in Kruger is an American economist born in 1934
she spent a lot of her career at University of Minnesota
Duke the World Bank and the International Monetary Fund
following on the work according to Alec
and Kruger applied the idea of rent-seeking behavior
to developing economies there in seeking is one of the strange economic words
that
actually mean something a little different from what the words themselves
indicate
economists refer to rent seeking when people invest resources
to take money from others or to take welfare mothers
rather than producing so when seeking behavior is in general inefficient
one example of rent-seeking behavior is lobbying
if an individual or group goes to the government and tries to get a subsidy
tries to get a privilege that is rent-seeking another example of
rent-seeking behavior
is a thief when the thief tries to steal the television from your house
that's using his labor to take resources from someone else
rather than to produce well for much more on rent seeking see our unit
devoted to the concept of corruption
and Kruger was the first economist to try to come up with an empirical
estimate how important
rent-seeking was for developing economies it's now commonly believed
that corruption and rent-seeking behavior
they're one of the very most important problems faced by poor countries
and Kruger noted a startling fact she went back and looked at
import licences import licences
at the time they existed or something you had to do a permission you had to
get from the government
if you wanted to buy goods and services from a broad
you couldn't just spend your money on goods and services
you needed to buy the import license many developing economies in the
nineteen sixties
had import licences including India and Turkey
and Kruger estimated that import licenses in India were so significant
that they comprised 7.3 percent and India's GDP
in Turkey in 1968 import licences were so significant
that they comprised
15 percent after kiss GDP Kruger also made the point that if these import
licenses are so valuable
in accord with the concept of rent-seeking behavior
people will devote a lot of resources to trying to get the import license
you can import license in these contexts by lobbying the government by being
politically connected by getting favors from your friends
so just think about it for a moment import licences
are worth up to fifteen percent if Turkey's GDP
how much in the way have money resources time effort
well people invest trying to get those import licences
Welker said we don't exactly know the number but you can imagine that in some
circumstances
people would be willing to invest up to 15 percent of Turkey's GDP
for instance imagine there's a one hundred dollar prize you can get
how much money would you devote trying to get that hundred dollar prize
well you might devote up to ninety nine dollars or even a bit more
if you had to so what krueger pointed out is that people
running after subsidies privileges favors
Wasif transferring wealth to themselves through the government
that this was a major drain on the resources are developing economies
and think about it the more people that are using their on January
to get resources our money or favors for themselves
the less talent there is going to be devoted to innovating
Kruger also did important work
on tariffs and the idea import substitution
import substitution is when a developing economy
imposes tariffs on foreign goods hoping that its domestic producers
will arise as substitutes and that those industries will grow creating jobs
this is sometimes called the infant industry argument for Paris
see our unit on trade policy for more on this idea
anyway krueger look at some actual data taken from several Asian countries and
also from Turkey
and she found that in developing economies protected industries did not
in general
as impressive or above average productivity gains
she also found that open trade in developing economies was good for
productivity gains
and best for economic growth