Development Strategy, Viability, and Economic Distortions in Developing Countries
This paper presents a three-sector static model to explore the rationale for a series of institutional distortions in developing countries. The authors argue that, after World War II, motivated by a belief in the development of state-of-the-art ind...
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| Format: | Policy Research Working Paper |
| Language: | English |
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2012
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| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20090416152119 http://hdl.handle.net/10986/4099 |
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okr-10986-40992021-04-23T14:02:15Z Development Strategy, Viability, and Economic Distortions in Developing Countries Lin, Justin Yifu Li, Feiyue ACCOUNTABILITY AGRICULTURE ARBITRAGE BUDGET CONSTRAINT CAPITAL INTENSITY CAPITAL MARKET COIN COMPARATIVE ADVANTAGE COMPARATIVE ADVANTAGES COMPETITIVE MARKET COMPETITIVE MARKETS DEVELOPING COUNTRIES DEVELOPING COUNTRY DEVELOPMENT ECONOMICS DEVELOPMENT POLICY DEVELOPMENT STRATEGIES DEVELOPMENT STRATEGY DISTORTION DISTORTIONS DOMESTIC CURRENCIES ECONOMETRICS ECONOMIC DEVELOPMENT ECONOMIC ENVIRONMENT ECONOMIC ENVIRONMENTS ECONOMIC EQUILIBRIUM ECONOMIC GROWTH ECONOMIC PERFORMANCE ECONOMIC POLICIES ECONOMIC REFORM ECONOMIC RESEARCH ECONOMIC SECTORS EQUILIBRIUM VALUE EQUIPMENT EXCESS DEMAND EXPENDITURE FACTOR MARKETS FIRM PERFORMANCE FOREIGN EXCHANGE FORMAL ECONOMY GOVERNMENT OWNERSHIP GOVERNMENT REVENUE GOVERNMENT SUBSIDIES IMPORT IMPORTS INDIFFERENCE CURVES INDUSTRIALIZATION INTEREST RATE INTEREST RATES INTERNATIONAL BANK INTERNATIONAL MARKET INTERNATIONAL TRADE LABOR MARKET LESS DEVELOPED COUNTRIES LIVING STANDARDS MARKET LEVELS MARKET-CLEARING LEVEL MARKET-CLEARING LEVELS MONOPOLIES NATURAL RESOURCE OPEN ECONOMY OPTIMIZATION POLICES POLITICAL ECONOMY PREFERENTIAL PRODUCTION FUNCTION PRODUCTION FUNCTIONS PUBLIC EXPENDITURE PUBLIC FINANCE REGULATORY STRUCTURES REPRESSION RETURNS SOCIAL DEVELOPMENT SOFT BUDGET CONSTRAINT STATIC ANALYSIS STRUCTURAL CHANGE SUBSIDIZATION TAX TAX COLLECTION TAX RATE TAX STRUCTURE TAX SYSTEM TAXATION TAXATION RATES TOTAL OUTPUT TRADE POLICY UTILITY FUNCTION VALUATION This paper presents a three-sector static model to explore the rationale for a series of institutional distortions in developing countries. The authors argue that, after World War II, motivated by a belief in the development of state-of-the-art industries as a means for nation building, the majority of developing country governments attempted to accelerate the growth of advanced capital-intensive industries. However, since developing countries are relatively rich in labor or natural resource endowments but not in capital endowment, advanced capital-intensive industries were not adapted to the endowment structures of these developing countries at the time. Enterprises in those industries were non-viable in open, competitive markets and could not survive without government subsidization or protection. The model shows that, in order to mobilize resources into the capital-intensive, advanced sectors, it is necessary for governments to use distortionary policies such as taxes and subsidies, distortions of factor prices, directive allocation of resources, and nationalization of enterprises. Such distortions enable developing countries to set up advanced, capital-intensive industries in the early stage of their development. However, they also tend to suppress incentives, misallocate resources, and make the economy inefficient. 2012-03-19T19:09:58Z 2012-03-19T19:09:58Z 2009-04-01 http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20090416152119 http://hdl.handle.net/10986/4099 English Policy Research working paper ; no. WPS 4906 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank Publications & Research :: Policy Research Working Paper The World Region The World Region |
| repository_type |
Digital Repository |
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Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English |
| topic |
