Lecture4 - Development Economics Lecture Notes 4 Alper...

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Development Economics Lecture Notes 4 Alper Duman April 2, 2009 Alper Duman Development Economics Lecture Notes 4
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I Hausmann-Rodrik-Velasco Growth Diagnostics 1. Low return on economic activity 1.1 Low Social returns 1.2 Low Appropriability 2. High cost of Finance 2.1 Bad international finance 2.2 Bad local finance Alper Duman Development Economics Lecture Notes 4
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I The point is that people keep doing inefficient things because it is individually rational to do. i.e. Borrowing from moneylenders at usury rates. I As long as others do not change their behavior, this will lead to coordination failures. I For example, firms failing to consider the income effects of the wages they pay can cause major distortions, in some cases they may bring about though unwillingly the failure to industrialize. I Government should coordinate. However, it should be noted that government officials are also constrained by their information sets as well as rent-seeking behaviors. Alper Duman Development Economics Lecture Notes 4
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According to the latest OECD study, Growing Unequal Turkey is second to none other than Mexico in terms of income inequality among OECD member countries. Has Turkey been always unequal as such throughout its history? The wealth inequality matters more. For wealth means consumption now or in the future. Wealth also provides an insurance for consumption smoothing and against adverse shocks. The last but not the least, wealth can be used either directly finance entrepreneurial activities or be collateral to obtain credit. Alper Duman Development Economics Lecture Notes 4
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Note that wealth is more unevenly distributed than income. 1 Table 1 demonstrates that wealth gini for Turkey, 0.718 is considerably higher than officia income gini, 0.42.
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Lecture4 - Development Economics Lecture Notes 4 Alper...

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