Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
20 Cards in this Set
- Front
- Back
|
Most international attempts to aid people living in low-income nations have come in one of two forms: (i) gifts of consumer goods (such as food) and (ii) assistance in constructing or obtaining capital goods (such as tractors, dams, or roads). How likely are such efforts to permanently raise the standard of living in such countries? Please explain. |
Both efforts are unlikely to permanently raise the standard of living. The impact of consumer goods is minimal, as it fills an immediate need, but once they run out, it is no longer useful. Capital goods useful life is slightly longer, but again, once it is depleted, it no longer helps. There is also the possibility that corruption due to bad institutions will limit the spread of such gifts, so they are not widely disseminated and thus help even fewer people. Finally, being given goods instead of trading for them or creating them may give rise to a culture of dependency. |
|
|
Consider two counties, A and B, which have identical physical endowments of a key resource. In country A, any profits that are made from extracting that resource are subject to confiscation by the government, while in country B, there is no such risk. How does the risk of expropriation affect the economic endowment of the two nations? In which nation are people richer? |
The risk of expropriation creates a disincentive for firms to increase the value of the endowment through extraction and refinement. Therefore, Country A will be worse off than Country B, because they will not tap the resource and thus reap the profits from the venture, making the nation of Country B richer. On the other hand, those in Country A could be better off than those in Country B if the government expropriates the profits and then redistributes them evenly to the entire population. In this case, all people receive a benefit versus just employees of the firms extracting the resource in Country B. |
|
|
If the crucial factor determining a country’s low standard of living is the adverse set of legal and cultural institutions it possesses, can you offer suggestions for how the other countries of the world might help in permanently raising that country's standard of living? |
standard of living: the conditions people experience in a given society institutions: “Humanly devised” constraints that shape interactions (or “rules of the game”) in an economy, including formal rules embodied in constitutions, laws, contracts, and market regulations, plus informal rules reflected in norms of behavior and conduct, values, customs, and generally accepted ways of doing things. Other countries can help by offering aid in the form of money, capital goods, or trade contingent on the reform of institutions. For example, Country A will only trade with Country B if Country B commits to stronger property rights for its citizens and business owners. |
|
|
Why is eradicating child labor seen as an economic investment? |
child labor: any work being done by youths, often in order to supplement their family's income economic investment: spending money on something today in order for it to provide returns in the future Eradicating child labor is seen as an economic investment because a country would have to put up capital to fund the children’s schooling in order for a return of a more productive and well-educated workforce in the future. If the children are working, then they are not in school, and if they are not in school, there is not much of a future for them and the economy as a whole. |
|
|
Explain some of the reasons why developing countries have not realized a greater positive development impact from their higher education programs. |
Many developing countries focus on higher education when addressing human capital issues in their countries. These investments may not pay off as well as expected, however, when the investments in higher education are not met by increased demand for college-educated people in the workforce. Without the demand for these skills, many college educated persons seek employment elsewhere, and thus contribute to brain drain in the country, overall reducing the benefit to society that would be recognized had they become employed in their home countries. |
|
|
Why should the development of a solid elementary education system take precedence over an expansion of the university system in developing countries? |
Primary education is important for teaching children basic skills that will be useful throughout their entire lives. The gains from higher education cannot be fully realized without a solid base education. Primary education offers a better return on investment than higher education, and benefits from additional primary education diminish less rapidly than benefits for additional higher education. Also, there may not be enough high-skill jobs available to justify an investment in higher education, but low and medium-skill jobs that would require basic skills like literacy and arithmetic. |
|
|
Evaluate critically the following statement: The developed countries have all shown a significant increase in the numbers of university-trained workers as incomes have risen; thus the development of a solid university system should be among the major priorities of developing countries. |
Developing nations now are not the same as currently developed countries were in their infancy. In order to fully realize benefits of higher education, there has to be enough demand for high-skill jobs and a solid primary and secondary education system in place. Higher education is a component of economic growth, but it is not the only one, and thus will not be a panacea for underdevelopment. |
|
|
Explain why the education of girls is probably the most cost-effective development investment. Be sure to include in your answer some discussion of at least two of the following: absolute poverty, health and development, fertility, and agriculture. |
The rate of return on women's education is higher than that on men's because it not only increases their productivity in the workplace, it also results in greater labor force participation, later marriage, lower fertility, and greatly improved child health and nutrition. Women also carry a disproportionate burden of poverty, so improvements in their schooling will help reduce absolute poverty. |
|
|
How can an increase in human capital lead to an increase in GDP? Why might it not lead to an increase in GDP? |
