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 l...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English |
| Published: |
Washington, DC: World Bank
2012
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| Subjects: | |
| 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 |
| Summary: | 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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