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Paper short abstract:

This paper lays out a high wage high employment strategy for economic development in the Global South. An international analysis of Leontief multipliers shows that not only backward linkages but domestic consumption, labor intensity and high wages create substantial secondary growth.

Paper long abstract:

Leontief multipliers measure how increases in production in any sector lead to additional growth in other sectors. Industries and nations vary in their size of multipliers in ways that are poorly understood in development studies. Contrary to expectations, countries in the Global North do not have higher multipliers than those in the Global South. Some countries, such as Brazil, Argentina and Australia, have surprisingly high multipliers, while other countries like Switzerland do surprisingly poorly.

This analysis contrasts the size of multipliers in a global sample of 61 countries for 2005, 2010, 2015, and 2018. Data comes from the OECD’s standardized Input-Output tables. We examine three types of multipliers: Type I multipliers (Industrial Supply) which are Hirschman’s backward linkages, Type II – I multipliers which are the consumer goods purchased from the economy by workers in any given industry, and Type II multipliers, which capture the combined effects of both industrial and worker purchases. These last two are rarely considered in analyses of value chains or the effects of transformative industry.

We propose three variables to explain the variation observed in multiplier size across industries and nations: import propensity of the economy, wage intensity of production, and the country’s geographical size. Time-series cross-section analysis supports these hypotheses.