chapter  11
39 Pages

Upgrading informal micro- and small enterprises through clusters: Towards a policy agenda

BySANTOSH MEHROTRA, MARIO BIGGERI

The development strategies adopted by many developing countries in the early post-independence period were generally guided by the classical theory of economic development in which emphasis was placed on capital accumulation for maximisation of GNP growth. According to the Harrod-Domar model (Harrod, 1939; Domar, 1941), and the initial experiences of Soviet Union and other countries, the increase of investment was central for economic growth and industrialisation. Capital appeared to be the ‘missing factor’ of developing countries, and this was translated from a policy perspective to an increase of investment in formal modern activities through private investment, public investment and by external capital (including FDI and/or international aid). It is well known that in this sticky model there was no space for the substitution of factors to relieve capital shortage (and generate labour intensive growth) nor to reallocate factors between sectors. Consequently, as we noted in Chapter 1, growth of output in the import-substituting industrialisation strategy was linked to production patterns and technology that were somewhat biased in favour of capital-intensive modes and employment creation was not a central part of this type of development strategy. It was assumed – and still is by the international financial institutions (especially the IMF) – that the rapid growth of GNP and investment in human capital would suffice to bring about both economic development and improvements in living standards for the poor (World Bank, 2000).1