File2-page33 - The timing of the Frm’s decision to...

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Regulation and Development - done so by increasing the importance of manufacturing output - they have also more than halved poverty Between 1960 & 1995, manufacturing as a share of GDP grew from - 9% to 24% in Indonesia - 8% to 26% in Malaysia - 12.5% to 28% in Thailand 13% to 18% in India Theoretical Framework There are two manufacturing sectors: - Registered: Frms can be of any size, but subject to government reg- ulation affecting the way they bargain over wages - Unregistered: Frms are unregulated, but restricted in size
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Unformatted text preview: The timing of the Frm’s decision to register or not is as follows: Stage 1 Frm decides to be registered or unregistered 2 decides how much capital to employ 3 how many labourers to employ & bargain with workers over rents Registered Frm proFts (where α ∈ [ , 1 ] denotes the relative bargaining power of the employers) · π R p r , w , θ P Unregistered Frm proFts (employers have all the bargaining power and extract all rents) U ( r , w , ) Holdup problem: Development Economics, LSE Summer School 2007 30...
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