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Transaction Costs, Information Technology and Development

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  • Singh, Nirvikar

Abstract

This paper examines the impact of transaction costs on economic welfare and development. We extend the static model of Romer (1994), in which transaction costs reduce welfare by the reducing the equilibrium number of intermediate goods, and estimate the welfare losses in the case of domestic transaction costs. The main analysis of the paper extends a dynamic model of Ciccone and Matsuyama (1996) to incorporate transaction costs. We show that high transaction costs reduce the long-run level of development, and may arrest development completely in the extreme case. We also discuss the role of information technology in reducing transaction costs, and offer some preliminary evidence from rural India to illustrate how these reductions may occur through the use of such technologies.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 9095.

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Date of creation: 10 Jun 2008
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Handle: RePEc:pra:mprapa:9095

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Keywords: transaction costs; information technology; Internet; development; India;

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  1. Ralf Ruhwedel & Michael Funke, 2004. "Trade, Product Variety and Welfare: A Quantitative Assessment for the Transition Economies in Central and Eastern Europe," Quantitative Macroeconomics Working Papers, Hamburg University, Department of Economics 20401, Hamburg University, Department of Economics.
  2. Antonio Ciccone & Kiminori Matsuyama, 1993. "Start-up costs and pecuniary externalities as barriers to economic development," Discussion Paper / Institute for Empirical Macroeconomics, Federal Reserve Bank of Minneapolis 83, Federal Reserve Bank of Minneapolis.
  3. David Hummels & Peter J. Klenow, 2002. "The Variety and Quality of a Nation's Trade," NBER Working Papers 8712, National Bureau of Economic Research, Inc.
  4. Timothy J. Kehoe & Kim J. Ruhl, 2009. "How important is the new goods margin in international trade?," Staff Report, Federal Reserve Bank of Minneapolis 324, Federal Reserve Bank of Minneapolis.
  5. Romer, Paul, 1994. "New goods, old theory, and the welfare costs of trade restrictions," Journal of Development Economics, Elsevier, Elsevier, vol. 43(1), pages 5-38, February.
  6. Singh, Nirvikar, 2004. "Information Technology and Rural Development in India," Santa Cruz Department of Economics, Working Paper Series qt9wj6d6kv, Department of Economics, UC Santa Cruz.
  7. Foley, Duncan K., 1970. "Economic equilibrium with costly marketing," Journal of Economic Theory, Elsevier, Elsevier, vol. 2(3), pages 276-291, September.
  8. Martin L. Weitzman, 1995. "Recombinant Growth," Harvard Institute of Economic Research Working Papers, Harvard - Institute of Economic Research 1722, Harvard - Institute of Economic Research.
  9. Dale W. Jorgenson, 2007. "Information Technology and the G7 Economies," NBER Chapters, in: Hard-to-Measure Goods and Services: Essays in Honor of Zvi Griliches, pages 325-350 National Bureau of Economic Research, Inc.
  10. Kevin J. Stiroh, 2001. "Information technology and the U.S. productivity revival: what do the industry data say?," Staff Reports, Federal Reserve Bank of New York 115, Federal Reserve Bank of New York.
  11. Kaushik, P. D. & Singh, Nirvikar, 2004. "Information Technology and Broad-Based Development: Preliminary Lessons from North India," World Development, Elsevier, Elsevier, vol. 32(4), pages 591-607, April.
  12. John Whalley, 2008. "Globalisation and Values," The World Economy, Wiley Blackwell, Wiley Blackwell, vol. 31(11), pages 1503-1524, November.
  13. Nirvikar Singh, 2004. "Information Technology as an Engine of Broad-Based Growth in India," Development and Comp Systems 0412012, EconWPA.
  14. Robert J. Barro, 2001. "Human Capital and Growth," American Economic Review, American Economic Association, American Economic Association, vol. 91(2), pages 12-17, May.
  15. Nirvikar Singh, 2003. "India's Information Technology Sector: What Contribution to Broader Economic Development?," OECD Development Centre Working Papers 207, OECD Publishing.
  16. Hahn, F H, 1971. "Equilibrium with Transaction Costs," Econometrica, Econometric Society, Econometric Society, vol. 39(3), pages 417-39, May.
  17. Francesco Daveri, 2003. "Information Technology and Productivity Growth Across Countries and Sectors," Working Papers 227, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
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Cited by:
  1. Martin L. Weitzman, 1995. "Recombinant Growth," Harvard Institute of Economic Research Working Papers, Harvard - Institute of Economic Research 1722, Harvard - Institute of Economic Research.

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