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Development Economics > Development > Flashcards

Development Flashcards

1
Q

what is development econ

A

branch of econ that betters the fiscal, economic, social conditions of developing countries
- help them = income, wellbeing, capabilities

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2
Q

different approaches of inducing development

A
  1. Acemoglu and Robinson = institutions = property rights, law, elites , good judiciary
  2. Sachs = subsidies, foreign aid
  3. Easterly = doesnt like foreign aid and gov - work with NGOs to test what works
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3
Q

why should we care about development econ

A
  1. intellectual interest = 60 years old - more to explore
  2. Altruism
  3. Social self interest = oil, trade
  4. expanding job market
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4
Q

what is the evolution of development econ

A

view and approach has changed a lot over the years

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5
Q

why is measuing development important

A

have to keep track and make sure policies are having the correct effect
- has the money improved lives

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6
Q

what is main way to measure development

A

GDP per capita

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7
Q

what is GDP per capita

A

per head value of goods and services produced by the people of a country over a given year

  • doesnt capture all aspects of development
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8
Q

GDPpc across the world
why is it a concern

A
  • big inequality across countries
  • low / middle income countries only produce small fraction of worlds good
  • 80% of the world live in these countries
  • most populated = poorest
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9
Q

pros of using GDPpc

A
  • useful for comparing countries
  • easy to calculate from gov figures
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10
Q

why GDP using ER method is wrong

A
  • doesnt include price differences across countries
  • ER = determines by D and S in exchange markets
  • non traded goods dont effect ER
  • ER only takes commodities that corss borders into consideration
  • but in poor countries non traded goods are likely to be cheaper
  • ER underestimates real incomes of poor countries
  • dont account for services
  • doesnt include slef made incomes
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11
Q

why is PPP better

A

corrects for prices and non traded goods and services

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12
Q

what is PPP and Big mac index example

A

rate both countries buy the same quantity of g + s in each country
- price differences of Big mac across different countries used to determine relative ER

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13
Q

india and US example of PPP

A
  • with the same amount of dollars in US 500
  • you could be considered poor in US
  • bet well off in India
  • because you can buy a lot more with 500 in India than you can in US
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14
Q

how do you calculate PPP

A

define a bundle of goods that average person consumes
- PPP adjusts GDP based on the basket of goods a country consumes and the international value of those goods
- price comparison 5 years
- 400 - 700 goods

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15
Q

advantages of PPP

A
  • reduces disparities in world income distribution - they arent as worse off as ER market makes them seem
  • takes into account non-traded goods
  • stable
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16
Q

disadvantages of PPP

A
  • hard to measure
  • basket selection hard - 1000 items only in 18 countries
  • infrequent comparisons = 5 years
  • not all countries included
  • not good for considering financial flows = ER
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17
Q

other ways of measuring wellbeing other than GDPpc

A
  • literacy rates
  • access to drinking water
  • infant mortality
  • life expectancy
  • undernutrition
  • disease
  • education
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18
Q

country example of why GDP doesnt include inequality, and indicators of wellbeing

A
  • Guatemala = lower GDPpc
  • Sri lanka = less inequlity
  • G = top 20% holds 63% of GDP
  • G = worse stats on life expectancy , infant mortality, access to water, literacy rate
  • so is measuring inequality a better indicator of how well a country is doing than GDP
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19
Q

why can GDPpc still be used as a proxy for wellbeing if it doesnt capture inequality

A
  • correlated with
  • wellbeing indicators
  • can serve as a good indicator for a countrys overall well being
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20
Q

what 3 elements make up HDI

A
  1. health
  2. education = average number of education
  3. standard of living = GNI per capita PPP
  • GNI = GDP - depreciation
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21
Q

How does HDI work

A

rank between 0 - 1 how well its score in relation to constructed minimum and observed maximum
- all countries lie inbetween

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22
Q

advantages of HDI
Streeten

A
  • “useful in focusing attention and simplifying the problem”
  • simple
  • political power
  • fuller picture of how developed
  • 2 countries with same GDP - different HDI - different social development
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23
Q

disadvantages of HDI
castles

A
  • combines 3 very different things - unsense grouping
  • limited indication of social development
  • adds little to GDP - since 1/3
  • since GNI 1/3 could disguise social development in country where high GNI overshadows life expectancy = US
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24
Q

is there a difference between GDP and HDI

A

plotting against each other = highly correlated
- so whats the point of having 2 measure of wellbeing that are the exact same results
- 0.95 correlation coefficient

