Appropriate Technology, X-Inefficiency, and a Competitive Environment: Some Evidence From Pakistan

Abstract

The question of technology for less developed countries has received widespread attention in the last few years. The failure of industrial sector jobs in LDC's to grow as fast as the demand for them has generated high and rising apparent levels of unemployment. Policy makers and researchers have become interested in finding ways of encouraging more labor-intensive technologies. These are valued, not only for the employment that they will encourage, but also for the more favorable income distribution that is likely to result. Much attention has been focused on measuring the potential flexibility of production technologies and on examining the financial incentives to entrepreneurs in choosing technologies. There is now a mounting body of evidence that indicates that technologies are flexible and that relative factor prices have frequently been inappropriate for reaching the goal of labor-intensive production.' Recently, Wells and Ranis have generated a second hypothesis concerning appropriate technology.2 They argue that the absence of competition in many markets in LDC's, because of import protection and fewness of domestic producers, may also discourage labor-intensive technology. Protected producers, cushioned from the costminimizing rigors of competition, may well indulge in capital-intensive production methods. If this argument is correct, it implies that procompetition (and protrade) policies in LDC's may be more beneficial than just the static deadweight loss measures would indicate. Unfortunately, this hypothesis has had only anecdotal and impressionistic support and has not really been tested.