THE “LEADING SECTOR” MODEL OF GROWTH IN DEVELOPING COUNTRIES

Abstract

Since the original Harrod‐Domar capital‐output models, and the highly influential work of Ragnar Nurkse, nearly all writers have found the effective constraints on growth to be on the side of supply. Thus stress has been placed on the “exchange gap” (shortage of imports) or the “savings gap” (shortage of capital formation) or on shortages in skills or natural resources. Others focus on constraints imposed by institutional or cultural factors, though often these are assumed to be fixed. An implicit assumption of all such models is that no problem will be posed by lack of effective demand, which may therefore be safely neglected. The apparent basis for this view is the presence of inflation, which suggests excessive demand. However, many writers do express great anxiety about the possibility of an inadequate demand for labour. They claim that excessive concern for the goal of maximum output gives rise to a shortage of capital and a “maluse” of capital in capital intensive processes, thus reducing the demand for labour and causing growing unemployment. The inconsistency of an insufficient demand for labour and an excessive demand for goods is not recognized nor is explained in terms of maldistribution of income or excessive use of capital intensive methods of production.