Towards a New Paradigm for Future Development Pathway (FATIMA JINNAH LECTURE)

Abstract

Since the late 1940s when the developing countries started gaining independence, development literature was dominated by pessimists who believed that these countries were condemned to live in poverty, hunger and illiteracy. Prebisch-Singer hypothesis advanced the proposition that the developing countries produce agricultural commodities whose demand by advanced countries would be limited while they have to rely upon the advanced countries for imports of industrial products. Therefore, the primary commodity exporters would continue to face a secular decline in terms of trade due to a combination of low income and price elasticities of demand. This decline would transfer income from poor to rich countries and thus contact with the international economy was detrimental to the welfare of the developing countries and would retard growth keeping these countries entrapped in poverty. They proposed that the only way to avert this tendency was to protect domestic manufacturing industries by pursuing import substitution strategy.