Second‐hand machinery in development, or how to recognize a bargain

Abstract

In the literature on economic development and planning, much is made of the problem of ‘choice of technique'—choosing either capital or labour intensive techniques. In this paper the focus is on another aspect of this problem—the choice among capital inputs, the selection of new or second‐hand equipment. As much of the investment in the less developed countries depends on imported machinery, the problem becomes that of making the most efficient use of foreign exchange. The question is relevant as a number of developing countries have imposed prohibitions on the importation of used machinery. First we examine the theoretical implications of the availability of both new and used machines for the production possibilities and the effects of various trade policies on the selection of production technique. Integrating this question of new versus used machines with investment criteria, we then examine situations in which used machinery might be preferable to new.

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