Why Economic Growth Stimulates More Growth in Some Countries Rather than Others

Abstract

Leontief multipliers are an important component of economic growth. However, input–output analysis is generally treated as a methodological tool for studying other questions in development. The size of multipliers themselves is of interest, as they determine how much nations benefit economically from the growth of base industries. Of the three types of multipliers—industrial supply purchases by firms, consumer goods purchases by workers, and growth derived from all sources—only the first has attracted attention in the global value chain literature; the other two have been neglected. We use OECD data on a large sample of nations in 2005, 2010, and 2015 to show that significant cross-national and inter-industrial differences exist in the size of multipliers. Contrary to expectations, higher-income countries can sometimes have lower multipliers than lower-income countries. The largest multipliers tend to be in the global South. We then provide a model explaining the differences in multipliers in terms of the domesticity of purchases, the wage intensity of production, the geographical size of the country, and the changing roles of GDP per capita and education as societies develop. The significance of these findings for development policy is discussed.