Cross-Country income differences

Question 1

What are the three general aspects of Social Infrastructure?

Answer 1

1. Fiscal policy (Taxes)
2. Rule of Law
3. Rent seeking by government (expropriation)

Question 2

What is Social Infrastructure?

Answer 2

Social Infrastructure is a fundamental cause of income differences. It refers to institutions and policies that affect private and social returns to activities.

Question 3

What are the four forces for governing allocation of resources for development knowledge?

Answer 3

1. Basic scientific research
2. Private incentives for R&D and innovation
3. Alternative opportunities for talented individuals
4. Learning by doing

Question 4

What are the three externalities for inefficient amount of R&D resources?

Answer 4

1. Consumer surplus effect (positive externality)
2. Business stealing effect (negative externality)
3. Knowledge spillover effect (positive externality)

Question 5

Human capital depends on ..

Answer 5

• Years of education
• Quality of school
• On-the-job training
• Learning by doing
• Child rearing

Question 6

Possible areas that are effected by Social Infrastructure?

Answer 6

1. Human capital
2. Physical capital
3. Residual factor

Question 7

Example of poor social infrastructure

Answer 7

• No protection of property rights
• May allow kleptocracy (e.g. dictatorship)
• Relying on expropriation and corruption

Question 8

Determinants of Social Infrastructure

Answer 8

1. Culture
2. Beliefs
3. Incentives of those in power
4. Geography

Question 9

What causes low Social Infrastructure?

Answer 9

• Different colonialization strategies

- High mortality risk

Question 10

Regarding of colonialization strategies. Explain both state types.

Answer 10

Extractive states
- Exploit the area’s population and resources with little own settlement (e.g. areas in south america)
Settler states
- Established institutions broadly similar to those in europe (e.g. America, Australia)

Question 11

What is meant with unconditional convergence?

Answer 11

Countries with low income are predicted to grow faster than countries with high income until they reach the same path

Question 12

What is meant with conditional convergence?

Answer 12

Countries will converge to their country-specific balanced growth path if fundamentals differ across countries

Question 13

When does growth miracles and disasters appear?

Answer 13

Most growth miracles/disasters occur after rapid change in fundamentals (e.g. Social Infrastructure) like in WWll. This happens more often in dictatorial regimes than in democracies.

Question 14

What is meant with balanced growth path in general?

Answer 14

All variables like (Labor, Capital, Technology and therefore Economy) grow at the same rate.