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A casual reading of the development literature suggests that there is a dividing line circa 1960. Before 1960 writers on development generally assumed as a matter of course that economies of scale were a limiting factor on the ability to profitably establish industries in less developed countries, and that in the presence of such economies of scale pecuniary external economies assume real welfare significance. They seem, however, to have been unaware of the degree to which economies of scale raise problems for explicit modeling of competition, and/or of the extent to which the drive for formalism was pushing economics toward explicit models.
After 1960, by contrast, economists working on development had been trained in the formalism of constant-returns general equilibrium, and did not so much reject the possibility that economies of scale might matter as simply fail to notice it. (en) |
