Wednesday, June 6, 2007

Cost of Capital Higher in Poor Nations

http://www.hbs.edu/research/pdf/07-073.pdf
The obvious result: Growth is inhibited in poorer nations. I highly doubt that higher costs are entirely responsible for the poor diffusion of technology in between nations (the benefits are probably lower in nations as well, and internal costs and regulations most certainly play a factor), but this explains it somewhat. Solutions? I'll read this report more throughouly and see what they attribute the higher costs to.

2 comments:

Rich said...

They have less actual wealth with which to create new wealth, because, well (I thought this would be obvious): they're poor. Their more limited resources cause their time preference to tend more towards present consumption, and they also (big surprise) have more trouble getting foreign investment because the risks are higher and the profit potential is lower compared to alternative investment options.

Contrary to your backwards thinking on money and credit, "adding liquidity" wouldn't do a damn thing to help. All it would do is divert resources away from present consumption, by forcibly shifting wealth from the pockets of present consumers of the money to the receivers of the central bank's loans. It's effectively a redistribution of wealth from the poor to the already-wealthy and politically-connected. Their time preference is what it is for a reason; you're in no position to dictate what is and is not the "correct" amount of saving and investment for those people. Meddling in the credit market could only lead to greater starvation and overall suffering, coupled with a further concentration of (unearned) wealth into fewer hands.

And I frankly don't give a damn what your idiot professors have to say about it. If they knew what they were talking about, you'd understand these things, along with the Austrian business cycle. They can prattle on with their neo-Keynesian pseudo-economic nonsense 'til the stars grow cold; it won't change a damn thing about how the real world actually works.

Anonymous said...

Actually, Rich, it will change something: It'll lead us to another depression.