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in Kruger is an American economist born
in 1934

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she spent a lot of her career at
University of Minnesota

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Duke the World Bank and the
International Monetary Fund

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following on the work according to Alec

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and Kruger applied the idea of
rent-seeking behavior

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to developing economies there in seeking
is one of the strange economic words

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that

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actually mean something a little
different from what the words themselves

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indicate

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economists refer to rent seeking when
people invest resources

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to take money from others or to take
welfare mothers

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rather than producing so when seeking
behavior is in general inefficient

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one example of rent-seeking behavior is
lobbying

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if an individual or group goes to the
government and tries to get a subsidy

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tries to get a privilege that is
rent-seeking another example of

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rent-seeking behavior

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is a thief when the thief tries to steal
the television from your house

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that's using his labor to take resources
from someone else

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rather than to produce well for much
more on rent seeking see our unit

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devoted to the concept of corruption

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and Kruger was the first economist to
try to come up with an empirical

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estimate how important

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rent-seeking was for developing
economies it's now commonly believed

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that corruption and rent-seeking
behavior

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they're one of the very most important
problems faced by poor countries

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and Kruger noted a startling fact she
went back and looked at

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import licences import licences

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at the time they existed or something
you had to do a permission you had to

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get from the government

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if you wanted to buy goods and services
from a broad

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you couldn't just spend your money on
goods and services

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you needed to buy the import license
many developing economies in the

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nineteen sixties

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had import licences including India and
Turkey

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and Kruger estimated that import
licenses in India were so significant

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that they comprised 7.3 percent and
India's GDP

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in Turkey in 1968 import licences were
so significant

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that they comprised

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15 percent after kiss GDP Kruger also
made the point that if these import

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licenses are so valuable

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in accord with the concept of
rent-seeking behavior

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people will devote a lot of resources to
trying to get the import license

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you can import license in these contexts
by lobbying the government by being

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politically connected by getting favors
from your friends

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so just think about it for a moment
import licences

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are worth up to fifteen percent if
Turkey's GDP

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how much in the way have money resources
time effort

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well people invest trying to get those
import licences

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Welker said we don't exactly know the
number but you can imagine that in some

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circumstances

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people would be willing to invest up to
15 percent of Turkey's GDP

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for instance imagine there's a one
hundred dollar prize you can get

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how much money would you devote trying
to get that hundred dollar prize

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well you might devote up to ninety nine
dollars or even a bit more

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if you had to so what krueger pointed
out is that people

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running after subsidies privileges
favors

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Wasif transferring wealth to themselves
through the government

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that this was a major drain on the
resources are developing economies

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and think about it the more people that
are using their on January

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to get resources our money or favors for
themselves

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the less talent there is going to be
devoted to innovating

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Kruger also did important work

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on tariffs and the idea import
substitution

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import substitution is when a developing
economy

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imposes tariffs on foreign goods hoping
that its domestic producers

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will arise as substitutes and that those
industries will grow creating jobs

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this is sometimes called the infant
industry argument for Paris

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see our unit on trade policy for more on
this idea

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anyway krueger look at some actual data
taken from several Asian countries and

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also from Turkey

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and she found that in developing
economies protected industries did not

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in general

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as impressive or above average
productivity gains

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she also found that open trade in
developing economies was good for

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productivity gains

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and best for economic growth