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    Eco 407

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    LUnwei
    1. The document discusses developing countries' efforts to catch up economically with developed countries through rapid productivity growth and structural change, using industrial policy to encourage specific manufacturing sectors. 2. It notes that while this strategy has worked for some countries like Japan and South Korea in the 1960s-1980s, it has not been universally successful across developing nations. 3. Corruption and rent-seeking are often blamed for failures, but the document argues such analyses ignore that rent-seeking exists in all modern economies and is a structural feature of developing countries. The key differences between more and less successful late developers are the outcomes of rent-seeking.

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    Eco 407

    Uploaded by

    LUnwei
    88 views4 pages
    1. The document discusses developing countries' efforts to catch up economically with developed countries through rapid productivity growth and structural change, using industrial policy to encourage specific manufacturing sectors. 2. It notes that while this strategy has worked for some countries like Japan and South Korea in the 1960s-1980s, it has not been universally successful across developing nations. 3. Corruption and rent-seeking are often blamed for failures, but the document argues such analyses ignore that rent-seeking exists in all modern economies and is a structural feature of developing countries. The key differences between more and less successful late developers are the outcomes of rent-seeking.

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    macro economy introduction

    Original Title

    eco407

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    1. The document discusses developing countries' efforts to catch up economically with developed countries through rapid productivity growth and structural change, using industrial policy to encourage specific manufacturing sectors. 2. It notes that while this strategy has worked for some countries like Japan and South Korea in the 1960s-1980s, it has not been universally successful across developing nations. 3. Corruption and rent-seeking are often blamed for failures, but the document argues such analyses ignore that rent-seeking exists in all modern economies and is a structural feature of developing countries. The key differences between more and less successful late developers are the outcomes of rent-seeking.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    88 views4 pages

    Eco 407

    Uploaded by

    LUnwei
    1. The document discusses developing countries' efforts to catch up economically with developed countries through rapid productivity growth and structural change, using industrial policy to encourage specific manufacturing sectors. 2. It notes that while this strategy has worked for some countries like Japan and South Korea in the 1960s-1980s, it has not been universally successful across developing nations. 3. Corruption and rent-seeking are often blamed for failures, but the document argues such analyses ignore that rent-seeking exists in all modern economies and is a structural feature of developing countries. The key differences between more and less successful late developers are the outcomes of rent-seeking.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    1

    In order for developing countries to catch up economically with the developed ones at
    the early state of development, a process of rapid productivity growth and structural change is
    needed. This involves industrial policy to encourage the development and growth of specific
    manufacturing sector of the economy during the early catch-up stage. Yet it has been far from
    a universal success story across developing countries. In fact, there were only a few countries
    have made the successful transition, such as Japan and South Korea during the 1960s and
    1980s. Corruption and rent-seeking behaviour have often been blamed for these failures, yet
    such studies ignore the pervasiveness of rent-seeking in all modern economies. Corruption
    tends to be a structural feature of all developing countries. While all developing countries
    suffer from rent-seeking, the major differences between successful late-developers and those
    countries have not performed as well, are the rent outcomes produced by rent-seeking
    processes.

    In short run, banks make loans when creditworthy customers have demand for loans and it is
    not constrained by reserves or reserves ratio. Money supply is determined at the same time with
    every new lending is made and it can be expanded or contracted. However, banks might ease
    lending standards and issue more loans than their customers can actually pay back. This raises
    instability in the banking system. Therefore, central bank exists primarily to ensure that the
    payments system in the monetary system is stable by supplying reserves to the banking system
    if the banking system as a whole cannot meet its reserve requirements.

    1.individual banks give loan unconstrained bring problems:


    1.unqualified people/change the overnight interest rate(稍微提一下financial crisis）
    2.short run security mismatch(insolvency)
    asset is liquid in the long term, but money is super liquid. too much of money transaction in a
    short period could lead insolvency.
    3.central bank的一个作用：
    1.lender of the last resort/stablize the economic system
    Lender of the last resort

    the benefits of investment increase


    - econimic growth
    - employment
    - economic evolution
    - productivit
    - environment
    effective ways of increasing investnent
    - effective industurial policy
    - increase infranstructure expenditure
    - better disturbution of increase aggregate demand
    Business investment has remained sluggish
    - new investment has not kept up the growth of profit
    - busniess pay off the debt and accumating cash (dead money)
    - companies are not take advantage of new technology
    - the rish of less c.q/
    sluggish performance of investment
    - existence of excess capacity
    - policies redistributing income towards capitalist class
    解释investment increase的好处：
    1. investment上升 AD上升economic变好living standard变好/employment
    变高
    2. but business still remain sluggish
    3.Stop sitting on ‘dead money’ because New investment has not kept up
    with the growth of profits 如果capacity已经饱和了的话，even if the investment
    is effective也不要去投资(“dead money”, according to Mark Carney)
    Companies are not taking advantage of new technology to boost productivity
    and generate employment What explains this sluggish performance of
    investment?
    4. 社会上的需求不是不断地投资，而是effective的investment

    Scarth points out high investment → high saving (low consumption)


    我们可以通过画图（看ppt）发现当interest rate 上升时 the investment 会下降

    首先肯定investment跟saving是有联系的：
    From firm’s point of view, its decision for investment is determined by the interest rate.
    For example, if the rate of the interest rate is higher than firm’s investment return, then
    firm will save money to get the overall higher return.

