The future of the world economy: An appraisal of Leontief's study

The UN study concludes that by the end of this century a substantial reduction in the present income gap between developed and developing countries is feasible. The resource base for realizing the envisaged growth rates is not seen as a limiting factor; limits might rather be imposed by the inflexibility of the international economic order as well as by economic, social and political institutions in developing countries. Industrialization in developing countries based on heavy industries is expected to serve as the engine of growth, the capital requirements for which are met primarily by domestic sources. Different conclusions, however, are arrived at in this appraisal of major aspects of the UN study: A high concentration of productive resources in heavy industries tends to aggravate the developing countries' problems of unemployment and balance-of-payments deficits, since technologies involved are labor-saving, capital requirements are too high and export chances are low. There is not enough empirical evidence to support the UN study's optimism that investment in heavy industries of the order of magnitude involved can be financed by increasing domestic savings and by the inflow of foreign capital into developing countries. 0 An industrialization strategy which aims at exploiting existing resources of developing countries more efficiently should concentrate on labor- and /or raw material-intensive activities. An industry-mix based on present and potential comparative advantages will increase their international competitiveness and encourage direct investment from abroad. The proposition to increase the relative prices of developing countries' primary commodity exports would neither help reduce their balance-of-payments deficits nor improve their income position over the long run. On the contrary, it would result in a world-wide misallocation of resources and induce resource saving in the developed countries.