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Reading notes 2012 .doc

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York University
Administrative Studies
ADMS 1010

The Growth Diamond ADMS1010 – Summer 2012 – Troy Young Reading – Stern Diamond – May 10 2012 What is the Growth Diamond and Why is it Important? - Financial repression, severe underdevelopment of financial intermediaries and markets, can stymie growth and that financial development paves the way for growth. o The reason: by reducing asymmetric information and tapping economies of scale (and scope), the financial system efficiently links investors to entrepreneurs, ensuring that society’s scarce resources are allocated to their highest valued uses and that innovative ideas get a fair trial. - In the growth diamond, home plate is represented by government, first base by the financial system, second base by entrepreneurs, and third base by management. o To succeed economically, in ‘The Growth Diamond’, a country must first possess a solid home plate, a government that at a minimum protects the lives, liberty, and property of its citizens. o Next, it must develop an efficient financial system capable of linking savers/investors to people with good business ideas, the entrepreneurs at second base. o The managers at third take over after a product has emerged and matured. - The ‘Growth Diamond’ is a powerful model because it can be applied to almost every country on Earth. o The poorest countries never left home plate because their governments killed and robbed their citizens. o Poor but not destitute countries never made it to first base, often because their governments, while not outright predatory, restricted economic liberty to the point that financiers and entrepreneurs could not thrive.  In many such countries, the financial system is the tool of the government (indeed many banks in poor countries are owned by the state outright)
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