ENGINEERING FOR DEVELOPMENT

(First Draft)

E J Jefferies

March 1969

CONTENTS

PART 1 THE WORLD DEVELOPMENT PROGRAMME

Chapter 1 Introduction
Chapter 2 Closing the Gap
Chapter 3 Resistance to Change
Chapter 4 International Technical Assistance

PART II AN ENGINEERING APPROACH TO A PLAN FOR A COUNTRY

Chapter 5 Outline of the Approach
Chapter 6 Setting the Problem
Chapter 7 Basic, Concepts, Terms and Definitions
Chapter 8 Background Data Available
Chapter 9 The Starting Point for a Case Study
Chapter 10 Preliminary Calculations
Chapter 11 Patterns of Economic Growth
Chapter 12 Development Plan for Year 1
Chapter 13 Development Plan for Year 2
Chapter 14 Development Plan for Year 3
Chapter 15 Review of Changes During the Three Years
Chapter 16 The Control of Development
Chapter 17 Financing the Development

PART III THE IMPLICATIONS OF RAPID GROWTH

Chapter 18 Economic Growth and Technological Changes in Rural Communities
Chapter 19 The Influence of Agriculture on Industrial Development
Chapter 20 The Role of Manufacturing Industry
Chapter 21 The Contribution of Industrial Engineering to a Solution

PART IV DESIGNING FOR BALANCE IN DEVELOPMENT

Chapter 22 The Prediction of New Manufacturing Capacity Requirements by Product Group
Chapter 23 The Productivity of Labour
Chapter 24 The Growth of Productivity
Chapter 25 The Calculation of Appropriate Levels of Productivity in New Plants

CHAPTER 11

PATTERNS OF ECONOMIC GROWTH

The Analysis of Development Patterns

Two approaches have been used by economists to try to quantify the relationships between the growth of the various groups of economic activity on the one hand and overseas trade, especially imports, on the other. These are:

Cross-Section Analysis

Under a "Project for Quantitative Research in Economic Development" started at Stanford University by Professor Hollis B Chenery with support from the Ford Foundation in 1958-9, the second of these methods was used to study the patterns of the economies of some fifty countries having a wide range of sizes and levels of development, for the first half of the decade of the 1950s⁸. The effects of population size and national income level on sectoral activities were isolated by statistical methods down to manufactures of various groups of products. The results can be applied within certain limits of accuracy to estimate the probable differential growth of the different parts of an economy due to:

(a) an increase with time of per capita GDP;

(b) an increase over the same time in the size of the population.

In making use of these results it is necessary to bear in mind certain facts:

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• The data from which the results were developed are aggregated data from each country on the basis partly of records and partly of estimates, of variable accuracy and completeness.
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• The results apply in the context of world conditions of trade and technology as they existed in 1950-1955. As these conditions change, the patterns of development will change, but the amount and direction of the changes can only be determined by repeating the study for a later comparable period.
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• The valuation of production and consumption at the subsistence level (which forms a large portion of the economy of many countries) is a matter of considerable difficulty, and is not yet possible on a sound logical and uniform basis.
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• Changes in government policy can have a large influence on patterns of production and spending, especially in a "closed" economy.
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• In an "open" economy, external effects (trade and politics especially) can have a large influence.

Further refinement of the analysis has been carried out by the United National Industrial Development Organisation⁹, but for our present purposes the original results will be used since simplicity is vital if a methodology is to be developed which is capable of widespread application.

Ideally, the basic studies of the patterns of growth should be repeated each decade or so. This is an exercise which must be undertaken at an international level since the results are applicable to the whole group of countries studied; and the resources needed are quite massive.

Nevertheless, the "economic developer", whether working at the national, regional or individual factory level, needs some means better than a crystal sphere for probing into probable future changes, if his actions are to be based on anything better than pure chance. This has not hitherto been possible even on the most approximate level, without entering into detailed and protracted programmes of data collection and analysis covering many aspects of the economy. And since every economy is dynamic, it can easily happen that the result of such a study is obsolete before it becomes available.

