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Fifth semester, exchange > Development Economics > Flashcards

Development Economics Flashcards

1
Q

What is sustainable development?

A

Development that meets the needs of the present generation without compromising the ability of future generations to meet their own needs. (Burntland report, 1987)

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2
Q

What are the three components of sustainable development?

A

Economic, Environmental, Social

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3
Q

What are the actors in development economics?

A
  • Civil societies, governments, NGOs, International organisations, development agencies
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4
Q

What are the current aims of the IMF and World Bank?

A

Fight against poverty, to bridge temporary imbalances

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5
Q

What are the approaches to development policies?

A
  1. Developmentalist approach (State as a lead actor)- developing national industry.
  2. Washington Consensus (Trust in the market).
  3. New consensus (market + state)
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6
Q

Why care more about poverty rather than GDP/capita?

A
  1. Limitations of the GDP per capita data (production for auto-consumption is not considered, informal sector not accounted, required high quality population estimates)
  2. Does not look of distribution of income, assets, resources.
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7
Q

How to measure poverty?

A
  1. With head-count
    - poverty line z and you count the number of people under this line
    Pros: easy to understand
    Cons: it is binary, so improvements that are still under the line are not measured
  2. Poverty gap: weighted average of poverty
    Pros: reflects the depth of poverty
    Cons: insensitive to severity of poverty (it fails the transfer axiom)
  3. Foster-Greer-Thorebeck with an exponential of that has different weights based on the alpha
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8
Q

What are the desirable properties of a poverty measure?

A
  1. Focus: welfare of non-poor persons are not accounted
  2. Monotiniciy: if there is an increase in economic welfare for the poor, this must reduce the measure of poverty
  3. Sub-group monotonicity
  4. Transfer: a small transfer from a poor person to a poorer one will decrease the measure
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9
Q

What are the differences in costs between poverty gap and headcount based policies?

A

The minimum cost of eliminating poverty is to fill all the poverty gaps exactly, by knowing how much each person needs.

The maximum cost of eliminating poverty is when we know nothing about incomes: you indistinctly transfer all poor the amount needed to be sure they end up above z

The difference between the maximum and minimum represent the potential savings of the poverty alleviation

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10
Q

What is the World Bank’s approach to measuring poverty?

A
  1. monetary equivalent to reach a certain amount of calories clothing and shelter
  2. convert to ensure PPP
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11
Q

What is relative poverty?

A

The concept that a person’s well being also depends on the person’s income relative to their peers.

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12
Q

What is the Rawlsian approach?

A

An approach that focuses on the consumption floor - the lowest level of living. Inequality is acceptable if the poorest persons also benefit to some extent.

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13
Q

What have been the changes in poverty over the last decades?

A

While we have seen a reduction in poverty measures, the poverty floor remains largely unchanged.

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14
Q

Describe the solow model?

A

A model that explians the accumulation of capital, labor, technology and natural resources allow ti drive long term economic growth.

Assuming a Cobb-Douglass form:

GDP (Y) = Technological progress(A)*Capital stock(K)^alpha *Labor(L)^(1-alpha)

In the long run the economy converges to a steady state, where capital accumulation offsets depreciation and population growth.

If the steady state factors (A,K,L) increase, we have a growth in the steady state GDP.

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15
Q

What is the formula for the per-capita GDP growth?

A

= capital deepening + human capital accumulation + productivity growth

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16
Q

What are the two endogenous elements determining income?

A

Endowments and Productivity

Partly endogenous: trade and institutions,

Exogenous: geography

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17
Q

What is a poverty trap?

A

A poverty trap occurs when the economy is stuck in a state of low income and capital accumulation and is unable to escape from it without external intervention. This concept extens the Solow model by incorporating situations where:
- The production function displays non-decreasing returns at low level of capital
- Economic agents face constraints that perpetuate their poverty

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18
Q

When does the economy fall into a poverty trap?

A

When the production function is below 45°.

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19
Q

What is ODA?

A

It is a flow to countries which are provided by official agencies (state, local governments) with the aim to promote economic development and welfare of developing countries. It is concessional in character.

