ABSTRACT
The linkage analysis pioneered by Hirschman (1958) figured prominently in the policy debate on planning for industrialisation in developing countries in the 1960s and 1970s. The key premise of Hirschman’s policy advocacy was that, under the existing domestic demand conditions, a country can maximise developmental gains from limited investible resources by directing investment flows towards key sectors. A key sector was defined as a sector that has maximum linkages with the rest of the economy in terms of potential sales to other sectors (forward linkages) or purchase from other sectors (backward linkages). Like other popular growth strategies of the time, Hirschman s policy advocacy was intended to serve as ‘an alternative strategy to linking the economy to the rest of the world on the basis of comparative advantage’ (Findlay 1984). In other words, the basic policy thrust was to turn inward and seek the key to industrial development in greater interaction between domestic industries, while ignoring neo-classical ‘efficiency’ (or factor proportion) considerations of resource allocation. To the criticism that administratively created linkages may imply waste, Hirschman replied that such criticism is valid only if one assumes resources to be in fixed supply; as he saw it, disequilibria resulting from emphasis on key sectors would call extra investment into being by stimulating entrepreneurship.