    Also, changes in interest rates affect the public's demand for goods and services and,
    thus, aggregate investment spending. A decrease in interest rates lowers the cost of
    borrowing, which encourages businesses to increase investment spending. Lower
    interest rates also give banks more incentive to lend to businesses and households,
    allowing them to spend more.

    5
    First, a rise in the wage rate increases the costs of firms producing the commodity, forcing
    them to raise their selling prices. As the price of the product rises consumers will buy less of it and
    less output will be produced and sold. This means that less labour will be used.
    Second, since a rise in wages makes labour more expensive relative to capital, firms will
    substitute capital for labour. This means that less labour will be used to produce whatever output the
    firms in the industry sell.

    In Orthodox view, the labour market is always in equilibrium, meaning that the demand for and
    supply of labour are always equal. Firm’s demand for labour decrease when real wages increase.
    More labour supplies because they agree to work longer hours or because more workers enter the
    workforce.

    A decrease in real wages will cause a reduction in employment, workers will refuse to work at the
    new real wage rate and quit the job. Thus, even with lower costs paid on workers, it does not
    necessarily result into an increase in overall aggregate output since workers are voluntarily
    unemployed.

    3.解释它为什么下降 wage下降 employment下降


    According to the Keynesian view, the reason of low employment (recession) is
    because there aren’t enough expenditures in the economy. This means that when firms
    expect to sell more, they produce more and therefore requires higher employment. Notice that
    aggregate demand depends on consumption, investment, government expenditure and net
    exports, government policies will therefore affect the aggregate demand and employment.
    However, instead of implementing a fiscal austerity, either an expansionary monetary policy or
    an expansionary fiscal policy can stimulate the economy.
    During a recession, total spending in economy decreases, as people demand fewer
    goods and services. Keynesian economists believe that government could increase government
    spending on goods and tax reduction to boost the aggregate demand
    Expansionary fiscal policy is often used during a recession (like euro crisis) to increase
    the demand for goods and services and lead to increased production. It would allow more
    consumer spending and investment. Therefore, only by increasing public debts could make the
    interest rates decrease, and boost investors’ confidence and increase both investment and
    consumption.

    1.解释这个view是啥
    2.解释这个view为啥是错的：
    This view is associated with the neoclassical thought which suggest that
    unemployment is voluntary and it is the phenomenon of the supply-side. In their
    view, unemployment happens because of 2 main reasons.
    One is that people not prefer to work after estimating the real wage rate. It
    states that individual may reject the job because of overestimating the future
    price level or expectation of inflation rate and which causes the cyclical
    fluctuation of the unemployment. There is no need for government intervention
    because the market depends on decision of workers to work or not. However,
    this theory looks nonsense, only few workers care and know about the inflation.
    Furthermore, empirical studies showed that people quit the job when
    unemployment is low and following and it is involuntary for workers to quit their
    job during the recession (2008 ). Moreover in Keynesian theory, the negative
    impact of high wage only occur when high wage cut too much profit of firm,
    otherwise it may create more job. All these conservations and evidences
    contradict to the mainstream views.

    Secondly, neoclassical economists states that it is rigidity (minimum wage


    policies, labour unions, unemployment insurances) that encourages worker quit
    their job and stops the labour market feely adjusting to the full employment. They
    believes the existence of NAIRU that the rate of unemployment keeps the rate of
    inflation in a steady level in long run and more rigidities there are, the higher
    NAIRU will be. Even there are some relationship between inflation and
    unemployment, the causality might be reverse. However, According to the
    heterodox views( Keynesian), it argues that the main reasons of increasing in
    unemployment is a lack of aggregate demand. And fiscal policies or monetary
    policy can stimulate the increase of aggregate demand and increase the
    productive capacity. Then, Private sector will increase the investment and
    production which eventually generate high employment.

    In Canada and many other developed countries, the risk is not of higher wages rising
    unemployment; it is rather of stagnating wages causing household demand to remain
    depressed or grow only sluggishly, thereby deterring businesses from investing·.·.(tracy)
    The statement is supported by the Keynesian views of the demand side of the
    unemployment. In their perspective, unemployment is the result of the insufficient
    of aggregate demand as well as the productive capacity. Firm will only invest and
    product only if there is enough expenditure in the society. Consumption is depend
    on the propensity of consume, higher the value is, the higher the aggregate
    demand and lower unemployment rate. Also, the value of propensity of consume
    basically depends on the real wage. If company redistribution toward wage rather
    profit and keep the same productivity, the aggregate demand will increase as well
    as the employment, since household have more budgets to consume. Thus, we
    see that the high wage will generate high employment. As long as the positive
    impacts of high wage overcome the negative impacts of investment, the high wage
    will stimulate the growth of the economic development. And firm is also beneficial
    for the overall increase of the consumption then they will voluntarily increase the
    investment and hire more labour.

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