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Final Paper - Balloga 1 Abram Balloga ECON 4730 Final Paper...

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Balloga, 1 Abram Balloga ECON 4730 Final Paper 12/5/08 Staple Theory and Catching up Process The recent explosion of growth in developing economies around the world is fascinating on several grounds . The economic growth rate of several newly industrialized nations (NIE’s) far exceeds those of any first world economic power . Many people worry that China for example will quickly catch up to western levels of economic development and possibly surpass current leading economies – and in doing so, out compete the west in crucial world markets . However the benchmark model shows how the NIE’s will inevitably experience diminishing returns and growth rate will slow below American rates before equaling American GDP per capita . Thus China can only go so far in the catching up process, and in fact is incapable of surpassing European and American economic power under current conditions . In this paper I plan to explore the subject through a staple theory of economic growth in hopes of gaining insights into the subject from and alternate perspective . The United States is an example of an economy whose early growth was determined by the success of staple exports . However the United States was able to abandon its reliance on staples and industrialize into the worlds leading economic power . I will describe this occurrence in American history and then look for parallels in China’s economic development that may indicate possibilities for their economic future . Also I will examine where current trends are leading China’s economy, and discuss the implications for future growth in the event of a failed evolution out of staple reliance . My research paper will analyze economies and the catching up process through the lens of Staple Theory .
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Balloga, 2 As described by Melville Watkins, a staple economy is one whose growth relies on one or more crucial exports for which the domestic economy has a strict comparative advantage . In these cases, a staple is derived from enormous quantities of a specific natural resource . For example, Saudi Arabia’s staple export is of course oil, like many other Middle Eastern economies . Early on, staple economies are characterized by a weak domestic economy before citizens are able to take advantage of the resource – there is an abundance of opportunity to utilize the staple, however there is inadequate capital . Therefore economic development occurs through the accumulation of capital and diversification around the export base . The domestic economy begins to rely more and more heavily on the mass exportation of their staple resource . As time passes, this has a powerful effect on the development of other sectors of the growing economy as it guides the process of capital formation, cultural and societal development as well government policy 1 .
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