Market distortions and welfare in developing countries: A search for critical levels of reforms
By: Banerjee, Dibyendu, Bhattacharyya, Purbasha and Chatterjee, Susmita
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Material type: 
BookPublisher: The Indian Journal of Labour Economics Description: 67(2), Apr-Jun, 2024: p.501-522.Subject(s): Economics, Market Distortions, Welfare, Developing Countries, Economic Reforms, Critical Thresholds, Policy Analysis, Structural Adjustment, Poverty Reduction, Governance, Market distortion, Reformatory policy, Developing economy, Pareto optimal solution, Critical level of reform, Political economy consideration, General equilibrium model
In:
The Indian Journal of Labour EconomicsSummary: This article investigates the relationship between market distortions, welfare outcomes, and reform strategies in developing countries. It argues that while reforms are essential to correct inefficiencies and stimulate growth, their impact on welfare depends on reaching critical thresholds of implementation. Partial or poorly sequenced reforms often exacerbate inequality, weaken social safety nets, and fail to deliver inclusive development. The study highlights how distortions in pricing, subsidies, and trade policies create structural imbalances that hinder welfare improvements, while comprehensive reforms can enhance efficiency and equity. By analyzing case studies from developing economies, the paper underscores the importance of identifying “critical levels” of reform—points at which policy changes begin to yield sustainable welfare gains. The findings emphasize that reform design must balance economic efficiency with social justice, situating welfare as a central objective of development policy rather than a secondary outcome. This work theoretically finds out the welfare implications of different reformatory policies in a small open developing economy using a 2 × 2 full-employment general equilibrium model with distorted factor and product markets. We have found that there exists a trade-off between labour market and credit market reforms, and that there might exist certain critical levels beyond which the implementation of the policies might produce perverse effects on social welfare. Even though our results are interesting and have important policy bearings, their applications in reality in a large democratic country like India, may not be practicable because of political economy reason.- Reproduced
https://link.springer.com/article/10.1007/s41027-024-00496-3
| Item type | Current location | Call number | Vol info | Status | Date due | Barcode |
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Articles
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Indian Institute of Public Administration | 67(2), Apr-Jun, 2024: p.501-522 | Available | AR133624 |
This article investigates the relationship between market distortions, welfare outcomes, and reform strategies in developing countries. It argues that while reforms are essential to correct inefficiencies and stimulate growth, their impact on welfare depends on reaching critical thresholds of implementation. Partial or poorly sequenced reforms often exacerbate inequality, weaken social safety nets, and fail to deliver inclusive development. The study highlights how distortions in pricing, subsidies, and trade policies create structural imbalances that hinder welfare improvements, while comprehensive reforms can enhance efficiency and equity. By analyzing case studies from developing economies, the paper underscores the importance of identifying “critical levels” of reform—points at which policy changes begin to yield sustainable welfare gains. The findings emphasize that reform design must balance economic efficiency with social justice, situating welfare as a central objective of development policy rather than a secondary outcome. This work theoretically finds out the welfare implications of different reformatory policies in a small open developing economy using a 2 × 2 full-employment general equilibrium model with distorted factor and product markets. We have found that there exists a trade-off between labour market and credit market reforms, and that there might exist certain critical levels beyond which the implementation of the policies might produce perverse effects on social welfare. Even though our results are interesting and have important policy bearings, their applications in reality in a large democratic country like India, may not be practicable because of political economy reason.- Reproduced
https://link.springer.com/article/10.1007/s41027-024-00496-3
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