Endogenous Institution Formation under a Catching-up Strategy in Developing Countries1
AbstractThis 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 InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 4794.
Length: 44 pages
Date of creation: 01 Dec 2008
Date of revision:
development strategy; institution; price distortion; output control; directive allocation system;
Find related papers by JEL classification:
- D02 - Microeconomics - - General - - - Institutions: Design, Formation, and Operations
- O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
- O20 - Economic Development, Technological Change, and Growth - - Development Planning and Policy - - - General
- P41 - Economic Systems - - Other Economic Systems - - - Planning, Coordination, and Reform
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