Exam 1 Flashcards
DCs:
Developed
Most of north and Australia
LDCs
Developing
Most of south; 83% area, 44% India & China
Developing ___ underdeveloped
>
Developing
progress & movement
Underdeveloped
static & no improve
Low-income economies:
Sub Saharan/middle Africa
S.E. Asia
Some of Latin America, E. Europe, ME
Middle-income economies
Latin America & Caribbean
North & South Africa
E. Europe & N. Asia (Russia)
ME Pacific/East Asia (islands)
High-income economies
North America & W. Europe
Australia & NZ
NE Asia
How development economics is different than other economics
Price ceilings
Taxes
Lack property rights
Undervalue currency
Lack of independence of central banks
Economic growth and structural change = central issues
Concerned with how one creates and strengthens institutions that facilitate development.
Know why development is easier with growth
- Incr. $ for development
2. No conflict over current resources
Differentiate between growth and development and examples of differences
Growth = sustained rise in per capita income
3 aspects of development
1. Defined by health and education
2. Process that explains structural changes in an economy:
(Start) agri =>manufacturing=> services (highest)
3. Citizens = benefiters & contributors to economy
Growth but no development Oil exporting countries (ME, Qatar) Libya before revolution Development but no growth Sri Lanka Cuba
Understand the difference between GNP, GDP, and GNI and why for some countries GNP > GDP and for others GDP > GNP
GNP(GNI) = sum of the value of citizens’ output of finished G/S produced per year.
GDP = all output produced within the borders of a country – includes output produced by resident foreigners.
GDP: Angola: > ¾ national income derived from oil (mostly MNCs) => GDP>GNP
GNP: Bangladesh: few natural resources and DFI => citizens work abroad => GNP>GDP
IMF, UN, WB use GDP b/c easier to track economic activity within borders
Real GDP (per capita) – adjust for domestic price inflation
Know the meaning of PPP, its comparison base, problems, and calculating GNP at PPP
Comparing nations to set of prevailing $s
PPP allows for more valid comparisons of real income levels across economies
4 limitations of PPP:
- estimates of national income are only estimates and have flaws
- cant correct underlying GDP measurement problems in nation’s own currency
- variation of quality of goods
- ICP price index gives more weight to goods consumed in rich nations => upward bias LDC GDPs who consume different goods
Know why we use GNP at PPP and not the exchange rate
E% problems:
- can be distorted by (1) trade restrictions and (2) government intervention.
- non-traded goods = major part of income
Provide examples of non-traded goods
Haircuts, transportation, wholesale/retail, school land, homes, buildings
Know the components of the human development index
- years life expectancy
- years schooling
- $ income
Know why we calculate the HDI the way we do
HDI combines outcomes with different units of measurement => each converted into index # to permit aggregation.
All calculated in % => solves problem of different units of measurement
Aggregated via geometric mean b/c not perfect sustainability (arithmetic mean); geometric better reflects intrinsic difference across indices.
Know the criticisms of the HDI
- assuming diminishing returns only to income
- geometric mean
Other development measures are very (not perfectly) correlated with income levels
With growth, increasing income levels can predict a lot about development.
Useful in calling attention to development issues
Broadly understand the meaning of the Millennium Development Goals (MDGs), its criticisms and positives.
