A Model of Take‐Off and Fast Growth in Open Economies

Abstract

This paper proposes a stylized (hence very partial) explanation of the experience of those economies which, like the East Asian newly industrializing economies, managed to create an economic take‐off, characterized by a rapid expansion of manufactured exports, and to maintain for many years a high and relatively stable rate of growth of the economy. The model is based on the hypothesis that growth rate differences across open economies depend on differences in international competitiveness. During the take‐off of an open competitive economy, its competitiveness is amplified over time by a Kaldorian process of cumulative causation. To prevent a boundless increase in the growth rate and interpret also a phase of high but approximately constant growth rate the paper introduces what may be called ‘dynamic decreasing returns’, which capture the obstacles to the acceleration of the growth rate. The higher the growth rate of the economy, the more important they become, and eventually they make the growth rate settle on a constant positive path.