Kremer's O-Ring Model of economic development

Kremer's O-Ring Model is an economic theory developed by economists Michael Kremer and Lawrence Summers in 1993. It suggests that economic development occurs when certain key factors are in place. The model states that an economy can be divided into three concentric circles. The innermost circle represents the fundamental factors necessary for economic development, such as physical and human capital, a stable political system, and the right level of economic incentives. The middle circle contains the markets and sources of capital that link different countries, such as foreign direct investment, global finance, and trade. The outermost circle is made up of the external conditions that make economic development possible, such as global norms, external pressures from other countries, and compliance with international law. The idea is that if all three circles are working together, they can make economic development possible.The model has been useful in understanding the complex interactions between markets, governments, and international organizations, which are necessary for economic growth. It can also be used to explain why some countries have been able to achieve rapid economic growth while others have not.