In general, an increase in human capital leads to increased productivity, which leads to increased income, which leads to increased GDP. Of course, there are edge cases. An increase in human capital may not lead to an increase in GDP if institutions are poor, so the increase in human capital is only concentrated at the top earners of the economy. Increased human capital may not lead to increased GDP if the increase is concentrated in agriculture, so growth will be very small. |
|
|
Investment in human capital is very similar to investing in physical capital. True or false? Explain your answer. |
Human capital investment is both similar and dissimilar to physical capital investment. An investment in both will lead to increases in productivity and eventually income. They converge on the topic of ownership. Human capital cannot be owned like physical capital can. In addition, the rate of return on human capital cannot be calculated mathematically like it can for physical capital. |
|
|
What are the main differences between the linear stages and international dependency models of development? |
linear stages of growth: a series of successive stages of economic growth through which all countries must pass. need to correct mix of saving, investment, and foreign aid to grow accordingly international dependency: view developing countries as beset by institutional, political, and economic rigidities, both domestic and international, and caught up in a dependence and dominance relationship with rich countries the main difference between the two is that linear stages is focused on internal factors, but international dependency is focused more on external factors |
|
|
Dependency theory characterizes countries as being either in the center or on the periphery. Explain these two concepts. If this theory is correct, what are the implications for development strategy? |
center: made up of developed countries, multinational corproations, and international aid organizations periphery: made up of developing countries the center is well-integrated and advances its own self interests for growth, sometimes at the expense of the periphery. the periphery have less power than the center, and are beholden to their wishes. the center members can respond to the actions of other center members and periphery members, whereas the periphery members cannot |
|
|
Apply what you have learned about development and development theories so speculate on the following thought experiment: What if anything might be different about today’s international economic order if the Spanish had colonized North America and the English had colonized South America? |
The english colonial institutions were much fairer than their spanish counterparts. The north american economy had a lot more potential for upward and downward mobility, which gave more incentives for economic activity. The spanish colonial institutions, however, had a more rigid social structure. The initial endowment of resources in south america were distributed to and kept by wealthy families. This gave less incentives for economic activity. Thus, if the spanish had colonized america instead of the english, the modern day institutions would be switched and south america would be the dominant world economy. |
|
|
Patterns of development or structural change analysis stress internal change in a developing country’s economic, industrial, and institutional structure. What are some of the most important changes? |
patterns of development: focuses on the sequential process through which the economic, industrial, and institutional structure of an underdeveloped economy is transformed over time some of the most important changes are a switch from an agricultural to an industrial economy, the stabilization of population growth, international trade, and the accumulation of physical and human capital. |
|
|
Explain the concept of the “idea gap” in development economics |
idea gap: today’s developing nations are poor because their citizens do not have access to the information and skills required to produce productively and ultimately grow. some of these ideas are knowledge about marketing, distribution, inventory control, transactions processing, and worker motivation |
|
|
Generally speaking, higher income countries tend to have less income inequality than low income countries, however this does not always hold true. What could cause a low income country to have low income inequality? |
income inequality: uneven distribution of wealth in an economy A low income country could have low income inequality if there is not much income to be distributed in the first place. Institutions can also play a role. Communism in Cuba, a low income country, is the reason for their low income inequality. |
|
|
Discuss the benefits of using a “poverty weighted” index of GNP growth as a measure of social welfare as opposed to using the growth in GNP to measure change in social welfare. |
a poverty-weighted index looks specifically at the growth of lower income individuals, not the entire population. because the rich make up a large share of GNP of a country, they skew the growth numbers. a poverty-weighted index corrects for this, and gives a better picture of change of social welfare of a nation. |
|
|
Increasing GNP is a necessary but not a sufficient condition for improving living standards in less developed countries. True or false, explain. |
it is true that an increase in GNP is a necessary but not sufficient way to improve living standards. the proper institutions need to be in place to ensure that the increased GNP is distributed equitably in a country. If this is not the case, an increase in GNP may be confined to the top wage earners, and thus not make much of a difference in overall living standards. |
|
|
Why are about 100 million girls and women said to be “missing” in developing countries? |
There are 100 million women “missing” because that is the amount of women that should be alive if they were exactly proportional to the amount of men in the world. This is a function of equal access to resources, medical care, education, and other important aspects of life that these women did not receive due to gender bias. |
|
|
What are factor price distortions, and what are their major causes in developing countries? |
factor price distortions: when factor prices do not reflect their true cost, giving rise to distortion in the market causes: capital can be underpriced due to tax rebates, investing subsidies, and high capital depreciation rates. labor can be overpriced due to unions negotiating higher salaries or the political pressure to raise wages |