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20
Q

What are the types of foreign aid?

A

Bilateral, Multilateral, Offial Development Assistance

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21
Q

What is the position of Jeffery Sachs on aid? How should governments intervene?

A

The poor lack 6 main types of capital:
Human, natural, institutions, business capital, infrastructure, knowledge.

Through natural monopolies, non-rival public goods, externalities.

Millennium Development Goals serve to create targeted investment plans.

Official Development Assistance is conditional on a public management plans and good governance.

Opinion: well-governed countries get too little help.

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22
Q

What is Moyo’s position on foreign aid?

A

African countries are poor because of all the aid they receive. Aid has the same effect as a natural resource:
- cuts government from the responsibility towards taxpayers
- discourages free enterprise
- encourages conflicts and corruption

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23
Q

What are the alternatives to foreign aid according to Moyo?

A
  1. Accessing the international bond market
  2. Large-scale direct investment in infrastructure
  3. Genuine free trade in agricultural products (end farmer subsidies in US/EU/Japan)
  4. Financial intermediation: microfinance, granting legal titles, remittances
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24
Q

What is Paul Collier’s position on foreign aid? What are the four traps/tools?

A

Traps:
1. Conflict trap: 73% of the bottom billion of people hare recently been or are living in a military conflict environment
2. Natural resource trap
3. Trap of landlocked countries with bad neighbors (30% of Africa is landlocked)
4. Trap of bad governance in a small country

Tools:
1. Aid
2. Military Intervention
3. Laws and charters
4. Trade Policy of reach countries (end subsidies in US/EU/Japan)

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25
Q

What is a field experiment?

A

Setting where the treatment was randomized by the researcher: hence selection bias is by definition zero; “field”means only that the treatment was manipulated by the researcher (subjects are observed while ‘living their lives’). Largely used Randomized control trials.

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26
Q

What is a lab experiment?

A

Setting where the treatment and the context of play is fully randomized by the researcher.

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27
Q

What is a natural experiment?

A

Natural setting with natural treatment: nothing is manipulated by the researcher; still one can plausibly argue there is no selection bias (e.g gender quotas in India’s Panchayats)

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28
Q

What are the steps in setting up a randomized experiment?

A
  1. Select an experimental sample of N individuals (from the population of interest)
  2. Randomly divide this experimental sample into two groups: the treatment group (Nt individuals) and the control group (Nc individuals)
  3. Treat the treatment group.
  4. The average treatment effect can be estimated as the difference in empirical means of Y between the two groups (Yt - Yc)
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29
Q

How can observables be used to control selection bias?

A

Observables are measurable characteristics of subjects that can be accounted for in the analysis, such as age, income, previous health status, etc.

By conditioning these observables, the treatment can be considered “as if” it were randomly assigned among the study subjects. This means that within groups defined by these observables, the treatment and control groups should be statistically similar except for the treatment.

30
Q

What is an identification strategy?

A

An identification strategy is the details of the manner in which a researcher uses observational data (i.e., data not generated by a randomized experiment) to approximate an experiment.

it consists of an assumption (or set of assumptions) that will identify the causal effect of interest, by getting rid of the selection bias

31
Q

What is difference in difference?

A

Idea: the treated and control group are different. But in the absence of treatment, they would have evolved similarly. Then, we can isolate the treatment effect.

32
Q

What are some other types of difference-in-difference strategies?

A
  • Triple difference - using a third dimension
  • Event studies - staggered treatment introduction to the different observations.
  • Propensity score matching - match each treated observation to the closest possible non-treated observation(s)
  • Synthetic control - combine control observations to reach the best counterfactual to the treated observations of interest, based on key observations
33
Q

Describe the instrumental variables strategy.

A

Idea: the treated and control group are different. But we know what determines the treatment. And it is otherwise unrelated to outcome. Then we can isolate the treatment effect.