  • growth correlation
  • correlation coefficient falls = not as good any more
  • just looking at health and education = correlation is 0.03
  • health and education are useful measures after all becasue telling more info than just GNI
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25
Q

how come different sets of policies will effect human and economic development

A

Rodriguez = ran 2 regressions to explain changes over time in per capita income and changes in HDI
- use same independent variables

  • inflation is related to change in HDI not GDP
  • trade openness is related to change in GDP not HDI
  • so different policies can target different aspects = either increase HDI or GDP
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26
Q

why is it useful to have HDI and GDP

A

difference in measures is important for the objective as a policy maker
- what do they want to increase
- human development or economic development

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27
Q

why do we need to know about the characteristics of the poor

A

so we can design better policies that will help lift them out of poverty

28
Q

what was the 8 millenium development goals

A

189 nations promise to free people from extreme poverty
- made in 2000
- ended in 2015 = didnt achieve what is set out to = end poverty

  • new goal is 3% global absolute poverty rate by 2030
29
Q

did the millenium development goals make any difference
and impact of covid

A
  • extreme poverty is falling
  • declined a lot in last 20 years
  • 1990 = 50% of pop in dc = extreme poverty - less than 1.90 a day
  • 2021 = 9%
  • additional 75-95 extra people in poverty compared to pre covid = disruptive, conflict, climate change
  • food inflation is bad for poor = 2/3 of income on food
30
Q

what is used to measure poverty levels

A
  • household surveys = computers make easy
  • sample selection
  • full census
31
Q

what information do hh surveys collect

A
  1. characteristics of individuals
  2. assets
  3. activities
  4. location
  5. access to public services
  6. access to markets
  7. how much the spend
  8. nutrition
  9. health
  10. earnings
  11. wellbeing
32
Q

main benefit from hh surveys

A
  • keep track of who benefits and who loses from development
  • if carried out on regular basis
33
Q

problems with hh surveys

A
  • data quality - wrong results collected
  • what is a hh - people that live - eat together
  • reporting periods generate measurement errors
  • longer reporting period = get bored and stop collecting data
  • short = less representative = birthday
  • boundary bias = reporting things from outside boundary
  • seasonality = different diets
  • people lie about income = sensitive
  • dont remember things = recall bias
  • hard to measure consumption and income
34
Q

which is better to measure income or consumption

A
  • consumption is better
  • closer to well being because consumptions = creastes utility
  • consumption is smooth = income is volatile
  • easier to measure - lots of components to income
  • more likely to misreport income
35
Q

what are problems with consumption

A
  • available at hh level not individual
  • measuring errors = recall bias, decline in reporting, seasonality of foods, private consumption not reported
  • hard to measure durables
  • ability to smooth depends on wealth and access to loans
36
Q

what adjustments to hh surveys need to use

A
  • changes in prices of goods
  • PPP for spatial difference s
  • valuing home produced goods = locally
  • imputed value of public goods and services
  • adult equivalent scales = demograohic characteristics = gives weight to gender and age for consumption
37
Q

what is a poverty line

A
  • threshold poverty level income to compare to individual income = poverty level
  • a threshold of usual consumption and if you are below you are identified as poor
38
Q

how is a poverty line defines

A

value a typical basket of food items that provide enough calories to work and a small allowance for durables
- absolute poverty = 1.90
- relative = US poverty = not absolute

39
Q

what are the factors of a good poverty indicator
- desirable axioms

A
  • estimated for individuals not hhs
  • monotonicity = a decrease in y of a poor person should increase poverty index
  • transfer = transfer from poor to less poor should increase the index
  • transfer sensitivity = taking money from house far below line and giving to richer hh is very bad = worse than taking it from slightly poor house
40
Q

what are the proposed class of poverty measures

Foster 1984

what does low alpha mean

A
40
Q

what are the proposed class of poverty measures

Foster 1984

what does low alpha mean

A

alpha = sensitivity parameter
- low = weights all income of individuals below z the same
- high = those with the lowest incomes are given more weight in the measure
- higher FGT = more poverty in the economy

