Fostering the capital-goods sector in LDCs

The conventional arguments in favour of the production of capital goods by LDCs are based on comparative advantage, the possibility of designs appropriate to indigenous factor proportions, and the externalities conferred on other sectors. These and other arguments are inducing the governments of many middle-income countries to more intensively foster the development of the machinery sector. This paper examines the analytic and empirical bases of the conventional arguments and finds a considerably more complex picture than that contained in earlier studies.