Studies in Development and Planning – serie

The objective of this text is to develop and implement a model for allocating the industries of the Sectorial Programs of Industrial Development of the Andean Common Market. In the Andean Common Market, as in most other integration schemes among less developed countries, the main expectations regarding the promotion of economic growth are based on the expectation of increased opportunities for import substituting industrialization. The concern here is with the Andean Common Market in particular because it has been the economic integration scheme that has most explicitly recognized the objective of the less developed countries of taking advantage of the new opportunities for industrial­ ization created by the combination of the individual markets. In the Andean Common Market the importance attached to the expectation of the gains from industrialization was expressed in the formulation of Sectorial Programs of Industrial Development. Other integration schemes among less developed coun­ tries have not addressed the issue of import substituting industrialization in such detailed manner. In the first section of this chapter the importance of the topic of allocating industries in integration schemes among less developed countries is discussed. It is argued that the benefits to be derived from increased trade in the traditional products of the member countries are minimal. Instead, the member countries 1 2 ALLOCATION OF INDUSTRY IN THE ANDEAN COMMON MARKET expect the benefits from economic integration schemes to be derived from the utilization of the opportunities for industrialization created by such schemes.

1.1. THE PURPOSE OF THE STUDY This study deals with regional co-operation among developing By regional co-operation is countries and its potential benefits. meant any form of concerted action by the countries of a region aimed at a fuller utilization of their growth potential. Such con­ certed action may consist of various kinds of economic policy measures regarding production, investment and foreign trade. In this sense, regional co-operation is to be regarded as a facet of the participating countries' overall development strategy. Unlike other studies in this field, dealing with integration among developing countries and focussing attention on the planning of such integra­ tion (see, e.g., Mennes 1972), the present study concentrates on the effect of integration and co-ordination policies on the structure of intra-and extra-regional trade. Very often large differences exist among developing countries with respect to various aspects of economic development, e.g., the structure of demand, the structure of capital formation and the growth rates of individual sectors. Such divergencies call for the utilization of a multi-country, multi-sector model that will enable a better co-ordination of production and investment policies. Atten­ tion should thereby be given to the pattern of intra-regional specialization that will result from such a co-ordinated policy.

This study is an attempt to contribute to our understanding of one of the most important reforms currently advocated by development economists to reduce rural poverty in developing countries: land reform. Dr. Cohen has based his study on models in which three social groups are acting: these, for brevity's sake, are called land­ lords, peasants and the groups who comprise the non-agricultural sector. Peasants include the so-called landless peasants which western countries generally term agrarian workers. The method can be extended to larger numbers of groups. The actors are involved in various activities, including production, consumption and saving, the latter being available either for physical or for financial invest­ ment. This implies that various wealth components appear in the model alongside flows of goods and services. Use is made of determinate models with linear and non-linear equations of a dynamic character. The models are employed to estimate socio-economic development under alternative regimes. Regimes differ, on the one hand, according to which group is in power and, on the other hand, according to the instruments of economic policy they use. It is an attractive feature of Dr. Cohen's study that the models are applied to two countries for which all the necessary statistical material has been estimated: India and Chile. For both countries a brief socio-political sketch precedes the numerical application of the models. For India five instruments of socio-economic policy are considered: land transfers, measures to stimulate productivity, credit policies, taxes and tenure and wage regulations.

The semi-input-output method was introduced by Professor Jan Tinbergen in the early 1960's in fairly obscure places in the economic literature. The basic idea of the method is a very simple one and does not require lengthy and sophisticated exposition to be understood. This fact, together perhaps with Tinbergen's dislike for very formalized and technical analysis, probably explains why he himself has never given a full exposition and elaboration of this method. Nevertheless, the concept did not remain unnoticed and authors such as B. Hansen and some of Tinbergen's collaborators, in particular P. A. Cor­ nelisse and J. Versluis, have contributed to the elaboration of the method. The present work by Dr. A. Kuyvenhoven, also a long-time collaborator of Tinbergen, has provided us with the first full, and in my opinion definite, exposition of the nature, technique and use of the semi-input­ output method, now more than 15 years after the launching of the concept.