IV is also called Two-stage Least Squares (2SLS) :
1. OLS regression of the endogenous (T) variable on the instrument (Z), with the corresponding predicted values computed (t)
2. OLS regression of the outcome (Y) on the endogenous variable while substituting by the predicted values (t) from step 1

34
Q

Describe the regression discontinuity strategy.

A

Idea: the control and treated group are different. But the threshold of inclusion in the program is arbitrary, so if you stay close enough from the threshold, people just before and just after are comparable

35
Q

What is internal vs external validity?

A
  • Internal validity: When regression provides us an unbiased estimate of the relation we are interested in (e.g. textbook allocation)
  • External validity
    When the estimate of the impact is valid outside the sample under study
36
Q

What are two characteristics of non-renewable resources?

A
  1. They are in specific places
  2. They are not renewed at a sufficient rate for a sustainable use
37
Q

What what are the takeaways discovered by Mamo et al 2020?

A

Mineral deposits discoveries and exploitation
* Increase nightlight emissions after a few years
* We don’t know if this translates into local economic development of households

38
Q

What are the results of the Argon and Rud paper? What research strategy did it use?

A

The paper examines the local economic impact of Yanacocha, a large gold mine in Northern Peru between 1997 and 2006.

  • Positive effect of the mine’s demand for local inputs on real income. The effects are only present in the supply market and surrounding areas, and reach unskilled workers in non-mining sectors.
  • Increase in the local price of housing and agricultural products.

Takeaway: There’s potential for extractive industries to create positive spillovers in less developed economies.

39
Q

Is there a natural resources curse?

A

The economic effect of resource wealth on countries is hard to identify. But locally:
* Large-scale resource exploitation increase nightlight emissions, effects on households’ wealth are debated (discoveries and exploitation have different effects)
* Artisanal mines: have positive economic spillovers (both on households consumption and on nightlights)

Maybe not a ‘curse’ if he impact depends on the setting !

40
Q

Why would natural resources be a curse?

A
  1. They reshape the market
    a. The Dutch disease
    b. Investment eviction
    c. Volatility
  2. Rent windfalls and institutions
    a. Good institutions allow to take advantage of resource rents
    b. Resource rents may affect the quality of institutions
  3. Pollution
41
Q

What is the Dutch disease?

A

General idea : following natural resources exploitation, we observe a decline in other sectors like the manufacturing sector. Like what happened in the Netherlands in the 60’s.

42
Q

What causes the dutch disease? What are the effects on trade?

A

-> exchange rate appreciation
-> increased demand for goods (traded and non-traded)
-> increase in wages & prices in the non-traded sector

Effects on trade:
-> it is harder to produce, as labor cost increased
-> it is harder to export, as the exchange rate increased

43
Q

What are the factors needed for the Dutch disease to take place?

A
  1. The traded goods sector generates more growth than the other sectors
  2. Labor availability is constrained
  3. The exchange rate appreciates with exports from natural resources
44
Q

What is investment eviction?

A

If all investment is absorbed by the primary sector (resource extraction) -> other sectors lack investment

45
Q

How does volatility affect markets with natural resources?

A

Idea: uncertainty with respect to the future reduces investment in physical and human capital.

  • Private sector: demands stability to carry out investments
  • Governments: have irregular incomes if they depend on natural resources. Cannot plan long-term.
46
Q

What is the Hartwick rule on the use of natural resources?

A

All capitals are substitutable: natural, human, physical. Only natural capital can be extinct, so it should be used to acquire the other types.

47
Q

How should natural resources be invested according to Venables 2016?

A
  • Sovereign funds- maybe best for richer countries
  • Human capital in the country – poorer economies often lack capital & local investment stimulates the local economy
  • Reducing countries’ foreign debt – and cost of repaying its interest
48
Q

How can resources affect the quality of institutions?

A
  1. Concentrates large rents in a few firms, which raises the
    return to rent-seeking by politicians
  2. Fiscal windfall limit the accountability of politicians as the state revenues do not depend on taxing the population – a concern similar to the concern around aid windfalls. Thus:
    - Reduces scrutiny over efficient use of public money
    - Allows to buy social peace
    - Allows to repress to remain in power
49
Q

Can information break the political resource curse according to Armand et al. 2020?

