The linkage effects of raw material processing in economic development: A survey of modeling and other approaches

Abstract

Processing of primary raw materials has become an important and widely recommended strategy for economic development. Yet, even as the councils of many LDCs call for primary commodity producers to gain greater participation in downstream activities, there remain doubts on fundamental questions: What comparative advantage and what disadvantages do processing activities have in the LDCs? What linkages do processing activities offer? What is the potential contribution of processing to economic goal attainment in the LDCs? In this article we survey the material on processing, particularly with respect to modeling direct and indirect linkages between processing and the LDC economies. The article examines the following topics: (1) the literature on processing in economic development; (2) modeling processing linkages; and (3) outstanding questions regarding processing linkages. We focus on quantifiable linkages between the processing industry and the rest of the economy. There is also the possibility of other linkages, such as the development of entrepreneurship and management talent and technology, that are more difficult to quantify. It is important to distinguish between micro linkages, which refer to the direct impact on supplier and user sectors, and macro linkages, which include indirect general economic effects transmitted through government revenue and expenditures, the money supply, and foreign exchange availabilities.