of examples of failed aid programs: Akosombo Dam in Ghana and Morogoro Shoe Factory in Tanzania. One of the worst examples is aid to Zambia. After US$2 billion in aid, Zambia today is poorer than in 1960.
For detailed discussion of the development experiences in Korea and Taiwan Province of China, see Amsden (1989) and Kuo (1983), respectively. The reader may also be referred to Thorbecke and Wan (1999) for an extensive discussion on some successful development programs that have fostered the take-off of the Taiwanese economy. These include the $1.2 billion U.S. aid from 1951 to 1965 allocated to infrastructure, as well as the high interest rate and light taxation policies in inducing a growing supply of funds. Moreover, the outstanding education and training programs have assisted the structural changes in Taiwan’s labor force to accommodate rapid industrial transformation.
It is arguably difficult to assign cardinal comparisons between goods. To make the condition operational, we need a way to estimate the value of θ. One method is to infer the value of θ by looking at the trend of income shares of traditional and modern goods in developed countries.
For moderate F and A2, a reduction in the price of type-2 capital, q, as a result of technological innovations in developed countries can also help kick start the modern industry in developing countries as the reduction in q can make Ω(N2) > 1.