THE INTERNATIONAL ALLOCATION OF ECONOMIC ACTIVITY

THE INTERNATIONAL ALLOCATION OF ECONOMIC ACTIVITY

THE INTERNATIONAL ALLOCATION OF ECONOMIC ACTIVITY Proceedings of an obel Symposium held at Stockholm Edited by Bertil Ohlin Per-Ove Hesselborn Per Magnus Wijkman

OHliN International Allocation & Economic Activity The Nobel Foundation, 1977 Softcover reprint of the hardcover 1st edition 1977 978-0-333-21423-7 All rights reserved. No part of this publication may be reproduced or transmitted, in any form or by any means, without permission First edition 1977 Reprinted 1979 Published by THE MACMILLAN PRESS LTD London and Basingstoke Associated companies in Delhi Dublin Hong Kong Johannesburg Lagos Melbourne New York Singapore and Tokyo British Ubrary Cataloguing in Publication Data The international allocation of economic activity 1. Industries, Location of- Congresses 2. Commerce - Congresses I. Ohlin, Bertil II. Hesselborn, Per-Ove Ill. Wijkman, Per Magnus 338.6'042 HD58 ISBN 978-1-349-03198-6 ISBN 978-1-349-03196-2 (ebook) DOI 10.1007/978-1-349-03196-2 This book is sold subject to the standard conditions of the Net Book Agreement

Contents List of participants Organising Committees and Sponsors Foreword by Bertil Ohlin ix xi xiii Survey of Circumstances Affecting the Location of Production and International Trade as Analysed in the Theoretical literature Gottfried Haberler 2 Some Aspects of the Relations between International Movements of Commodities, Factors of Production, and Technology Berti! Ohlin 25 Comments on Papers 1 and 2 by Ronald E. Findlay 57 Harold Brookfield 70 William H. Branson 80 Summary of the Discussion following Papers 1 and 2 92 3 Regional Growth Theory, Location Theory, Non-renewable Natural Resources and the Mobile Factors of Production Michael Chisholm 103 Harry W. Richardson 115 Summary of the Discussion 124 4 The Location of Economic Activity since the Early Nineteenth Century: A City-systems Perspective Allan Pred 127 Gunnar Tornqvist 148

vi The International Allocation of Economic Activity 5 Location Theory, Agglomeration and the Pattern of World Trade Walter lsard 159 Comments by Torsten Hiigerstrand 178 Ake E. Andersson 183 Summary of the Discussion following Papers 4 and 5 189 6 Conceptual and Causal Relationships in the Theory of Economic Integration in the Twentieth Century Fritz Mach/up 196 Assar Lindbeck 216 Summary of the Discussion 227 7 Effects of Commercial Policy on International Trade, the Location of Production, and Factor Movements Bela Balassa 230 Comments by Tibor Scitovsky Melvyn B. Krauss Reply to Comments Summary of the Discussion Bela Balassa 259 263 270 275 8 On Location of Production, Factor Movements, etc., as Affected by the Social and Fiscal Policies of Individual Countries and Economic Communities Kjeld Philip Comments by Gary C Hu[bauer Dieter Biehl Summary of the Discussion 279 296 304 311 9 Technology, Technical Progress and the International Allocation of Economic Activity Harry G. Johnson Comments by Sune Carlson Ronald W. Jones Summary of the Discussion 314 325 328 335

Contents 10 Changes in Labour Quality and their Implications for the Analysis of Questions in International Trade Jagdish N. Bhagwati 340 Ragnar Bentzel 358 Summary of the Discussion 363 vii 11 The Place of Institutional Changes in International Trade Theory in the Setting of the Undeveloped Economies mamyint 367 Charles P. Kindleberger 387 Summary of the Discussion 391 12 Trade, Location of Economic Activity and the MNE: A Search for an Eclectic Approach John H. Dunning 395 Nils Lundgren 419 Summary of the Discussion 426 13 International Circumstances Affecting the Development and Trade of Developing Countries Akin L. Mabogunje 432 Michael Michaely 448 14 Transitional Growth and World Industrialisation 457 Hollis B. Chenery Comments by Robert M Solow 491 Jagdish N. Bhagwati 496 Summary of the Discussion following Papers 13 and 14 499 15 A Multiregional Input-Output Model of the World Economy Wassily Leontief 507 Lawrence R. Klein 531

viii The International Allocation of Economic Activity 16 Concluding Remarks W. Max Corden and Ronald E. Findlay 538 Summary of the Discussion 551 Previous Nobel Symposia Index 557 559

