This paper is based on a report commissioned by UNCTAD to serve as an input for the 1986 Trade and Development Report. The views expressed here within are solely those of the authors. Furthermore, the publication of this report should in no way be interpreted as official sanctioning or approval of the contents by UNCTAD, nor should even tacit agreement by UNCTAD with the approach, analysis or conclusions be assumed. The report itself attempts to shed some light on a subject which is of paramount importance in international economics, but which has been given surprisingly little attention. The approach taken is based on mainstream economic thought, whereby every effort has been taken to couch the text in terms understandable to informed politicians, businessmen and laymen. This seemed to be essential should the message embodied in this paper be easily absorbed. The authors nonetheless admit that whether the message is accepted depends - inter alia - on the willingness of the reader to allow deductions from an eclectic approach to be generalized upon. Despite this weakness the authors hope that serious discussions will be induced with the aim of improving the international allocation of resources so as to increase the welfare of all parties concerned. In light* of current or rather continuing financial constraints faced by many developing countries, a more efficient use of resources leading to higher income levels must surely be a goal which can be generally agreed upon.