ACCOUNTABILITY AGRICULTURE ARBITRAGE BUDGET CONSTRAINT CAPITAL INTENSITY CAPITAL MARKET COIN COMPARATIVE ADVANTAGE COMPARATIVE ADVANTAGES COMPETITIVE MARKET COMPETITIVE MARKETS DEVELOPING COUNTRIES DEVELOPING COUNTRY DEVELOPMENT ECONOMICS DEVELOPMENT POLICY DEVELOPMENT STRATEGIES DEVELOPMENT STRATEGY DISTORTION DISTORTIONS DOMESTIC CURRENCIES ECONOMETRICS ECONOMIC DEVELOPMENT ECONOMIC ENVIRONMENT ECONOMIC ENVIRONMENTS ECONOMIC EQUILIBRIUM ECONOMIC GROWTH ECONOMIC PERFORMANCE ECONOMIC POLICIES ECONOMIC REFORM ECONOMIC RESEARCH ECONOMIC SECTORS EQUILIBRIUM VALUE EQUIPMENT EXCESS DEMAND EXPENDITURE FACTOR MARKETS FIRM PERFORMANCE FOREIGN EXCHANGE FORMAL ECONOMY GOVERNMENT OWNERSHIP GOVERNMENT REVENUE GOVERNMENT SUBSIDIES IMPORT IMPORTS INDIFFERENCE CURVES INDUSTRIALIZATION INTEREST RATE INTEREST RATES INTERNATIONAL BANK INTERNATIONAL MARKET INTERNATIONAL TRADE LABOR MARKET LESS DEVELOPED COUNTRIES LIVING STANDARDS MARKET LEVELS MARKET-CLEARING LEVEL MARKET-CLEARING LEVELS MONOPOLIES NATURAL RESOURCE OPEN ECONOMY OPTIMIZATION POLICES POLITICAL ECONOMY PREFERENTIAL PRODUCTION FUNCTION PRODUCTION FUNCTIONS PUBLIC EXPENDITURE PUBLIC FINANCE REGULATORY STRUCTURES REPRESSION RETURNS SOCIAL DEVELOPMENT SOFT BUDGET CONSTRAINT STATIC ANALYSIS STRUCTURAL CHANGE SUBSIDIZATION TAX TAX COLLECTION TAX RATE TAX STRUCTURE TAX SYSTEM TAXATION TAXATION RATES TOTAL OUTPUT TRADE POLICY UTILITY FUNCTION VALUATION |
| spellingShingle |
ACCOUNTABILITY AGRICULTURE ARBITRAGE BUDGET CONSTRAINT CAPITAL INTENSITY CAPITAL MARKET COIN COMPARATIVE ADVANTAGE COMPARATIVE ADVANTAGES COMPETITIVE MARKET COMPETITIVE MARKETS DEVELOPING COUNTRIES DEVELOPING COUNTRY DEVELOPMENT ECONOMICS DEVELOPMENT POLICY DEVELOPMENT STRATEGIES DEVELOPMENT STRATEGY DISTORTION DISTORTIONS DOMESTIC CURRENCIES ECONOMETRICS ECONOMIC DEVELOPMENT ECONOMIC ENVIRONMENT ECONOMIC ENVIRONMENTS ECONOMIC EQUILIBRIUM ECONOMIC GROWTH ECONOMIC PERFORMANCE ECONOMIC POLICIES ECONOMIC REFORM ECONOMIC RESEARCH ECONOMIC SECTORS EQUILIBRIUM VALUE EQUIPMENT EXCESS DEMAND EXPENDITURE FACTOR MARKETS FIRM PERFORMANCE FOREIGN EXCHANGE FORMAL ECONOMY GOVERNMENT OWNERSHIP GOVERNMENT REVENUE GOVERNMENT SUBSIDIES IMPORT IMPORTS INDIFFERENCE CURVES INDUSTRIALIZATION INTEREST RATE INTEREST RATES INTERNATIONAL BANK INTERNATIONAL MARKET INTERNATIONAL TRADE LABOR MARKET LESS DEVELOPED COUNTRIES LIVING STANDARDS MARKET LEVELS MARKET-CLEARING LEVEL MARKET-CLEARING LEVELS MONOPOLIES NATURAL RESOURCE OPEN ECONOMY OPTIMIZATION POLICES POLITICAL ECONOMY PREFERENTIAL PRODUCTION FUNCTION PRODUCTION FUNCTIONS PUBLIC EXPENDITURE PUBLIC FINANCE REGULATORY STRUCTURES REPRESSION RETURNS SOCIAL DEVELOPMENT SOFT BUDGET CONSTRAINT STATIC ANALYSIS STRUCTURAL CHANGE SUBSIDIZATION TAX TAX COLLECTION TAX RATE TAX STRUCTURE TAX SYSTEM TAXATION TAXATION RATES TOTAL OUTPUT TRADE POLICY UTILITY FUNCTION VALUATION Lin, Justin Yifu Li, Feiyue Development Strategy, Viability, and Economic Distortions in Developing Countries |
| geographic_facet |
The World Region The World Region |
| relation |
Policy Research working paper ; no. WPS 4906 |
| description |
This paper presents a three-sector
static model to explore the rationale for a series of
institutional distortions in developing countries. The
authors argue that, after World War II, motivated by a
belief in the development of state-of-the-art industries as
a means for nation building, the majority of developing
country governments attempted to accelerate the growth of
advanced capital-intensive industries. However, since
developing countries are relatively rich in labor or natural
resource endowments but not in capital endowment, advanced
capital-intensive industries were not adapted to the
endowment structures of these developing countries at the
time. Enterprises in those industries were non-viable in
open, competitive markets and could not survive without
government subsidization or protection. The model shows
that, in order to mobilize resources into the
capital-intensive, advanced sectors, it is necessary for
governments to use distortionary policies such as taxes and
subsidies, distortions of factor prices, directive
allocation of resources, and nationalization of enterprises.
Such distortions enable developing countries to set up
advanced, capital-intensive industries in the early stage of
their development. However, they also tend to suppress
incentives, misallocate resources, and make the economy inefficient. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Lin, Justin Yifu Li, Feiyue |
| author_facet |
Lin, Justin Yifu Li, Feiyue |
| author_sort |
Lin, Justin Yifu |
| title |
Development Strategy, Viability, and Economic Distortions in Developing Countries |
| title_short |
Development Strategy, Viability, and Economic Distortions in Developing Countries |
| title_full |
Development Strategy, Viability, and Economic Distortions in Developing Countries |
| title_fullStr |
Development Strategy, Viability, and Economic Distortions in Developing Countries |
| title_full_unstemmed |
Development Strategy, Viability, and Economic Distortions in Developing Countries |
| title_sort |
development strategy, viability, and economic distortions in developing countries |
| publishDate |
2012 |
| url |
http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20090416152119 http://hdl.handle.net/10986/4099 |
| _version_ |
1764389913416957952 |