Tag Archives | distortions
Economics, Finance sector development, Poverty
Distortions, growth catch-up, and the middle-income trap
In theory, a distortion refers to a departure from the perfect competitive equilibrium with no externalities and in which resources have been optimally allocated so that each economic agent maximizes his or her own welfare. Thus, distortions are closely associated with market imperfections. In reality, an economy with no distortions does not exist—both advanced and developing economies use government interventions, such as stabilization policies, development strategies, industrial policies, administrative regulations, and so forth, which can be viewed as distortions, broadly defined.
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