lecture18 - Core versus periphery Economic interactions...

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Core versus periphery Economic interactions between core and periphery are very strong today. Is this a cause for concern? Levels of economic and institutional development are higher in the core. In the periphery, there are deep problems of poverty in incomes and in the basic economic framework.
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Core versus periphery Typical periphery economic features: – Larger role for government intervention, with more barriers to market integration. – Insecure fiscal structure, frequent use of inflation tax (seigniorage). – Sometimes a heavy dependence on resource based commodity exports. – Less secure property rights, risks for investors. – Often peg exchange rates, but these collapse too. – Uncertainty over macroeconomic policy goals and their stability over time. – Questions even as to the permanence of government or institutions themselves. Exceptions: over time some economies have moved away from these patterns.
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Convergence or divergence Most developed countries have seen their per capita incomes converge since WWII. Theory: absent barriers to the transmission of knowledge, capital, and goods, there is no reason why incomes, wages, etc. to differ across space. Patently, this theory has not applied (in general) to developing countries.
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Problems in international finance The biggest recurring problems associated with developing countries are defaults and banking/exchange crises (often simultaneous). Examples of default
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lecture18 - Core versus periphery Economic interactions...

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