On a Poor Country's Economic Development *

Economic development may require labor-intensive methods of production. Using a simple Austrian model, we show that if the output elasticity of labor is high enough in a poor country whose labor productivity in the primary sector (or stage of production) is much lower than in a rich country, in the long run its per capita income (growth rate) can become strictly higher than in the rich country. For an intuitive interpretation of this claim consider the following. Since the output elasticity of labor is higher in the poor than in the rich, and labor is employed more in the poor in order to produce final consumption goods than in the rich, therefore, per capita output is larger in the poor than in the rich.