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Coordination Failures and Government Policy: Evidence from Emerging Countries

Rodrik [JIE 1996] argues for coordinated government policy when emerging countries are stuck in a low wage equilibrium because of a coordination failure. Because the return to intermediate output is markedly below that realised when a minimum threshold number of varieties must produced in concert, the expectation of too few varieties is sufficient to discourage entry and keep a high tech sector from succeeding. Here we search for evidence consist with such threshold models on cross country data. First production data is used to ask (i) whether evidence of coordination failures among intermediate good producers is associated with a low wage equilibrium and (ii) whether government policy can succeed in moving an emerging country from a low to high wage equilibrium. Second, financial data is used to ask whether there is evidence that government coordination can replace missing private markets in emerging economies and whether a moderate degree of financial repression can help rather than hinder growth.

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Paper provided by Carleton University, Department of Economics in its series Carleton Economic Papers with number 98-03.

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Length: 37 pages
Date of creation: 1998
Date of revision: Apr 2003
Publication status: Published: – revised version in Journal of Development Studies, Vol. 39, No. 4 (April 2003), pp. 84–111
Handle: RePEc:car:carecp:98-03
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