The birth of development economics The Indian Consensus

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The birth of development economicsThe Indian
Consensus

• 14 march 2006
• Judit Ricz
• judit.ricz_at_econ.unideb.hu

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First ideas of development economics

• After the 2nd WW
• Against the mainstream paradigm
• The special case
• The Indian Congress Consensus

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The indian model

• The beginning
• Independence of India
• Jawahral Nehru the policymaker
• Mahatma Ghandi the ideologist
• Indian model of economic planning

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Nehrus ideas

• modern technology
• rapid industrialization
• modernizing the society
• - Collective action
• State enterprises
• Import protectionism
• Central planning
• Closed economy

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Basis of the indian model

• Autarchy
• Home made goods, domestic industry, domestic work
  force
• Delinking from Great Britain
• Denial / neglect of the market

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Tools

• handicraft
• central planning, economic planning
• industrialization
• the role state

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Consequences

• Repression of financial sector
• Import substitution
• Differences to the sowjet way

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Results

• 1960-1990 GDP growth
• Poverty
• Infant mortality
• Share of industry
• Political, economic stability

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Lessons to learn

• Applying theoretical models
• Technological possible vs. financially profitable
• Fiscal sutainability
• Specific circumstances

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Why it could not work?

• Agrarian sector
• Bias of import substitution
• Expensive investment rates
• No help for poors
• Presitge investments
• The role of state
• Stop go cicle

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Structural adjustment

• Trade policy
• Financial system
• Market economy

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Summary of consequences

• Theory vs. praxis
• Financial repression
• Golden 60s
• No rule of law country of the thieves
• Delinking ?

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To the crisis of the 90s

• Golden 60is
• 80s fiscal expansion
• 1991-92. macroeconomic crisis
• Reforms

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Developmental State

• Japan, Four Dragons
• Belief in state intervention
• State-led market economy
• No rule of law
• Weak institutions
• Role of personal confidence
• No transparency
• Limited competition, selective incentives

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The crises of dev. state

• State intervention ? 1. economic miracle
• 2. economic
  crisis
• Crisis
• Institutional change takes time
• Systems incompatible
• Asian way not sustainable

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