A

Informing community:
- increases local mobilization
- decreases violence

Only informing local leaders:
- increases elite capture
- increases rent-seeking

50
Q

What is the vicious cycle of resource depletion?

A

->Deforestation reduces rainfall->drought conditions increase the likelihood of fires->fires further reduce forest area->

51
Q

What are the four types of goods?

A

Excludable, rival: private goods
Excludable, non-rival: low congestion goods
Non-excludable, rival: common goods
Non-excludable, non-rival: public goods

52
Q

What type of good are renewable resources?

A

Common goods

53
Q

What is the tragedy of commons?

A

The situation in which individual users, acting independently according to their own self-interest, behave contrary to the common good of all users by depleting or spoiling a shared resource through their collective action, thus causing externalities.

54
Q

What are the three main ways to manage commons sustainability?

A
  • Privatization
  • Regulation
  • Coordination
55
Q

What features make collective action more efficient?

A

Communication, observable actions, repeated actions, similar users.

56
Q
A
56
Q

How do trees help cope with climate change?

A
  • Capture carbon
  • Stabilize soil
  • Regulate precipitations and waterways
57
Q

What is the general idea when modelling tree cover loss?

A

General idea: there is loss in forest cover when agricultural rent is higher than forestry rent.

The rents from each sector depends on:
- Prices
- Inputs: Labor and capital
- Transport: distance * cost

58
Q

What are the central principles of payments for environmental services?

A
  • Those who provide environmental services should be compensated for doing so.
  • Incentivize landowners to protect or improve natural resources: a market-based mechanism
  • Those who receive the services should pay for their provisionAcknowledge externalities.
  • Shift the burden to the ones who benefit, not to the resource owners (poverty).
59
Q

Discuss Mexico’s PSP design.

A

Payments for Hydrological Services Program
- started in 2003
- Funded through water use fees

Goal:
Protect forests to sustain:
- improved water quality
- reduced erosion and sedimentation
- reduced flood hazards

Mechanism:
- Cash transfers based on geographical features of land and applicant qualifications.
- $27-36 / hectare
- Conditional on maintaining forest cover

60
Q

How can forest cover be measured?

A

Tree health: Normalized difference vegetation Index (NDVI)

  • Uses satellite data to measure reflectiveness and “greenness” of vegetation
61
Q

Was PSP successful?

A

The program led to a substantial improvement of forest preservation
* Avoids an estimated 40–51 percent of the expected NDVI
loss
* No effect on households’ consumption
* Small magnitude effects on municipality-level poverty index
Key assumption: parallel trends

Takeaway : PES did help maintain the forest. It did not really decrease, but also did not increase poverty.

62
Q

Talk about Eisenbarth 2020.

A

Can Community Monitoring
Save the Commons?

Method: RCT
On grown measurement, Surveys, Satellite data

Results:
Small Gains in Monitored Areas
Outweighed by the increase in unmonitored regions.

63
Q

How does population growth relate to Solow’s growth model?

A

Population growth is bad news in the Solow growth model

Baseline model
- Population growth enters only in comparison to capital growth, as steady state is defined by steady state level of per capita capital.
- Higher population growth will (in general) imply a lower level of steady state capital per capita.

Extended model
- Innovation, brainpower or technology can ensure infinite growth!

64
Q

what is the formula for per-capita GDP growth?

A

per-capita GDP growth = capital deepening + human capital accumulation + productivity growth

65
Q

What is the child mortality metric?

A

The share of children that die before the age of 5.

66
Q

What are the two main drivers of the demographic transition?

A

Reduction in:
- Mortality
- Fertility

67
Q

What is the possible diversion within couples in relation to having children?

A
  • The benefit of having a child is often for both parent
  • The opportunity cost of having a child is born mostly by the mother
68
Q

How does fertility relate to child mortality?

A

They have a positive correlation. Several studies found a causal link.

69
Q
A

Fifth semester, exchange (5 decks)

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