Cumulative processes of de-industrialisation in an open region: The case of Southern Italy, 1951–1973

Abstract

In a dual economy an improvement in the terms of trade will not lead necessarily to higher levels of real income and welfare. Moreover, if economies of scale prevail in the foreign supply of the importable (industrial) good, it is shown that cumulative processes of de-industrialisation will occur. The case where goods are traded at non-zero transportation costs and where increasing returns prevail in the transportation and/or distribution sector itself is specifically analysed. The policy implications and the empirical relevance of these results are analysed with reference to the Southern Italian development from 1951 to 1973.