ch 2 theories on economic development

Question 1

malthus: what did he say?

Answer 1

geometric population growth vs lineart food production . point of crisis, poverty/war

Question 2

malthus what is his solution?

Answer 2

less children through moral constraint, abstinence, sterilization

Question 3

ricardo what was his problem?

Answer 3

population is growing, need more food so food prices rise

Question 4

ricardo what was his way out?

Answer 4

better productivity of labour in agriculture (in long run) and free trade to decrease food prices (in short run)

Question 5

who were the two that said the linear stages of growth models of the 50s and 60s

Answer 5

rostows stages of growth and harrod domar

Question 6

what were 5 rostows stages of growth?

Answer 6

classification of stages of progress toward industrialization
1) traditional society ( peasant agriculture in static feudal system (landholders))
2) preconditions for takeoff (increase in agriculture productivity , we have financial surpls that can be invested in industry)
3) the take off ( investment in industry and new institutional frameworks (loanable funds, laws, authority))
4)drive to maturity ( investment in industry and transforamtion away from agriculture and into industry)
5)age of high mass consumption ( bigger wages, bigger demand, more leasure, higher goods consumed)

Question 7

may not be relevant but what were the early views about the nature of economic prosperity?

Answer 7

communism or capitalism

Question 8

what do we mean by industry (as opposed to agriculture)

Answer 8

economic work to process materials and manufacurting (industrialization)

Question 9

what is the harrod domar growth model?

Answer 9

functional economic relationship where the growth of GDP depends on
1) national net savings
2) inversly relates to national capital output

Question 10

what is the national capital output given by the harrdo domar growth model?

Answer 10

marginal efficiency of capital
units of capital required to produce one nuit of output.

Question 11

why does the net saving is so important in Harrod domar model?

Answer 11

mobilization of savings and generation of investment (how investments lead to growth) (more savings lead to more growth . save , invest & accumulate !) grow towarfds industrial takeoff - seek more productive technology in terms of output per unit of capital

Question 12

what are the problems / assumtopns of the harrod domar model?

Answer 12

capital output ratio only about physical capital (machines)
only a statistical measure (cant be used to forecast)
investments hard to figure out bc poor countries have informal markets
capital prices are constant - price effects ignored

Question 13

what is the two gap constraint? the development of developing countries is limited by these two gaps

Answer 13

two gap constraint in industrial investments- (have not enough savings - but with agriculture we might)
importing capital goods(machines) while exporting agricultural products

gap between domestic saving and investment required for takeoff(not enough saving)

gap between export revenues and imports needed for development( not enough export revenue to afford imports we need)

Question 14

what is the problem with thinking agriculture will solve all issues? emphassis that this is not the only solution

Answer 14

low rate of savings give rise to savings gap and capital constraint
recap: savings is neccessary to growth but not sufficient condition
(thinking keep on concentrating on agriculture doesnt work)

Question 15

what where the two structural change models of the 1970s?

Answer 15

lewis theory of development and cheneys model

Question 16

what where the structural change models about

Answer 16

mechanism on HOW developing economies can go from traditional to industrial

Question 17

what is lewis theory of development about

Answer 17

It focused on the need for countries to transform their structures, away from agriculture, with low productivity of labour, towards industrial activity, with a high productivity of labour (two sector surplus model)
zero marginal productivity of rural agriculture sector then people will transfer( bc excess labor) to industrial sector.
turning point: where surplus labor is depleted

Question 18

what is lewis theory of development about

Answer 18

It focused on the need for countries to transform their structures, away from agriculture, with low productivity of labour, towards industrial activity, with a high productivity of labour (two sector surplus model)
zero marginal productivity of rural agriculture sector then people will transfer( bc excess labor) to industrial sector.
turning point: where surplus labor is depletedcr

Question 19

criticism of lewis model

Answer 19

the assumption that there is surplus labor in rural areas hasnt been proven to be true- its rather that there is a surplus in urban areas.

Question 20

how does cheneys model and harrod domar (AK) model are similair ?

Answer 20

harrod domar sais ONLY savings&investment make economic developemnt. but cheney sais that this is true but ALSO
- transformation of production
-composition of demand
-changes in socio economic factors
are all important as well

Question 21

what was cheneys model?

Answer 21

cheney and colleques anayllsed patterns in developing countries and found many patterns/features of economic development

Question 22

what were some features of cheneys model that were found of economic development?

Answer 22

1) from agriculture to industrial
2) accumulation of phsycial and human capital
3) change in consumer demands
4) increase in urbanization
5) decline in family size

Question 23

what are problems of cheney model?

Answer 23

pattern on features is not a theory- not causal
model too optimistic that “correct” policies will work

Question 24

what is the international dependance revoltion theories of the 1970s about?

