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Markets and Development


  • Joseph E. Stiglitz


This paper explores the causes and consequences of the more important market failures which impede the development of LOCs, and explains why the non-market institutions which often ameliorate the effects of market failures in developed countries are less effective- in doing so in LOCs. This paper focuses, in particular, on those market failures which arise from imperfect information (as in the capital market) or which are almost inevitably associated with the learning which must occur if the less developed countries are successfully to make the transition to being more developed. learning, Among the consequences of learning-by-doing, of localized and of learning-to-learn are imperfections of competition, multiple equilibria, hysteresis, and the optimality of non-myopic policies. These market failures are markedly different from those that were the center of attention in earlier literature, which led to arguments for government planning. Government interventions need to recognize the source of market failures; informational problems affect the government no less than the private sector. In some cases, interventions should be directed at making markets work more effectively; in other cases, the government may take a role in establishing non-market institutions to ameliorate the effects of market failure.

Suggested Citation

  • Joseph E. Stiglitz, 1989. "Markets and Development," NBER Working Papers 2961, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:2961
    Note: PE

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    References listed on IDEAS

    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. Diamond, Peter A, 1982. "Aggregate Demand Management in Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 881-894, October.
    3. Dasgupta, Partha & Stiglitz, Joseph E, 1988. "Learning-by-Doing, Market Structure and Industrial and Trade Policies," Oxford Economic Papers, Oxford University Press, vol. 40(2), pages 246-268, June.
    4. Mortensen, Dale T, 1982. "Property Rights and Efficiency in Mating, Racing, and Related Games," American Economic Review, American Economic Association, vol. 72(5), pages 968-979, December.
    5. Bruce C. Greenwald & Joseph E. Stiglitz, 1986. "Externalities in Economies with Imperfect Information and Incomplete Markets," The Quarterly Journal of Economics, Oxford University Press, vol. 101(2), pages 229-264.
    6. Atkinson, Anthony B & Stiglitz, Joseph E, 1969. "A New View of Technological Change," Economic Journal, Royal Economic Society, vol. 79(315), pages 573-578, September.
    7. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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    Cited by:

    1. Stefano Usai & Marco Vannini, 2005. "Banking structure and regional economic growth: lessons from Italy," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 39(4), pages 691-714, December.
    2. Katerina Smidkova, 2003. "The Emergence of Financial Markets in Transition: The Czech Experience," Macroeconomics 0304005, EconWPA.
    3. Anthony M. Santomero, 1997. "Deposit Insurance: Do We Need It and Why?," Center for Financial Institutions Working Papers 97-35, Wharton School Center for Financial Institutions, University of Pennsylvania.

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