Lecture+5 (1) - Grand Theories of Economic Development...

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Click to edit Master subtitle style 5/10/10 Grand Theories of Economic Development: Contemporary Ideas First Lecture
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5/10/10 The Contemporary Neoclassical View The contemporary neoclassical view is a little more nuanced than its older cousin. Aghion & Armendariz de Aghion list five conditions for growth: 1) An effective education system to give abundant skilled labor 2) Policy that allows entrepreneurs to receive most of the returns on their
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5/10/10 The Contemporary Neoclassical View Aghion & Armendariz de Aghion list five conditions for growth: 3) Macroeconomic stability (stable inflation and growth) to create a low-risk investment climate. 4) Financial development so that entrepreneurs with good ideas but little wealth can borrow for investment. 5) High levels of competition so that incumbent firms must innovate to stay
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5/10/10 The Indian Experience Slow growth from Independence to 1980 (“the Hindu rate of growth”) But still significant poverty reduction over that period Since 1980, growth has become more rapid. While inequality at the top of the distribution widened, absolute poverty fell a lot.
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5/10/10 Two Phases of Economic Reform Phase I: Pro-Business reforms in 1980 Lower business taxes, removal of price controls, less regulation of investment for capacity expansion No trade or entry liberalization: incumbent firms still sheltered from competition Phase II: deeper liberalization in response to a currency crisis
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5/10/10 Economic Reforms and the Conditions for Growth Phase I primarily increased the ability of entrepreneurs to appropriate returns on investment. Phase II primarily increased competition. Reforms did not target education, macroeconomic stability or financial development directly Aghion & Armendariz de Aghion argue that the success of these
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5/10/10 The Division of Labor We have seen that one feature of underdevelopment is less specialization: everyone does a little of everything.
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