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Endogenous Institution Formation under a Catching-up Strategy in Developing Countries1

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  • Yifu Lin, Justin

    (The World Bank)

  • Li, Zhiyun

    ()
    (University of Oxford)

Abstract

This paper explores endogenous institution formation under a catching-up strategy in developing countries. Since the catching-up strategy is normally against the compartive advantages of the developing countries, it can not be implemented through laissez-faire market mechanisms, and a government needs to establish non-market institutions to implement the strategy. In a simple two-sector model, the authors show that an institutional complex of price distortion, output control, and a directive allocation system is sufficient to implement the best allocation for the catching-up strategy. Furthermore, removing any of the three components will make it no longer implementable. The analysis also compares the best allocation and prices under the catching-up strategy with their counterparts under no distortions. The results of this paper provide important implications for understanding the institution formation in the developing countries that were pursuing a catching-up strategy after World War II.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4794.

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Length: 44 pages
Date of creation: 01 Dec 2008
Date of revision:
Handle: RePEc:wbk:wbrwps:4794

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Keywords: development strategy; institution; price distortion; output control; directive allocation system;

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  1. Daron Acemoglu, 2006. "A Simple Model of Inefficient Institutions," Scandinavian Journal of Economics, Wiley Blackwell, vol. 108(4), pages 515-546, December.
  2. Jagdish N. Bhagwati & T. N. Srinivasan, 1975. "Foreign Trade Regimes and Economic Development: India," NBER Books, National Bureau of Economic Research, Inc, number bhag75-1, January.
  3. J�rn Ratts� & Ragnar Torvik, 2003. "Interactions between Agriculture and Industry: Theoretical Analysis of the Consequences of Discriminating Agriculture in Sub-Saharan Africa," Review of Development Economics, Wiley Blackwell, Wiley Blackwell, vol. 7(1), pages 138-151, February.
  4. Knight, John, 1995. "Price Scissors and Intersectoral Resource Transfers: Who Paid for Industrialization in China?," Oxford Economic Papers, Oxford University Press, vol. 47(1), pages 117-35, January.
  5. Lal, Deepak & Myint, H., 1998. "The Political Economy of Poverty, Equity and Growth: A Comparative Study," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198294320, October.
  6. Krueger, Anne O. & Tuncer, Baran, 1982. "Growth of factor productivity in Turkish manufacturing industries," Journal of Development Economics, Elsevier, vol. 11(3), pages 307-325, December.
  7. Yifu Lin, Justin & Nugent, Jeffrey B., 1995. "Institutions and economic development," Handbook of Development Economics, Elsevier, in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 3, chapter 38, pages 2301-2370 Elsevier.
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