By Justin Yifu Lin
In financial improvement and Transition, popular improvement economist Justin Yifu Lin argues that financial functionality in constructing international locations relies mostly on executive method. If the govt performs a facilitating function, permitting companies to take advantage of the economy's comparative benefits, its economic system will strengthen effectively. besides the fact that, governments in so much constructing international locations try and advertise industries that pass opposed to their comparative merits by means of developing several types of distortion to guard nonviable corporations in precedence industries. Failing to acknowledge the unique purpose of many distortions, such a lot governments in transition economies try to get rid of these distortions with no addressing businesses' viability difficulties, inflicting monetary functionality to go to pot of their transition strategy. Governments in profitable transition economies undertake a realistic dual-track technique that encourages organizations to go into sectors that have been suppressed formerly and provides worthy help to organisations in precedence industries sooner than their viability factor is addressed.
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There will be repetition in the information investment. The information does have a public goods aspect, however. After the information has been gathered and processed, the cost of its dissemination is close to zero. The government can, therefore, collect the information about the new industries, markets and technology and make it available to all firms in the form of an industrial policy. The upgrading of technology and industry often requires the coordination of different enterprises and sectors in the economy.
In their model, however, the technology in each industry is assumed to be identical in the developed and developing countries, and a country is supposed to produce more goods that use its abundant factor intensively to exchange for goods that use its scarce factor intensively. More realistically, however, the technologies used in the developed and developing countries are not identical. Lin and Zhang (2007) build a dynamic model to show that a country should go into the industries and adopt the technologies that use its abundant factor intensively to produce goods.
The financial repression discussed by McKinnon (1973) and Shaw (1973) is a result of this strategy. The excessive regulation and administrative control will cause many private activities to escape into informal sectors (de Soto, 1987). 32 • Economic Development and Transition comparative advantage of the economy, serious information problems arise. Under information asymmetry, because the government cannot participate directly in the management of firms, it is impossible to determine the necessary amount of protection and subsidisation.