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Income Distribution, Market Size, and Industrialization

Kevin M. Murphy, Andrei Shleifer and Robert Vishny
The Quarterly Journal of Economics
Vol. 104, No. 3 (Aug., 1989), pp. 537-564
Published by: Oxford University Press
Stable URL: http://www.jstor.org/stable/2937810
Page Count: 28
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Income Distribution, Market Size, and Industrialization
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Abstract

When world trade is costly, a country can profitably industrialize only if its domestic markets are large enough. In such a country, for increasing returns technologies to break even, sales must be high enough to cover fixed setup costs. We suggest two conditions conducive to industrialization. First, a leading sector, such as agriculture or exports, must grow and provide the source of autonomous demand for manufactures. Second, income generated by this leading sector must be broadly enough distributed that it materializes as demand for a broad range of domestic manufactures. These conditions have been important in several historical growth episodes.

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