The research project of which the present study is the end result was initiated in late 1970, while I was affiliated with the Economisch Instituut voor de Bouwnijverheid (Economic Institute for the Construction Indus- try), Amsterdam, the Netherlands. This institution, in association with the Urban Development Authority, Kuala Lumpur, Malaysia, also suppor- ted fieldwork in Malaysia from early 1973 to spring 1975. This resulted in a report to the Malaysian government (Wegelin, 1975), which forms the basis of the present study. Improvement and extension of the earlier report to mould the study in its present shape has been made possible by the financial support of the Stichting Wetenschappelijk Onderwijs in Econo- mische en Sociale Aspecten van Bouwproductie en Bouwnijverheid (Foun- dation for University Education in Economic and Social Aspects of Construction), Amsterdam, the Netherlands. The support of the above institutions is gratefully acknowledged. The study owes much to the pioneering work on low-income housing in developing countries bij Charles Abrams and has further been stimul- ated particularly by the contributions of Leland S. Bums and John F. C. Turner in this field.The recent development of comprehensive cost- benefit appraisal methods for industrial projects in developing countries by Professor I. M. D. Little and J. A. Mirrlees (OECD) and A. K. Sen, P. Dasgupta and S. A. Marglin (UNIDO) provided a challenge to apply similar methods in the area of low-income housing.

1.1. THE PURPOSE OF THE STUDY This study deals with regional co-operation among developing By regional co-operation is countries and its potential benefits. meant any form of concerted action by the countries of a region aimed at a fuller utilization of their growth potential. Such con­ certed action may consist of various kinds of economic policy measures regarding production, investment and foreign trade. In this sense, regional co-operation is to be regarded as a facet of the participating countries' overall development strategy. Unlike other studies in this field, dealing with integration among developing countries and focussing attention on the planning of such integra­ tion (see, e.g., Mennes 1972), the present study concentrates on the effect of integration and co-ordination policies on the structure of intra-and extra-regional trade. Very often large differences exist among developing countries with respect to various aspects of economic development, e.g., the structure of demand, the structure of capital formation and the growth rates of individual sectors. Such divergencies call for the utilization of a multi-country, multi-sector model that will enable a better co-ordination of production and investment policies. Atten­ tion should thereby be given to the pattern of intra-regional specialization that will result from such a co-ordinated policy.

This study is an attempt to contribute to our understanding of one of the most important reforms currently advocated by development economists to reduce rural poverty in developing countries: land reform. Dr. Cohen has based his study on models in which three social groups are acting: these, for brevity's sake, are called land­ lords, peasants and the groups who comprise the non-agricultural sector. Peasants include the so-called landless peasants which western countries generally term agrarian workers. The method can be extended to larger numbers of groups. The actors are involved in various activities, including production, consumption and saving, the latter being available either for physical or for financial invest­ ment. This implies that various wealth components appear in the model alongside flows of goods and services. Use is made of determinate models with linear and non-linear equations of a dynamic character. The models are employed to estimate socio-economic development under alternative regimes. Regimes differ, on the one hand, according to which group is in power and, on the other hand, according to the instruments of economic policy they use. It is an attractive feature of Dr. Cohen's study that the models are applied to two countries for which all the necessary statistical material has been estimated: India and Chile. For both countries a brief socio-political sketch precedes the numerical application of the models. For India five instruments of socio-economic policy are considered: land transfers, measures to stimulate productivity, credit policies, taxes and tenure and wage regulations.

The objective of this text is to develop and implement a model for allocating the industries of the Sectorial Programs of Industrial Development of the Andean Common Market. In the Andean Common Market, as in most other integration schemes among less developed countries, the main expectations regarding the promotion of economic growth are based on the expectation of increased opportunities for import substituting industrialization. The concern here is with the Andean Common Market in particular because it has been the economic integration scheme that has most explicitly recognized the objective of the less developed countries of taking advantage of the new opportunities for industrial­ ization created by the combination of the individual markets. In the Andean Common Market the importance attached to the expectation of the gains from industrialization was expressed in the formulation of Sectorial Programs of Industrial Development. Other integration schemes among less developed coun­ tries have not addressed the issue of import substituting industrialization in such detailed manner. In the first section of this chapter the importance of the topic of allocating industries in integration schemes among less developed countries is discussed. It is argued that the benefits to be derived from increased trade in the traditional products of the member countries are minimal. Instead, the member countries 1 2 ALLOCATION OF INDUSTRY IN THE ANDEAN COMMON MARKET expect the benefits from economic integration schemes to be derived from the utilization of the opportunities for industrialization created by such schemes.