ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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The Diffusion of Activities

One of the striking features of the recent period has been the diffusion of manufacturing and service activities from the countries of the core to the periphery. The logic of competitive striving for the export market among the many "labour reserve" economies in the periphery leads to the accumulation of ever-growing reserves and a constraint on domestic absorption. To believe that the contradictions that emerge will disappear if only the economies with current surpluses appreciate their exchange rates is a fantasy. Such an appreciation, if it is not to reduce the level of activity in the appreciating economies, must be accompanied by an enlargement of the fi scal defi cit in these economies, which means both an abandonment of the tenet of "sound fi nance" and increased domestic absorption entailing a retreat from the strategy of export-led growth.

PERSPECTIVE
The Diffusion of Activities Prabhat Patnaik The main difference between the current reality and the Lewisian perception consists in the fact that this “spread” of the modern sector does not actually lead to a using up of, or a reduction in the magni-

One of the striking features of the recent period has been the diffusion of manufacturing and service activities from the countries of the core to the periphery. The logic of competitive striving for the export market among the many “labour reserve” economies in the periphery leads to the accumulation of ever-growing reserves and a constraint on domestic absorption. To believe that the contradictions that emerge will disappear if only the economies with current surpluses appreciate their exchange rates is a fantasy. Such an appreciation, if it is not to reduce the level of activity in the appreciating economies, must be accompanied by an enlargement of the fi scal deficit in these economies, which means both an abandonment of the tenet of “sound fi nance” and increased domestic absorption entailing a retreat from the strategy of export-led growth.

This article is the text of a paper presented at an international conference organised by IDEAs on “Recovery or Bubble? The Global Economy Today” in New Delhi on 29-30 January 2010.

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