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Globalisation in Developing Countries: The Role of Transaction Costs in Explaining Economic Performance in India

Listed author(s):
  • Maurizio Bussolo
  • John Whalley

The quest for large numbers has been going on for some time in international trade economics: models of trade liberalisation have consistently produced results that, compared ex post with real world data, show the right sign but the “wrong” magnitudes. This paper proposes a new approach by considering transaction costs reductions as an important factor explaining developing countries’ actual performances. Rather than presenting econometric estimates of transaction costs from reduced form equations, this study explicitly introduces transaction costs in a system of structural form equations to build a general equilibrium simulation model. A clear mapping of the analytical channels through which changes of transaction costs affect the economic results is thus a primary objective. Additionally to the effect on aggregate income, the large number issue, this paper examines how transaction costs influence income distribution. Numerical simulations based on India are presented ... La quête des grands nombres dure depuis quelques années dans l’économie du commerce international : les modèles de libéralisation des échanges ont régulièrement produit des résultats qui, comparés aux données réelles ex post, affichent le signe attendu mais un « mauvais » ordre de grandeur. Ce document propose une nouvelle méthode, qui consiste à considérer la réduction des coûts de transaction comme un facteur explicatif important des performances réelles des pays en développement. Au lieu de présenter une estimation économétrique des coûts de transaction tirée d’équations à forme réduite, cette étude introduit clairement les coûts de transaction dans un système d’équations structurelles afin de construire un modèle de simulation d’équilibre général. Le premier objectif visé est donc de parvenir à une cartographie claire des voies par lesquelles l’évolution des coûts de transaction affecte les resultants économiques. Outre leur effet sur le revenu agrégé — cette fameuse question ...

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Paper provided by OECD Publishing in its series OECD Development Centre Working Papers with number 219.

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Date of creation: 01 Nov 2003
Handle: RePEc:oec:devaaa:219-en
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