The paper 'Khan’ s Model of Rent and Saxenian’ s TTC Model' is a wonderful example of a micro and macroeconomics case study. In recent years, one of the most discussed dialogues in international economics is with respect to the supposed capacity that India would have in taking over China in terms of economic growth. The camps on the two sides are vehement in their view. In this discussion, I will try and analyze the debate in terms of the two models of economic growth-Khan’ s model of rent and Saxenian’ s TTC model. India is one of the members of the BRIC nations that are supposed to be the next global superpowers in terms of technological and economic strength.
The two countries are also among the most populated in the world with China topping the list and India coming in a close second. India however has a population density higher than China. As far as the process of growth and the success story to date is concerned, the two countries have similarities as well as disparities in their culture of economic development. Rent-seeking would have to be understood in the context of two essential views; the neo-classical view of rent-seeking and Khan’ s model that is in essence a criticism of the first view.
The concept itself owes a lot to the economic theory advanced by theorists like Buchanan, Tullock, Tollison, and others (Ngo and Wu, 2009). The idea in a rent theory model is the rent is the payment that is made to an owner of a resource over and above that which those resources could command in alternative uses. This would automatically then mean that rent is a return in excess of opportunity cost (Khan and Sundaram, 2008)Khan’ s model is based on the basic premise that the existing rent-seeking literature has made an error in focusing just on the social costs that are used in the process of rent-seeking.
This works creates a misrepresentation of the rent-seeking problem by presenting only one side; the input side- of the process (Ngo and Wu, 2009). Khan argues that different types of rents created in different contexts are of equal importance. According to him, some rents are inefficient and growth retarding.
The better-understood examples of these rents are monopoly rent and those stemming from governmental and political interventions such as subsidies. There are other natural resource rents and rents for learning that play an essential role in growth and development. The more important question according to Khan is whether the economic benefits that are being produced by good rents can outweigh the rent-seeking costs or whether the cost of bad rents would add to the pile of social wastes (Khan and Jomo, 2008). In other words, the model proposed by Khan, suggests that it is not just the costs that are incurred by rent-seeking that matter; rent outcomes or outputs produced by rent-seeking should enter the equation of the cost-benefit calculation.
Khan further argues that economic rents and rent-seeking activities have a universal existence. The relevant distinction is between rent-seeking systems that are developmental and those that are crippling.
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