Publication: Endogenous Institution Formation under a Catching-up Strategy in Developing Countries
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Published
2008-12
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Date
2012-05-21
Author(s)
Li, Zhiyun
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Abstract
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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“Li, Zhiyun; Lin, Justin Yifu. 2008. Endogenous Institution Formation under a Catching-up Strategy in Developing Countries. Policy Research Working Paper; No. 4794. © World Bank. http://hdl.handle.net/10986/6291 License: CC BY 3.0 IGO.”
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