Endogenous Institution Formation under a Catching-up Strategy in Developing Countries

Lin, Justin Yifu; Li, Zhiyun

Endogenous Institution Formation under a Catching-up Strategy in Developing Countries

This 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 nonmarket 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 Details
Main Authors:	Lin, Justin Yifu, Li, Zhiyun
Format:	Policy Research Working Paper biblioteca
Language:	English
Published:	Washington, DC: World Bank 2008-12
Subjects:	ACCUMULATION OF CAPITAL, AGRICULTURE, ALLOCATION OF CAPITAL, BENCHMARK, BUDGET CONSTRAINT, BUDGET CONSTRAINTS, CAPITAL ACCUMULATION, CAPITAL ALLOCATION, CAPITAL GOODS, CAPITAL INCOME, CAPITAL INVESTMENT, CAPITAL NEEDS, COMMERCIAL CONTRACTS, COMMODITIES, COMPARATIVE ADVANTAGES, COMPETITIVE MARKETS, CONSUMER DEMAND, CONSUMPTION DECISIONS, CONSUMPTION GOOD, CONSUMPTION GOODS, CONTROL VARIABLE, CONTROL VARIABLES, CONTROLLED PRICES, DEMAND FUNCTION, DEMAND FUNCTIONS, DEPRESSION, DEVELOPING COUNTRIES, DEVELOPING COUNTRY, DEVELOPMENT ECONOMICS, DEVELOPMENT STRATEGIES, DEVELOPMENT STRATEGY, DISTORTIONS, ECONOMETRICS, ECONOMIC CONSTRAINTS, ECONOMIC DEVELOPMENT, ECONOMIC ENVIRONMENT, ECONOMIC ENVIRONMENTS, ECONOMIC POLICY, ECONOMIC POWER, ECONOMIC REFORM, ECONOMIC SIZE, ECONOMIC STRUCTURE, EQUILIBRIUM, EQUILIBRIUM PRICE, EQUILIBRIUM PRICES, EQUILIBRIUM VALUE, EQUILIBRIUM VALUES, EXCESS DEMAND, EXCESS SUPPLY, EXPORTS, FACTOR PRICES, FOREIGN TRADE, FREE MARKET, FREE MARKET ECONOMY, GDP, GOVERNMENT INTERVENTION, GOVERNMENT OWNERSHIP, GROWTH RATES, IMPORT, INCOME, INCOME LEVEL, INCOME LEVELS, INCOMES, INSTITUTIONAL CONSTRAINTS, INTEREST RATE, INTERNATIONAL BANK, INTERNATIONAL ECONOMY, LESS DEVELOPED COUNTRIES, LIVING STANDARDS, MANUFACTURING INDUSTRIES, MARGINAL COST, MARGINAL REVENUE, MARGINAL UTILITY, MARGINAL UTILITY OF CONSUMPTION, MARKET ECONOMIES, MARKET EQUILIBRIUM, MARKET INTEREST, MARKET INTEREST RATES, MARKET MECHANISM, MARKET MECHANISMS, MARKET-CLEARING LEVEL, MARKET-CLEARING LEVELS, MULTIPLIERS, OPTIMAL ALLOCATION, OPTIMAL ALLOCATIONS, OUTPUT OF CAPITAL, OUTPUTS, PERFECT COMPETITION, POLITICAL ECONOMY, POLITICAL REGIME, PRICE CONTROL, PRICE DISCRIMINATION, PRICE DISTORTION, PRICE LEVELS, PRICE OF GOOD, PRICE REGULATION, PRIMARY COMMODITIES, PRIVATE MARKET, PRODUCTION COSTS, PRODUCTION FUNCTION, PRODUCTION FUNCTIONS, RAPID DEVELOPMENT, RAPID ECONOMIC GROWTH, RAPID INDUSTRIALIZATION, RELATIVE PRICE, RELATIVE PRICES, RETURNS, SALE, SHADOW PRICES, SOCIALIST ECONOMIES, SUBSTITUTION, SURPLUS, TOTAL OUTPUT, TRADE REGIMES, TRADING, UTILITY FUNCTION, WAGES, WELFARE ECONOMICS,
Online Access:	http://documents.worldbank.org/curated/en/2008/12/10091417/endogenous-institution-formation-under-catching-up-strategy-developing-countries http://hdl.handle.net/10986/6291
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