List of Participants Ake E. Andersson, Department of Economics, University of Gothenburg, Sweden Bela Balassa, Department of Political Economy, Johns Hopkins University, and The World Bank, U.S.A. Ragnar Bentzel, Department of Economics, University of Uppsala, Sweden Jagdish N. Bhagwati, Department of Economics, Massachusetts Institute of Technology, U.S.A. Dieter Biehl, Technische Universitat, Berlin, West Germany William H. Branson, Woodrow Wilson School, Princeton University, U.S.A. Harold Brookfield, Department of Geography, University of Melbourne, Australia Sune Carlson, Department of Business Administration, University of Uppsala, Sweden Hollis B. Chenery, The World Bank, U.S.A. Michael Chisholm, Department of Geography, University of Cambridge, England W. Max Corden, Department of Economics, the Australian National University, Australia Erik Dahmen, Stockholm School of Economics, Sweden John H. Dunning, Department of Economics, University of Reading, England Ronald E. Findlay, Department of Economics, Columbia University, U.S.A. Gottfried Haberler, American Enterprises Institute, U.S.A. Gary C. Hufbauer, Office of International Tax Affairs; Department of the Treasury, U.S.A. Torsten Hagerstrand, Department of Social and Economic Geography, University of Lund, Sweden Walter Isard, Department of Regional Science, University of Pennsylvania, U.S.A. Harry G. Johnson, Department of Economics, University of Chicago, U.S.A., and the Graduate Institute of International Studies, Switzerland Ronald W. Jones, Department of Economics, University of Rochester, U.S.A.

X The International Allocation of Economic Activity Charles P. Kindleberger, Department of Economics, Massachusetts Institute oftechnology, U.S.A. Lawrence R. Klein, Department of Economics, University of Pennsylvania, U.S.A. Melvyn B. Krauss, Department of Economics, New York University, U.S.A. Wassily Leontief, Department of Economics, New York University, U.S.A. Assar Lindbeck, Institute for International Economic Studies, University of Stockholm, Sweden Staffan Burenstam Linder, Stockholm School of Economics, Sweden Erik Lundberg, Stockholm School of Economics, Sweden Nils Lundgren, Institute for International Economic Studies, University of Stockholm, Sweden Akin L. Mabogunje, Department of Geography, University of Ibadan, Nigeria Fritz Machlup, Department of Economics, New York University, U.S.A. Michael Michaely, Department of Economics, The Hebrew University of Jerusalem, Israel Hla Myint, London School of Economics and Political Science, England Bertil Ohlin, Stockholm School of Economics, Sweden Goran Ohlin, Department of Economics, University of Uppsala, Sweden Kjeld Philip, Department of Economics, University of Copenhagen, Denmark Allan R. Pred, Department of Geography and Institute of Urban and Regional Development, University of California at Berkeley, U.S.A. Harry W. Richardson, School of Urban and Regional Planning, University of Southern California, U.S.A. Tibor Scitovsky, Department of Economics, Stanford University, U.S.A. Robert M. Solow, Department of Economics, Massachusetts Institute of Technology, U.S.A. Bo Sodersten, Department of Economics, University of Gothenburg, Sweden Gunnar Tornqvist, Department of Social and Economic Geography, University of Lund, Sweden

Organising Committees and Sponsors COMMITTEE FOR NOBEL SYMPOSIA 1976 S. Ramel, Chairman, Executive Director of the Nobel Foundation L. Hulthen, Professor, Chairman of the Nobel Committee for Physics A. Fredga, Professor, Member of the Nobel Committee for Chemistry B. Gustafsson, Professor, Secretary of the Nobel Committee for Physiology or Medicine L. Gyllensten, Professor, Member of the Swedish Academy (Literature) T. Greve, Director of the Norwegian Nobel Institute (Peace) E. Lundberg, Professor, Chairman of the Prize Committee for Economic Sciences N-E. Svensson, PhD, Executive Director, the Bank of Sweden Tercentenary Foundation ORGANISING COMMITTEE OF NOBEL SYMPOSIUM 35: THE INTERNATIONAL ALLOCATION OF ECONOMIC ACTIVITY B. Ohlin (Chairman), Professor Emeritus, Stockholm School of Economics R. Bentzel, Professor, University of Uppsala S. Carlson, Professor, University of Uppsala T. Hiigerstrand, Professor, University of Lund A. Lindbeck, Professor, University of Stockholm E. Lundberg, Professor Emeritus, Stockholm School of Economics SPONSORS The symposium was financed by the Nobel Foundation through grants from the Bank of Sweden Tercentenary Foundation and by grants from the Marianne and Marcus Wallenberg Foundation, and the Svenska Handelsbanken Foundation for Social Science Research.

