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Why in Developing Countries Capital-Intensive Technology Is Used

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Why in Developing Countries Capital-Intensive Technology Is Used

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A 42 Shreya Chatterjee
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07/05/2024, 17:03 Why in Developing Countries Capital-intensive Technology is used?

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Why in Developing Countries


Capital-intensive Technology is
used?
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Why in Developing Countries Capital-intensive Technology is


used? – Answered!

A pertinent question is why have the developing countries been using


capital-intensive technology despite the fact that surplus labour
prevails in them? There are two views about this. First, the alternative
technology which though efficient but labour-intensive is generally not
available.

The available technology is the capital-intensive technology that was


developed in the Western countries to suit their factor endowments.
The Western technology is quite inappropriate for the developing
countries which suffer from surplus of labour and shortage of capital.

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Now, given the technology imported from the Western countries, there
is not much possibility of substitution of capital for labour. In view of
this, Schumacher and Singer advocate for the development of what has
been called intermediate or appropriate technology. Appropriate
technology for the developing countries is that which though efficient
should be labour-intensive so that it conforms to their factor
endowments.

According to Schumacher, the development of appropriate


technologies does not imply the discovery of altogether new principles
of science and technology. What is required is the application of basic
principles of modem science and technology to evolve the appropriate
production techniques.

These appropriate production techniques may be obtained by scaling


down the advanced techniques by adapting them so as to make them
more labour-intensive, or by scaling up handicrafts technique with the
introduction of new tools and simple machines and thus improving
economic efficiencies of these techniques while maintaining their
labour-intensity.

On the other hand, several other scholars such as Ranis, Blaug, Layard
and Woodhall, Little, Scott and Scitovsky are of the view that the slow
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07/05/2024, 17:03 Why in Developing Countries Capital-intensive Technology is used?

growth of employment opportunities in the industrial sector is not due


so much to the lack of flexibility in the production function but to the
distortions in factor prices.

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Due to the various concessions and subsidies provided in taxation


structure by the Government such as liberal investment or
development rebate, policy of low interest rate and over­valued foreign
exchange rate have caused the price of capital to be very low relative to
its scarcity. On the other hand, the prevailing wage rates are too high
for a labour-surplus economy due to the strong bargaining power of
the trade unions in the organised sector.

According to them, these distortions in factor prices induce the


adoption of capital-intensive techniques in industries with the
consequence that less labour is employed. In order to promote the use
of more labour-intensive techniques, it is therefore imperative that all
distortions in factor prices be corrected.

By emphasising the use of labour-intensive technology in developing


countries, this strategy has brought into sharp focus the question of
appropriate technological choices. In a labour-surplus economy the
importance of the use of appropriate technology which is labour-
absorptive and at the same time quite efficient can hardly be denied.
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07/05/2024, 17:03 Why in Developing Countries Capital-intensive Technology is used?

However, appropriate technologies for various manufacturing


industries just do not exist and a good deal of more research and
development (R & D) would have to be undertaken before appropriate
techniques are evolved for several industries. Of course, to encourage
the development and use of appropriate techniques the various factor
price distortions ought to be removed.

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Whereas, in view of the prevailing price situation, wage rates of


industrial workers do not seem to be high, the effective price of capital
is low. Therefore, the various concessions and rebates in taxes on
various types of capital investment be drastically reduced and the
lending rates of interest charged by banks and other financial
institutions be raised so as to curb the tendency to substitute capital
for labour.

As for technological choices in agriculture it may be noted that new


high-yielding technology represented by a package of high-yielding
varieties, fertilizers and pesticides is quite appropriate for a labour-
surplus economy such as ours, for it not only raises yield per hectare
substantially but is also labour-absorptive.

Related Articles:
1. Strategies for Employment Generation in Developing Countries
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2. Capital Intensive Techniques (Arguments)

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