41
Q

po is when alpha is 0

A
  • headcount ratio
  • proportion of pop that is poor
  • easy to understand
  • this is how many poor there are
42
Q

p1 = when alpha is 1

  • ratio of targeted to untargeted budget needed to eliminate poverty
A
  • poverty gap index
  • expresses the extent of falling below line as a percentage
  • the amount you would have to pay everyone to bring everyone to the poverty line, divided by pop
  • the fraction of the poverty line they are missing to escape poverty
  • numerator = minimum cost of eliminating pov
  • denominator = maximum cost of eliminating pov
43
Q

flaws of p0

A
  • doesnt take into account intensity
  • how poor are the poor
  • how far away are people from the line
44
Q

flaws of p1

A
  • doesnt take into account inequality
  • extreme individuals not considered
  • they are the same distance under the poverty line but to different extents
45
Q

p2 = alpha is 2
satisifes all axioms

A
  • weights the poverty gap as a square
  • gives greater weight to expenditure deficits further away from the poverty line
  • sensitive to distribution of expenditures of poor
  • satisfies monotonicity and transfer axiom
46
Q

flaws of p2

A
  • hard to interpret
  • giving more weight to bad data = anomalies
47
Q

how is proposed class of poverty measures used in policy application

A
  • alpha = measure aversion to poverty
  • the higher alpha = more concern for people further away from the line
48
Q

how does government target a given welfare budget to minimise poverty

A

P0 = spend on least poor - get them to cross the line
p2 = spend on the poorerst

  • each measure is differentially informative
  • if high in P0 but low in p2 = then have more people in poverty but less severe poverty
49
Q

what is time to exit poverty Morduch 1998 statistic

A

how long it would take a average poor person to exit poverty - at different economic growth rates
- sesntive to expenditure distribution

50
Q

what is the profile of a person in poverty
- characteristics in Ecuador
- significant regressors

A

younger
larger families = 6-12
food is inbetween 1/2 and 3/4 of total consumption (Engels law)
primary education only
informal sector
argiculture over services
self employed
less likely to have access to water, electricity, sewage
risk averse
lack of savings, borrowing and insurance
low investment in health education

51
Q

what is the poor poverty line

A

living in hhs with consumption pc less than 1.90 per person per day

52
Q

is poverty and growth related

A
  • why are rich countries have lower poverty? is it to do with economic growth
  • naive to think growth solves poverty
  • growth most cost effective way to solve poverty = no growth = no aid/anti poverty measures
  • growth lifts people from poverty
  • policy only focusing on poverty eradication doesnt stimulate growth = money runs out = need increased gov revenues
53
Q

is poverty dynamic

A
  • yes
  • temporoary phenomenon = people move in and out of poverty
  • vulnerable people keep switching
54
Q

why is acknowlding dynamic poverty good for policy makers

A
  • information on reasons that cause poverty dynamics = movement across the line is useful for policy makers to design safety net policies
  • if child birth is a reason for falling below = help mothers
  • long term = help improve assets and entitlements of poor
55
Q

what are the 3 types of poor

A

chronic poor
transient poor
non poor

56
Q

how can you measure poverty dynamics

A
  • panel data based on income and consumption = same subject over time
  • repeated cross sectional surveys
57
Q

Yaqub 2000 way of identifying chronic poor

A

distinguish permanent component of a hhs income from its transitory variations - chronic poor = permanent component is below the poverty line

58
Q

why is knowing vulnerability to poverty useful for policies

A
  • expost = who is currently poor - asseses how effective the policy is - does it make more people poor
  • exante = knowing what the impact of current policies will have on future poverty
59
Q

what do we need to define vulnerability

A

poverty line z
measure of risk alpha

  • you are vulnerable if the probability of being poor is greater than an arbitrary threshold alpha
60
Q

what determines alpha = measure of risk of poverty

A

hh consumption
and shocks

61
Q

what are the determinants of hh consumption

A
  • characteristics = age caste
  • asset endowments = capital
  • context capital is used
  • transfers = safety nets
62
Q

what are the types of shocs to these hh consumption that can cause poverty = risk of

A
  • assets = illness, loss of animals, land expropraition
  • context assets used = floods, droughts, war, inflation
  • transfers = loss of access to safety net, economic crisis
  • identifying the causes of vulnerability is essential for designing anti pov strategies
63
Q

how can you help chronic poverty

A

raise expenditure
cargo net instruments = lift average income = improve hh assets positions, context its used, transfers

64
Q

how can you help transitory poverty

A

raise expenditure and reduce exposure to risk
- accumulate savings
- formal and informal insurance schemes
- credit and social assistance

65
Q

importance of gov in reducing poverty

A
  • they are the ones that need to help
  • have the right policies
  • using evidence based approach to policy has proven effective
  • aid can play a limited role
  • how to lift people out of poverty = maybe credit markets, insurance
66
Q

what are the advantages of evidence based approach

A
  • framework we can evaluate policy and reforms
  • quantification of the effects of various measures
  • better understanding of what will increase income growth

Development Economics (5 decks)

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