Answer to Question #138363 in Economics for Karen Pererras

Question

What role do you think international trade and foreign investment can play in solving some of the problems identified in the big push model? In the O-ring model? What limitations to your arguments can you think of?

Answer 1

The big push model emphasizes that a firm's decision whether to industrialize or not depends on its expectation of what other firms will do. The O-ring theory proposes that tasks of production must be executed proficiently together in order for any of them to be of high value. The existance of international trade and foreign investment can push the firm's decision whether to industrialize.