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Development and Good Government

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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  1. Development and Good Government Lecture 22 Don J. DeVoretz

  2. 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 ?

  3. 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

  4. 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 ?

  5. 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

  6. 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

  7. 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

  8. 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 ?

  9. End of Show

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