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Transaction Costs, Information Technology and Development

  • Singh, Nirvikar

This paper examines the impact of transaction costs on economic welfare and development. We extend the static model of Romer (1994), in which transaction costs reduce welfare by the reducing the equilibrium number of intermediate goods, and estimate the welfare losses in the case of domestic transaction costs. The main analysis of the paper extends a dynamic model of Ciccone and Matsuyama (1996) to incorporate transaction costs. We show that high transaction costs reduce the long-run level of development, and may arrest development completely in the extreme case. We also discuss the role of information technology in reducing transaction costs, and offer some preliminary evidence from rural India to illustrate how these reductions may occur through the use of such technologies.

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File URL: http://mpra.ub.uni-muenchen.de/9095/1/MPRA_paper_9095.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 9095.

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Date of creation: 10 Jun 2008
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Handle: RePEc:pra:mprapa:9095
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  1. Antonio Ciccone & Kiminori Matsuyama, 1995. "Start-up costs and pecuniary externalities as barriers to economic development," Economics Working Papers 142, Department of Economics and Business, Universitat Pompeu Fabra.
  2. Ralf Ruhwedel & Michael Funke, 2004. "Trade, Product Variety and Welfare: A Quantitative Assessment for the Transition Economies in Central and Eastern Europe," Quantitative Macroeconomics Working Papers 20401, Hamburg University, Department of Economics.
  3. Kaushik, P. D. & Singh, Nirvikar, 2004. "Information Technology and Broad-Based Development: Preliminary Lessons from North India," World Development, Elsevier, vol. 32(4), pages 591-607, April.
  4. Kevin J. Stiroh, 2002. "Information Technology and the U.S. Productivity Revival: What Do the Industry Data Say?," American Economic Review, American Economic Association, vol. 92(5), pages 1559-1576, December.
  5. Foley, Duncan K., 1970. "Economic equilibrium with costly marketing," Journal of Economic Theory, Elsevier, vol. 2(3), pages 276-291, September.
  6. Robert J. Barro, 2001. "Human Capital and Growth," American Economic Review, American Economic Association, vol. 91(2), pages 12-17, May.
  7. Martin L. Weitzman, 1995. "Recombinant Growth," Harvard Institute of Economic Research Working Papers 1722, Harvard - Institute of Economic Research.
  8. Hahn, F H, 1971. "Equilibrium with Transaction Costs," Econometrica, Econometric Society, vol. 39(3), pages 417-39, May.
  9. Timothy J. Kehoe & Kim J. Ruhl, 2013. "How Important Is the New Goods Margin in International Trade?," Journal of Political Economy, University of Chicago Press, vol. 121(2), pages 358 - 392.
  10. Singh, Nirvikar, 2004. "Information Technology and Rural Development in India," Santa Cruz Center for International Economics, Working Paper Series qt9wj6d6kv, Center for International Economics, UC Santa Cruz.
  11. John Whalley, 2008. "Globalisation and Values," The World Economy, Wiley Blackwell, vol. 31(11), pages 1503-1524, November.
  12. Dale W. Jorgenson, 2007. "Information Technology and the G7 Economies," NBER Chapters, in: Hard-to-Measure Goods and Services: Essays in Honor of Zvi Griliches, pages 325-350 National Bureau of Economic Research, Inc.
  13. Francesco Daveri, 2003. "Information Technology and Productivity Growth Across Countries and Sectors," Working Papers 227, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  14. Romer, Paul, 1994. "New goods, old theory, and the welfare costs of trade restrictions," Journal of Development Economics, Elsevier, vol. 43(1), pages 5-38, February.
  15. Nirvikar Singh, 2003. "India's Information Technology Sector: What Contribution to Broader Economic Development?," OECD Development Centre Working Papers 207, OECD Publishing.
  16. Nirvikar Singh, 2004. "Information Technology as an Engine of Broad-Based Growth in India," Development and Comp Systems 0412012, EconWPA.
  17. David Hummels & Peter J. Klenow, 2002. "The Variety and Quality of a Nation's Trade," NBER Working Papers 8712, National Bureau of Economic Research, Inc.
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