The Least Developed Countries Report 2006

Developing Productive Capacities

image of The Least Developed Countries Report 2006

The Least Developed Countries are a group of 50 countries which have been identified as “least developed” in terms of their low GDP per capita, their weak human assets and their high degree of economic vulnerability. The 2006 Report focuses on the development of productive capacities for sustainable pro-poor economic growth strategies and an analysis of the progress made on some of the quantified targets of the Programme of Action agreed during the Third UN Conference on the Least Developed Countries.

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The demand constraint

The development of productive capacities cannot be understood without addressing demand-side constraints as well as supply-side constraints. The previous two chapters have focused on the latter, examining the low stock and poor quality of physical infrastructure in the LDCs and also some key institutional weaknesses which constrain investment, technological learning and innovation. But even if these supply-side issues are successfully resolved, the development of productive capacities will still be constrained if there is no demand stimulus which provides an inducement to capital accumulation and technological progress. Decisions to spend on the expansion of physical production capacity are based on the expected growth of markets. Similarly, decisions of entrepreneurs to devote time and money to technological learning are based on the expected rents arising from innovations that increase their share of existing markets and also create new markets.

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