Development and good government
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Development and Good Government. Lecture 22 Don J. DeVoretz. Some Questions. 1. Is Democracy a necessary and sufficient condition for development ? India: One person-One vote China: One person-No vote Which country has greater rent seeking ? Which country has more efficient markets ?

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Development and Good Government

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Development and good government

Development and Good Government

Lecture 22

Don J. DeVoretz


Some questions

Some Questions

  • 1. Is Democracy a necessary and sufficient condition for development ?

    • India: One person-One vote

    • China: One person-No vote

      • Which country has greater rent seeking ?

      • Which country has more efficient markets ?

      • Which country has greater equity ?

      • Which has higher GDP or GDP growth ?


Theories of good government

Theories of Good Government

  • Libertarian: minimal state is most effective

    • John Locke: “Social Treatise on Government”

      • People have natural rights prior to gov’t

        • right to life, liberty and property

      • Minimal State is the most extensive state that can be justified

      • Justification: State must prevent the use of force by citizens against one another.

  • Example: Hong Kong


Pareto and tests of good gov t

Pareto and tests of Good Gov’t

  • Good government is defined as a set of policies that:

    • 1. Improve the welfare of all without reducing the welfare of at least one individual

    • 2. Theory of the second best:

      • What if two imperfections in society

        • monopoly

        • tariffs and quotas on international trade

      • Will reducing one bring you closer to perfection ?


History institutions and growth

History, Institutions and Growth

  • Douglas North:

    • Role of government emerged in a Lockean sense in 15th Century in Europe to reduce transactions costs of trade.

    • Problems:Transactions costs were too high

      • International trade was risky;

        • Brigands

        • insurance

        • payment


Government and externalities

Government and Externalities

  • Externalities Removed by gov’ts creating

    • Crown Monopolies :reduce uncertainities

    • Armies: Land transport

    • Banks and Insurance schemes:finance trade

    • Navies: Sea transport

    • Roads: reduce tolls

    • Property rights: insure investment


Socio cultural preconditons today

Socio cultural Preconditons today

  • Trust (banks, insurance companies)

  • Law and order (enforcement of contracts)

  • Security of Persons and Property

  • Honest govt

  • Social mobility

  • Free flow of Information


Specifics for market driven development

Specifics for Market Driven Development

  • Property Rights

  • Commercial Law and Courts

  • Stable currencies and banking for transfers

  • Public management of externalities

  • Stable monetary and fiscal policies

  • Do we democracy for the above ?


End of show

End of Show


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