Fixed cost assumptions in industrialisation theories

A recent literature has demonstrated that fixed costs at the firm level can lead to strategic complementarities, and, hence, coordination failure in industrialisation across sectors. The existence of such complementarities appears to hinge critically on the nature of these fixed costs—that is, whether they are composed of labour overhead or final goods. This paper endogenises the firmʹs choice of fixed cost composition by assuming that labour and final goods are imperfect substitutes in plant production. It is shown that allowing for such choice eliminates the criticality of fixed cost assumptions, focusing attention instead on other parameters as driving forces of intersectoral complementarities.