Developmental Rent Management Analysis: Learning, Upgrading, and Innovation

Abstract:

In this article, I construct an original analytical framework, called the developmental rent management analysis (DRMA), for the analysis of rents and rent management. This framework is based on the premise that successful rent management depends on political and institutional arrangements to produce incentives and pressures for technical upgrading and innovation. This is because, while rents are created for a variety of purposes, rent outcomes — whether growth-enhancing or growth-reducing — depend on a set of political, institutional, and market conditions that take place formally and informally. Therefore, the key objective of the DRMA framework is to understand how a country’s politics, institutions, and industries are configured to incentivize and compel industrial upgrading. Thus, DRMA enables a broader and more complex understanding of the various factors at play in the process of development. I provide an illustrative application of the DRMA framework using the Vietnamese experience of adopting third-generation technology in the telecommunications industry.

Keywords::

• economic development
• institutions
• rent
• rent-seeking
• technological change

JEL Classification Codes::

• B52
• O14
• O33
• O43

Notes

¹ The neoliberal, or mainstream economics approach to development is often associated with both the so-called Washington Consensus and post-Washington Consensus, with a particular emphasis on the market as “the ultimate arbiter of how goods and services are allocated” (Gainsborough 2010, 447). The policies advocated by this approach include market liberalization, free trade, privatization, and reduction of government control over the economy.

² For a comprehensive discussion on the typology of rents, see Khan (2000b).

³ Market concentration is defined as the market power of firms measured by market share.

⁴ The uniqueness of products relates to the level of product differentiation.

⁵ Entry barriers are those that place potential entrants at a disadvantage.

⁶ Vertical integration is the degree of upstream-to-downstream integration of production.

⁷ For an example of an unproductive or failed configuration of rent management, see another work of mine (Ngo forthcoming, ch.5 and ch.6).

⁸ Between 1995 and 2012, in Vietnam, the mobile phone sector was the most dynamic and had the largest market segment in the telecommunications industry — 76 percent in 2012 (MIC 2013). In 2014, there were six mobile phone operators (MIC 2014).

⁹ US$1 = VND21,000 in 2013 currency.

¹⁰ One of the licenses was awarded to a consortium of a state-owned telecom provider and a privately owned telecom provider — i.e., there were four licenses, but five providers.

¹¹ A spectrum auction is a process whereby a government uses an auction to sell the rights (licenses) to transmit signals over specific bands of the electromagnetic spectrum and to assign scarce spectrum resources. With a well-designed auction, resources are allocated efficiently to the parties that value them the most, and the government secures revenue in the process.

¹² These deposits of approximately VND8.1 trillion (nearly US$455 million) are for implementation of the new technology, and thus they are different from the license fees paid to the government, totaling VND2.06-3.1 trillion (the equivalent of US$100-150 million).

¹³ For example, see another work of mine (Ngo forthcoming) on the motorcycle industry.

Additional information

Notes on contributors

Christine Ngoc Ngo

Christine Ngoc Ngo is an assistant professor in the Department of Economics at the University of Denver, CO.