Cheney's Patterns of Industrial Growth:

 
If fact, most of the attempts to establish patterns of industrial growth are
just of this kind, and the most important of these studies are those by
Chenery and Taylor and by the UN Department of Economic and Social
Affairs. These studies use very similar techniques which principally
involve cross-section regression analysis, for a large number of countries,
of the output of various industrial sectors as a function of a number of
independent variables.
Chenery is concerned with three major changes in economic structure
as industrialization proceeds: a rise in the relative importance
of manufacturing industry; a change in the composition of industrial
input; changes in production techniques and sources of supply
for individual commodities.
In his study, Chenery estimates a linear logarithmic regression equation
in which per capialt value added depends upon per capita income
and upon population based on his analysis characterizes this pattern as
follows:
The principal feature of this pattern is the rise in the share of
industrial output as become level increases. The share of
transportation and communication also doubles over this
range, while primary production declines. This regression
analysis confirms Kuznets conclusion that the share of
services in national product does not vary significantly with
the level of per capita income.

Inspite of comparatively high coefficients of determination,

most countries inevitably deviate to some extent from
Chenery‟s “contemporary pattern of growth”. But hardly any
countries deviate in value added per head in industry by
more than 50 per cent from the level to be expected as a
result of the regression on the level of income per head.
In a steadily growing economy, industrial output will increase
by this amount over a twenty-year period if per capita
income grows at 1.5 % a year. In these terms, there is no
country in which industrial development is either advanced
or retarded by much more than twenty years. Chenery and
Taylor found a better explanation of the share of industry in
national product in a more recent study by using
a considerably more complex regression equation: the
explanatory variables, which in the earlier study were income
per head and population, are in the later study income per
head, population, the share of gross fixed capital
formation in GNP the share of primary exports in GNP and
the share of manufactured exports in GNP; in addition the
equation contains one non- linear term which „allows for the
decline in elasticity's with rising income noticed in most
industrial sectors and avoids the necessity of dividing the
sample by income level. Even so there are considerable
In the 1960 study Chenery proceeds to determine normal
output levels from groups of industries classified according to
the nature of demand for their product. There are:
investment and related products intermediate goods
consumer goods This is a similar type of calculation to that
made by Hoffmann, but at least one of the minor
objections to Hoffmann‟s analysis is overcome by Chenery
through a more satisfactory division of industries.
Chenery reaches the following conclusions:
 
The difference in growth elasticities between investment
goods and consumer goods is almost as great as
the difference between agriculture and industry. Upton this
point Chenery‟s results, while statistically more sophisticated
do no more than
duplicate the conclusions of Kuznets about changing
economic structure on the one hand, and those of Hoffmann
about changing relative output of investment and
consumption goods on the other.
The original conclusions are contained in the two further
sections of Chenery‟s 1960 analysis
on the causes of industrialization and on the detailed
composition of output between industries
within the manufacturing sector, and also in Chenery and
Taylor‟s division of countries into size categories.
By “cause of industrialization” Chenery means three sources
of demand for industrial products:
 the substitution of domestic production for imports; growth
in final use of industrial products; Growth in intermediate
demand stemming from 1 and 2.Chenery further explains 70
per cent of industrial growth through the regression on levels
of income per head. Among the other factors at work he
attached most importance to scale effects resulting from
differences in the size of countries and to the effects of
different resource endowments. In the Chenery and Taylor
study the importance of both size and resource endowments
are brought out much more specifically by division of the
sample into three groups of countries:
Large :Small industry oriented
Small : primary oriented
This desegregation allows for a much more discriminating
cross section regression analysis from which Chenery and
Taylor derive three quite distinct patterns of growth. For the
large country the proportion of industry in national product
rises rapidly then levels off to reach a peak.
There are few countries which deviate significantly lower
than average share of industry and others have a noticeably
higher share. The pattern of growth for the small industry-
oriented country is very similar to the large country pattern
in terms of the effects of levels of income. But other
variables in the regression equations have a very different
effect; not surprisingly, for small countries changes in the
composition of exports between primary products and
manufactured goods make a considerable difference in the
composition of output as a whole; the share of investment
however is less significant since most capital goods are
imported
They also show the relationship between income per head
and the share of twelve manufacturing industries in GNP for
the three groups of countries. One interesting common
feature of these patterns is the tendency for the share of
individual industries to fall or to rise more slowly, after high
levels of income are reached in large countries policies that
inhibit such changes.
This tendency is not noticeable for the smaller countries,
though there are in fact very
few small countries with high income levels. A common
pattern for small primary oriented countries is an
accelerating increase in the output of several industries as a
share of national output as higher levels of income are
reached for almost all industrial sectors the differences
between shares of national output at high levels of income
are much closer for the three categories of country than they
are at low levels of income. Since at low levels of income
small industry-oriented countries are almost
certain to be specializing in a few industries rather than to
have a full industrial structure, then as incomes rise we find
the share of some industrial sectors in national product
falling .
The hope, which dictated such detailed examination of
Chenery‟s conclusions,
was that an analysis of patterns of industrial growth based
on a more detailed breakdown of sectors and industries
would have more relevance to policy making than the
broader patterns identified buy other writers. But the main
aim in developing countries is to raise income levels as
rapidly as possible and the association which Chenery finds
“tells us very little about the factors causing the rise in
income itself. Nevertheless, he claims, growth is likely to be
„accelerated by anticipating derivable
changes in resource use, and retarded by institutional
arrangements
concluding Remarks on Chenery’ Theory:
 
Six conclusions are regarded by Chenery as most significant
for policy for resource allocation:
There is a well-defined normal pattern of growth from which
deviations are smallest for services, agriculture and most
manufactured consumer goods
The divergences are greatest in machinery, transport and
intermediate goods where resource
endowment and economies of scale are most clearly
reflected in variations in the proportion of imports and
domestic production; but for these sectors the disaggregated
Chenery and Taylor study produces more consistent
patterns.
Lagging sectors in a country where the industrial structure
deviates from the normal pattern are likely to grow more
quickly to catch up Economies of scale are probably highly
important to industrial production and regional groupings
would therefore facilitate industrial growth for all but the
largest of developing countries There is a significant
difference in the pattern of industrial growth in the 20th
century compared with that in the 19th when
export markets were more easily available to industrializing
countries. Now he claims, import substitution is of
overwhelming importance.
 
Although Cheney‟s study concentrates on similarities, it also

reveals the substantial variation that exists and the need to

separate particular from universal factors. An analysis of the

part played by comparative advantage and other particular

factors in a given country must therefore be added to

knowledge of general growth patterns to arrive at the best

allocation of resources.
Although Cheney‟s study concentrates on similarities, it also

reveals the substantial variation that exists and the need to

separate particular from universal factors. An analysis of the

part played by comparative advantage and other particular

factors in a given country must therefore be added to

knowledge of general growth patterns to arrive at the best

allocation of resources.