9_5_Notes - where the income is low, hence the labor cost...

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Econ 4730 F2008 (9/5/2008) The effects of export on growth are in several dimensions: 1. There is the gain from international division of labor. This is not very obvious in richer countries. But at the beginning of their take off, the shortage of foreign exchange is acute for all East Asian economies. 2. There is also the pro-competitive effect, which increases the so-called X- efficiency, when a developing country faces competition on the world market, where quality standard and punctuality of delivery. Here, market pressure brings out the best effort of various economies. 3. There is the stimulation to invest, especially out of hoarding and toward exporting activities. 4. There is the transfer of technology, as a byproduct of the trading activity. One might ask why such gain cannot be enjoyed by many of the developing economies
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Unformatted text preview: where the income is low, hence the labor cost should make a country competitive. The answer is (a) the lack of information, (b) the lack of incentives, (c) the lack of trust, and (d) the lack of infra-structure, (e) there is great deal of externalities under which everything depends upon everything else, so that a logjam cannot be broken. All these one often takes for granted, in textbooks where one assumes that market is complete, and transaction cost does not exist. It is not a coincidence that only when a society is under some shock, so that the right type of reform can sweep away the usual obstacles, and all stakeholders can control their own opportunistic behavior, so that some sea-change can take place in the economic environment....
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This note was uploaded on 02/20/2009 for the course ECON 4730 taught by Professor Henrywan during the Fall '08 term at Cornell University (Engineering School).

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