The term “decentralization” embraces a variety of concepts which must be carefully analyzed in any particular country before determining if projects or programs should support reorganization of financial, administrative, or service delivery systems. Decentralization—the transfer of authority and responsibility for public functions from the central government to subordinate or quasi-independent government organizations and/or the private sector—is a complex multifaceted concept. Different types of decentralization should be distinguished because they have different characteristics, policy implications, and conditions for success. Types of decentralization include political, administrative, fiscal, and market decentralization. Drawing distinctions between these various concepts is useful for highlighting the many dimensions to successful decentralization and the need for coordination among them. Nevertheless, there is clearly overlap in defining any of these terms and the precise definitions are not as important as the need for a comprehensive approach. Political, administrative, fiscal and market decentralization can also appear in different forms and Continue reading
International Economics
Conditions and Forms of Price Discrimination
In today’s economic conditions in which the markets being far from full competitive state resulted the firms functioning in this market to become more or less a price-maker. For this reason, one of the ways for the firms that aim to increase the total income thus the total profit can use is, to implement different pricing for consumers with different specialties instead of applying the same pricing for all the consumer groups. Because the consumers having different income levels, taste and choice cause them to have a desire to pay different price for the product in question. One of the pricing strategies foresees different pricing for different consumer groups is price discrimination. The implementation of price discrimination will bring the firm that aims to maximize the profit in an advantageous position in the market. This advantage, generated from the desire of consumers that have different taste and income who are Continue reading
Concept of Export Diversification in International Business
Earlier a country’s economic development was based either on the degree of specialization or diversification of a country’s production and trade structure. Based on Adam Smith’s concept towards the division of labor and specialization for economic growth and development to Heckscher-Ohlin Samuelson (HOS) model of international trade, countries should specialize in producing and specializing in the goods in which they have a comparative advantage. However, after the Second World War, the idea was that economic growth and development may be achieved by export diversification (not specialization). There were active efforts by the government to promote industrialization and economic growth. Export diversification is often the primary objective of many developed countries. Export diversification is also equally important for many developing countries. Some of the developing countries are dependent on a relatively small range of products, generally agricultural commodities. In other words, primary products constitute a large percentage of their overall export Continue reading
The Efficient Markets Hypothesis (EMH)
Market Efficiency The concept of market efficiency was first developed in the finance literature and its full form was first explained by Engene Fama. But now-a-days this concept is being used in other areas also. Market efficiency implies that prices reflect all available information, but it does not imply certain knowledge. Many pieces of information that are available and reflected in prices are fairly uncertain. Efficiency of markets does not eliminate that uncertainty and therefore does not imply perfect forecasting ability. By definition then there should not exist any unexplained opportunities for profit. “An ‘efficient’ market is defined as a market where there are large numbers of rational, profit-maximizers actively competing, with each trying to predict future market values of individual securities, and where important current information is almost freely available to all participants. In an efficient market, competition among the many intelligent participants leads to a situation Continue reading
The Great Depression – Facts, Causes, and Effects
The Great Depression is a term denoting the economic crisis that emerged in the United States and some European countries. The crisis began in 1929 and continued until the end of the 1930s. The term “depression” is mostly used to refer to events solely in the U.S., where virtually entire American nation was particularly strongly affected by a depressive state in addition to the economic decline. The term “global economic crisis” is commonly used for other countries that have experienced the same events (UK, Germany, France, and other European countries to a lesser extent). Large industrial cities had suffered the most from the crisis, but rural areas were also affected. Crises in world history occur from time to time. However, according to the researchers, the Great Depression is one of the most prolonged crises in the history of the industrialized countries. It is considered that it started with the collapse Continue reading
Hawtreys Monetary Theory of Trade Cycles
The British economist Ralph G. Hawtrey regards trade cycle as a purely monetary phenomenon. According to him, non-monetary factors like wars, earthquakes, strikes and crop failures may cause partial and temporary depression in particular sectors of an economy. However, these non-monetary factors cannot cause full and permanent depression involving general unemployment of the factors of production in a trade cycle. On the other hand, changes in the flow of money are the exclusive and sufficient cause of changes in trade cycle. In Hawtrey’s opinion, the basic cause of trade cycle is the expansion and contraction of money in a country. According to Hawtrey, changes in the volume of money are brought about by changes in the rate of interest. For instance, if banks reduce their rate of interest, producers and traders will be induced to borrow more from banks so as to expand their business. Borrowing from banks will lead Continue reading