Foreword This volume gives an account of the proceedings of a Nobel Symposium on The International Allocation of Economic Activity held in Stockholm, 8-11 June, 1976. A special aim of the symposium was to bring about an exchange of ideas between economists and economic geographers interested in trade and movements of the factors of production. It provides a somewhat different approach to international and regional trade than that which is commonly used with more emphasis on the location of production and less on trade itself. International monetary relations and business cycles were excluded from the programme, having been the subject of a great deal of scientific analysis in the postwar period. Aspects of monopoly and imperfect competition were not given a special place on the programme due to the limited time available for discussion. For this reason, it was found necessary also to omit the link project, which combines econometric systems for different national economies. Attention was concentrated on positive theory- including analyses of the effects of several much used policy measures. The programme left out normative theory concerned with the choice of the best possible policy. As it was, the range of subjects for discussion was wide enough. An analysis of essential aspects of international economic development with the aid of positive theories of causal connections between different elements- including some measures which have often been used in practice - can serve as a basis for a normative theory involving optimisation of policies with definite goals. The positive price and distribution theory of economic textbooks is generally accepted as indispensable even though it only indirectly helps an analysis of optimum policy problems. The same must hold for the international aspects of price theory. It goes without saying that economists are particularly interested in fields where important policy problems have appeared and are likely to appear, for example the international differences in social conditions and their economic effects. The programme for the symposium has been influenced by this consideration. As indicated above, the programme, papers and discussions place greater

xiv The International Allocation of Economic Activity emphasis on decisions about the location of economic activity and less on the different aspects of international trade than has been common in the scientific literature on international economic relations. Of course, decisions regarding location depend partly on the conditions for trade. But they also depend on the supply of factors of production in the different countries - which is affected by international factor movements and the transfer of knowledge - as well as on non-factor costs, risks and many social rules and other elements which affect the technology used in industries producing and transporting different commodities. A main idea behind the symposium was that a more comprehensive explanation of the size and changes of production in different regions is required than the usual factor proportion model can offer, although it has proved very useful in the theoretical analysis in the postwar years - particularly after the impetus given by Paul Samuelson's two brilliant papers in 1948-49. As the adaptation of production, factor supply and demand takes time, it is obviously desirable that a theory in static equilibrium terms - expressed in prices or opportunity costs - should be supplemented with an analysis of a time-using development and process of growth. So much for the symposium and its proceedings. Let me add a few words of thanks on behalf of the Organising Committee. We are grateful to the participants - many from afar - who accepted our invitation and made the symposium highly stimulating. We are also indebted to the Nobel Foundation and its Symposium Committee which - with the aid of grants from the Bank of Sweden Tercentary Foundation - made the symposium possible. We are equally grateful to the Marianne and Marcus Wallenberg Foundation and the Svenska Handelsbanken Foundation for Social Science Research which through additional grants enabled us to cover a larger field at the symposium than would otherwise have been possible. The Institute for International Economic Studies rendered valuable assistance in the preparation and running of the symposium. Per-Ove Hesselborn and Per Magnus Wijkman, research fellows at the Institute, carried the main load of administering the symposium, assisted in editing this volume, and skilfully summarised the symposium's discussions. Vicki Olvang has throughout cheerfully provided secretarial assistance. Stockholm BERTIL OHLIN September 1976 I know that all the participants of the Symposium shared my feelings of grief upon learning of the death of Professor Harry G. Johnson, one of the pioneers in the scientific analysis of international economic relations. We all deeply regret that our science has lost not only a colleague from whom we expected many more important contributions, but also a man with a charming personality, who spread warmth and vivacity at our meetings. July 1977 B. H.