Development strategy, viability, and economic distortions in developing countries

This paper presents a three-sector static model to explore the rationale for a series of institutional distortions in developing countries. The authors argue that, after World War II, motivated by a belief in the development of state-of-the-art industries as a means for nation building, the majority of developing country governments attempted to accelerate the growth of advanced capital-intensive industries. However, since developing countries are relatively rich in labor or natural resource endowments but not in capital endowment, advanced capital-intensive industries were not adapted to the endowment structures of these developing countries at the time. Enterprises in those industries were non-viable in open, competitive markets and could not survive without government subsidization or protection. The model shows that, in order to mobilize resources into the capital-intensive, advanced sectors, it is necessary for governments to use distortionary policies such as taxes and subsidies, distortions of factor prices, directive allocation of resources, and nationalization of enterprises. Such distortions enable developing countries to set up advanced, capital-intensive industries in the early stage of their development. However, they also tend to suppress incentives, misallocate resources, and make the economy inefficient.Economic Theory&Research,Debt Markets,Emerging Markets,Public Sector Corruption&Anticorruption Measures,Currencies and Exchange Rates

Endogenous Institution Formation under a Catching-up Strategy in Developing Countries1

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 non-market 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.development strategy; institution; price distortion; output control; directive allocation system

China's economic reforms : pointers for other economies in transition?

China's two main economic problems before reform were low incentives to workers and the misallocation of resources among sectors. These problems were theresult of a development strategy oriented toward heavy industry. By improving material incentives, China's reforms created a flow of new resources and allowed them to be allocated to sectors suppressed under pre-reform strategies. The onset of reform in China was not allowed to disrupt production from existing resources. Instead, the newly created resources were permitted to accrue and to flow into the more productive, often light industrial sectors, thus stimulating continuous growth of the national economy during reform. Low incentives and the suppression of nonpriority sectors are common features of the legacy of economies in transition from central planning that based their development on the rapid growth of heavy industry. China's approach may be of interest to them. Among lessons China learned are that: (a) Autonomy must be granted to micromanagement units and preserved to improve the incentive structure and create a new flow of resources. (b) While maintaining essential minimum levels of production in the pre-reform priority sectors, autonomous enterprises must be permitted and encouraged to allocate new incremental resource flows to the previously suppressed sectors. (c) In parallel, the distorted policy environment and planned-allocation system must be progressively reformed to bring them into line with the new system of incentives and modus operandi of autonomous enterprises.Banks&Banking Reform,Municipal Financial Management,Water and Industry,Economic Theory&Research,Environmental Economics&Policies

Sewage Discharging in a Line: Global Optimization and Grand Cooperation

Players cooperating in a line is a special while essential phenomenon in real life collaborating activities such as assembly line production, pipeline supply chain management and other streamlining operational settings. In this paper, we study the scenario of cooperative sewage discharge with multiple participants positioning in a line along a river such that the optimization decision and cooperation strategy are mutually affected by both upstream and downstream players. We make three main contributions accordingly: Firstly, we formalize the sewage discharge problem (SDP) for different groups of players, and use greedy strategy and dynamic programming to design the optimal algorithms to solve the SDP in polynomial time. Secondly, we show that the cooperative game defined on sewage discharge problem, referred to as SDG, has a non-empty core due to its special line-positioning structure. Therefore, a grand stable cooperation is guaranteed. Furthermore, inspired by the fact that the SDG is core non-empty while non-convex, we successfully identify a relaxed concept of convexity -- directional-convexity, which can also serve as a sufficient condition for a cooperative game having a non-empty core

Analysis of Reaction-Diffusion Models with the Taxis Mechanism

This open access book deals with a rich variety of taxis-type cross-diffusive equations. Particularly, it intends to show the key role played by quasi-energy inequality in the derivation of some necessary a priori estimates. This book addresses applied mathematics and all researchers interested in mathematical development of reaction-diffusion theory and its application and can be a basis for a graduate course in applied mathematics