Price penalty for poor countries
Using trade data between 1978 and 2001, Harvard's Laura Alfaro and Faisal Ahmed derive unit prices for more than 1.2 million equipment goods from 154 countries, hoping to find evidence that capital goods in developing countries are more expensive.
In places like Malawi, where imports of capital goods constitute almost 100 percent of machinery and equipment, higher prices could explain the lack of technological diffusion from rich to poor countries.
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As Cris suggested this is an interesting article.
I do agree with Cris that bottom line is that the Capital costs are not significantly different in the developing and developed countries.
If this is real then the consulting firms would have diminishing revenue from the "transfer pricing" Business!
The article acknowledges that :
1. Most of the capital goods manufacturing countries are the same.
2. Cheap alternatives are not considered.
3. The reason for the lack of difference in the price of capital goods could be over invoicing and corruption in the developing countries.
Some of the factors that I realise about this study is that:
1. It assumes that there is no intervention in the FX market.
2. It also fails to believe that there could be IPR violations in some of these developing countries.
One factor that I had difficulty in understanding was how the functional relationship between the imports and the income explain this.
It would be great if others who have read this article can share their understanding of this.
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jamespdaniel@gmail.com
Posted by: Dr James Daniel Paul | Jun 7, 2007 8:21:48 AM