A Theory of Standards-Driven Rural Development

Consumers have increasing demands for product standards. This has important implications for development. This paper develops a firmal theory of the process of the introduction of high product standards in developing countries. The model endogenizes the introduction of high standards. Initial differences in income, the nature of capital constraints and transaction costs, the initial production structure and policies and institutions are shown to affect the likelihood of and the size of the high standards economy. Initial differences in some of these same factors-as well as inter-country differences in the distribution of the sizes of firmers-are also shown to detfirmine which producers are included, and which not.