Answer 24

international power relations, institutional and structural economic regitities of international setup

Question 25

whats the neocolonial dependance model about?

Answer 25

undervelopment of countries because of unequal international capitalist system of rich and poor countries - unequal power relations

In this systems rich countries are intentionally exploitative or unintentionally neglectful and the international system is dominated by unequal power relationship between the centre and the periphery

Question 26

false paradigm model ?

Answer 26

underdevelopment bc of well meaning but faulty/uninformed advice by biased advisors from developed countries. inappropriate policies serving interest of existing power groups . irrelvant western concepts.
advice by western is inappropriate or bc they have their own perspective

Question 27

dualistic development thesis?

Answer 27

dualsim - existance and persistance of increasing divergencies between rich and poor nationals .
- foverever staying and never changing superior and inferior conditions

Question 28

what are the weaknesses of the IDR (international dependance models?

Answer 28

all reject traditional neoclassical economic theories(market power) bc of their ideologies
emphassi on international power imbalances
do not offer any policy suggestions(pessimistic)
based on these theories- autarky or only trade with other poor countries is the solution - but research has schown autarky is bad and doesnt work

Question 29

what are the neoclassical free market counterrevolution theories of the 80s and 90s about?

Answer 29

beneficial role of free markets, open economies, privatization of inefficient public enterprises

Question 30

why were the UN WB IMF WTO created in the 90s, 80s

Answer 30

founded that followed free market approach and less governemtn regulation

Question 31

whats market fundamentalism about?

Answer 31

undevelopment due to poor resource allocation , incorrect pricing, too much state intervention(corruption, inefficiency)
free markets with stimulate growth- we need to privatize state enterprises, expand exports, eliminate governemtn intervention

Question 32

what is the traditional neoclassical growth model

Answer 32

output growth is bc the growth of either one of these
1) increase in labor
2) increase in capital
3) technology changes

open economies grow better than closed economies
poor countries should be open to foreign investment to increase growth, savings ,everthing

Question 33

what is solows neoclassical model or (exogenous growth model) ?

Answer 33

economies will converge to the same level of income given that they have same level of saving, depreciation, labor force growth, and producctivity growth

the only thing that can completely change the level of output is technology change that you got from OUTSIDE of your country

Question 34

how does solows model differ from harrod domar model?

Answer 34

labour is a seperare factor of production (capital labor ratio is not fixed anymore)
diminishing return to these inputs- developed countries grow slower
technoöogical change added as a seperate factor of production

Question 35

why are we rich and they poor ? (from a neoclassical perspective)

Answer 35

we invest more and have lower population growth , so we have more capital per worker and have higher labor productivitiy

Question 36

why do economies achieve sustained growth despite deminishing return to capital(solows model)?

Answer 36

technological progress can offset the tendency for the margincal product of capital to fall

Question 37

why is there finger pointing between dependance theorists and neoclassical revitionists?

Answer 37

dependance theorists say undervelopemnt is externally induced phenomenon. and neoclassical theorists blame fovernment intervention and bad economic policies

Question 38

how are developing economies have different structures where “market price allocation can do a better job than state invervention” may not be good

Answer 38

free markets dont exist in poor countries, information is limited and bad, and markets non existant or fragmented so poor countries are just structured differently

Question 39

how does solows model of growth show if economies are converging

Answer 39

conditional convergance
that countries with similair charactersitcis (savings&investment rate, population growth , labor force growth, depreciation)
is correct from the data we have seen

Question 40

from the real data, what else is there other than the correct slows model ?

Answer 40

solows statement that technology change is really important is true, but 50% of other cases of growth is not bc of tech change. paul romer came up with reeason how solows model can be even improved

Question 41

qhat does paul romer say ?

Answer 41

even if countries have same characteristics (savings rate and technological parameters) they have different growth paths (nonconvergance still)
he sais the main reason is the rates of return to phsyical capital in poor countries are lower bc the level of skilled vs unskilled labor.
growth affected by shae of skilled labor bc that also effects endogenour technological change .
so the more skilled labor, the more sustained tech change and hence sustained growth

Question 42

CONSENSUS: significancce of stages of growth theories

Answer 42

crucial role of savings and investments

Question 43

CONSENSUS: significance of structural patterns

Answer 43

transfer resources from low to high productivitiy linkae between traditional and modern

Question 44

CONSENSUS: significance of dependance theory

Answer 44

importance of world econmy and decisions of developed world affecting developing economies

Question 45

CONSENSUS: significance of neoclassical theories

Answer 45

efficient production, low state involvement

Question 46

CONSENSUS: significance of new growth theory

Answer 46

endogenous technological progress, human capital, share os skilled labour