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marmech12 marmech12
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Consider two countries: Country A and Country B. Country A is characterized by a command economy, the absence of property rights, high entry barriers for new businesses, and forced child labor. In contrast, Country B is characterized by well-defined private property rights, a developed market system, and no entry barriers for new businesses. Which of the two countries is likely to oppose creative destruction more? Why?
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Macroeconomics


Edition: 3rd
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Chintan13Chintan13
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Since Country A is characterized by the absence of property rights, high entry barriers for new businesses, and forced child labor, it can be concluded that the institutions in the country are extractive. Since Country B has well-defined property rights, a developed market system, and no entry barriers for new businesses, its institutions can be concluded to be inclusive.
Creative destruction refers to the process by which new technologies replace old ones, new businesses replace existing businesses, and new skills make old ones irrelevant. One of the implications of creative destruction is that it can cause political creative destruction. Political creative destruction refers to the process by which economic growth destabilizes existing regimes and reduces the political powers of rulers and monarchs. Since Country A has institutions that are extractive in nature, it would like to continue to extract wealth from the citizens of the country. Hence, Country A is likely to oppose political creative destruction and creative destruction. In contrast, since institutions in Country B are conducive to economic development, it is likely that the country will favor creative destruction.

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