Relative prices and development programmes

Abstract

The present article deals with the problem of relative prices from the perspective of a policy designed to foster the growth of national income. The author first considers the relations between prices, incomes, and productivity with reference to the long run on the basis of certain simplifying assumptions. Such assumptions are then dropped to consider the variations in relative prices mainly with respect to the short run. The analytical problem, unifying the entire discussion, concerns the allocation of an increase in productivity in a developing economy. The author purports to show how variations in relative prices affect the increase in productivity, and to show, in particular, when this increase, in its turn, is a factor stimulating development - or helping to foster subsequent development - and when it is, economically speaking, sterile, i.e. when it “runs to waste”. Such is the basic question considered.

JEL: O11, O20