The "Normal" Pattern of Manufacturing Industry Related to the Economy as a Whole

The basic finding of Chenery's study is that there is a "normal" level of each economic activity, in a given economy, which can be expressed with reasonable precision in terms of a constant and only two exponential factors, one of which relates to the size of population and other to the average national income (per capita Gross Domestic Product).

The figures resulting from this analysis, suitably adapted, are plotted in Graphs 1 to 3 which show per capita Value Added by different activities and industries for different levels of per capita GDP. Each graph relates to a population of fixed size, 3, 30 and 300 million inhabitants. The per capita GDP is shown on a logarithmic scale horizontally for values from US $50 to US $1000 and the per capita Value Added in each of twenty-one activities is plotted on a logarithmic scale vertically.

The equation for each economic activity isolated by this study is as follows:

V = A. Yb. Nc.

or

Log V = Log A + b log Y + c Log N.

where: V = Value Added by the activity: US $ per capita per year; A = Value Added by the activity in a "standard" economy having a per capita GDP of US $100 and a population of 10 millions; Y = per capita GDP in US $, divided by 100; b = income or growth elasticity; N = population, divided by 10 millions; c = size elasticity.

For the total economic activity of a country, where all individual activities have been isolated and expressed in this form,

S V = per capita GDP

However, it is algebraically impossible for S A.Yb.Nc calculated for a given value of per capita GDP to add up accurately to the original per capita GDP over the whole range of income and population size. The data for each graph, therefore, has been adjusted from Chenery's figures to give accurate summation at the values US $100 and US $700 for per capita Value Added. At these points, the addition of the individual values of the six major sectors will add up to about 94% of the GDP allowing 6% for unclassified activities. At other points the maximum variation from this is about 10%.

The curves can be used with adequate accuracy over the income range US $50 to $1000 and the population range 0.5 million to 500 millions.

The factor b (income elasticity) in the equation of an activity appears on the graphs as the slope of its curve. The factor c (size elasticity) appears in the set of graphs as the different positions of corresponding curves on the three graphs. This would be equivalent to a slope in the third dimension if the three graphs could be suitably disposed one above the other to form a three-dimensional set.

The interpolation for a specific population size is to be carried out by reading off the values of the required activity for the same per capita GDP from two adjacent graphs (i.e. for 3 millions and 30 millions population or for 30 millions and 300 millions population), applying these values to Graph 4 above these two population sizes, joining with a straight line and interpolating to obtain the value corresponding to the specified population.

Six of the activity curves in each graph relate to major sectors of the economy, namely:

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• Agriculture including forestry and fisheries,
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• Mining and quarrying,
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• Manufacturing industry,
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• Construction industries,
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• Transport and communications,
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• All other services.

It should be noted that these six do not include quite all the economic activity of a country. There are some residual activities not classified under these headings such as minor primary production, some non-factory manufacture and artistic production.

The remaining fifteen activity curves relate to production of closely related articles:

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• Machinery ISIC Groups 36 and 37,
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• Transport equipment ISIC 38,
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• Metals ISIC 34-35,
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• Non-metallic mineral products ISIC 33,
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• Paper and paper products ISIC 27,
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• Products of petroleum and coal ISIC 32,
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• Rubber products ISIC 30,
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• Chemicals ISIC 31,
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• Textiles ISIC 23,
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• Wood products, furniture etc ISIC 25-26,
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• Printing and publishing ISIC 28,
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• Clothing, footwear and made-up textile goods ISIC 24,
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• Leather and fur and their products (excluding footwear and apparel) ISIC 29,
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• Food and beverage manufacturing industries ISIC 20, 21,
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• Tobacco manufactures ISIC 22.

(For the International Standard Industrial Classification ISIC by Major Groups, see Table 3.)

TABLE 3 International Standard Industrial Classification of Manufacturing Activities

Source: United Nations.