Globalisation in developing countries: the role of transaction costs in explaining economic performance in India

Abstract

The quest for large numbers has been going on in international trade economics for some time. Models of trade liberalisation using numerical simulation methods in multilateral, regional or single-country contexts have consistently produced results that, when compared ex post to real world data, show the right sign but the ‘wrong’magnitudes. These quantitative assessments normally use general equilibrium models based on the theory of comparative advantage and the positive effects they usually produce originate from static resource reallocation and disappearances of dead-weight loss triangles. Dissatisfied by these meagre estimates of benefits, economists have built new models that better explain the large gains observed for internationally integrating countries. The models have mainly progressed along two directions, into dynamics and into non-convexities (that is, economies of scale and imperfect competition).1

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