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Market-led development

Market-led development. Main claims Minimal government Provide order, protect property rights, enforce contracts, provide basic infrastructure, provide basic education Government should not finance or own firms Government should not use taxes to manipulate firms’ behavior Free markets

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Market-led development

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  1. Market-led development • Main claims • Minimal government • Provide order, protect property rights, enforce contracts, provide basic infrastructure, provide basic education • Government should not finance or own firms • Government should not use taxes to manipulate firms’ behavior • Free markets • Firms should be free to enter/exit the market • Prices should be free to reflect supply and demand • Government should not provide subsidies • Free trade Goods should flow freely across borders • Government should not employ tariff barriers, other obstacles to free trade • Government intervention inhibits growth Government intervention leads to unproductive rent-seeking

  2. State-led development • Main claims • State-led industrialization is key element in establishing an independent national state and economy • Active government • “Infant” industries require government assistance • Protection from competition • Assistance with capital accumulation • Assistance with technology acquisition • Technocratic bureaucracy • Effective government assistance requires competent bureaucracy • Historically conditioned, hard to build

  3. Rent-seeking • Definition • Expenditure of effort/resources to gain wealth by seeking political advantage (rent) rather than by directly creating new wealth (profit).

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