“UN Millennium Declaration” – broad reaching document w/ commitment “to making the right to development a reality for everyone and to freeing the entire human rate from want” + 8 goals
- eradicate extreme poverty and hunger
- achieve universal primary education
- promote gender equality and empower women
- reduce child mortality
- improve maternal health
- combat HIV/AIDS, malaria, and other diseases
- ensure environmental sustainability
- develop a global partnership for development
poverty reduction @ the global level on track to meet/exceed target by 2015
access to clean drinking water should exceed target
2/3 reduction in child mortality (target wont me met)
universal treatment for HIV/AIDs has some success but wont achieve by 2015
success at cutting global poverty in half (bc of china)
focused on governments in poor nations and donors in rich nations
MDG challenges
set goals too high or too low
don’t address fundamental economic problem of trade-offs and priorities
Know the Collins and Bosworth study on TFP of other countries
Studies on all LDCs:
- LDCs do rely more on Incr. K, Incr. L than Incr. TFP
- East Asia -> similar TFP to DCs
Know why the production function has that particular shape
Diminishing marginal product of capital
Explain the difference between absolute and conditional convergence (the text in chapter 3 has some explanation on this as well)
Absolute – all countries in the world
Conditional I: limit the sample to similar economies
Lesson: increase homogenous sample => incr. P(convergence)
=> B/c solow assumes all have same production function to converge
Conditional II: other variables that influence growth (besides Y)
Problem: no theory to derive this
⇨ many other variables can affect growth
Without Asian miracle…
would not have heard asian values (ingredients in success)
self confidence generated by economic g
Paul krugman
econ @ stanford, “the myth of asia’s miracle”
ploy: point out similarities btw E. Asia’s g & USSR
=> growth based on mobilization of resources (not incr. efficiency)
Krugmans implication of comparison
west has no more to learn from asian values than from communism
Krugman’s thesis
E. Asian g ~100% attributable to incr inputs (labor & capital), Incr. sausage machines & workers => incr. # sausages
=> g decr. when run out of sausage makers
=> law of diminishing returns unless incr. efficiency
Most straight forward argument against krugman =
hardest to evaluate - “index of ignorance”
K: input indexes show TFP not grown
K: what did singapore say
singapore: incr inputs (education) => incr TFP
K: as advantages of asian countries (esp labor) decr…
international competition will force them into efficiency
=> not according to K: incr efficiency much harder than incr inputs - not sure if asia knows how
K argues
g decr (not that asia boom = over)
K: china’s economy
will incr. size (% of US size) but not > US
still enormous change in global balance
Some asian experts credit krugman with
drawing attention to efficiency
krugman may have helped to allay western fears about their miracle => ease protectionist pressure (fostered myth> debunked it)
K sounded a warning: 1-2 “brazils” in asia
K: Park’s argument
- controversy misses big picture
- concentration of asian poor country success stories
- economic development = initially a matter of mobilizing resources -> efficiency concerns loom later on
- bigger Q: why developing countries outside region have not (in general) produced own miracles of sausage makers
K: Chik’s argument
- use of sausage-makers = flawed - only true if E. asian investments made in add’l similar sausage making machines
=> instead much invest. gone into newer tech & equip -> not so obvious diminishing returns will set in - comparing USSR & Singapore = flawed:
=> singapore produces incr sophisticated range of products demanded by int’l mkt -> forces high-power incentives to incr efficiency
K: Dolfin’s argument
- naive & misleading to imply decr. TFP => end of Asian boom
=> error to put too much meaning into TFP
K: Wyszomierski’s argument
- Malaysia’s prime minister (mohammed) acknowledged asian’s have intellect to incr efficiency
=> bemoaned lack of intellectual curiosity on part of malaysia as a significant impediment to transfer of productivity-enhancing technology - incr productivity = product innovation - which is the progeny of intellectual freedom & curiosity
=> S.E. asia decr creativity of human capital when pursue socially repressive policies which stifle intellectual freedom
Know the broad reasons why countries grow faster than others
- macroeconomic and political stability
- investment in health and education
- effective governance and institutions
- favorable environment for private enterprise
- favorable geography
- successful movement from agri to industry
- initial income
- other
rural population vs GNI pc (PPP)
(-)
life expectancy vs PPP
(+)
female literacy % vs PPP
(+)
Diversity in development achievements (doubling time)
most growth:
lowest growth:
east asia & pacifc (8.6 in 2000s)
sub-sahara (2.6) & LA 2.5
how are LDCs different?
micro/macro
lack of institutions
market failures
government failures
citizen production
GNP
production within borders
GDP
g =
real GDP (GNP or GNI) growth % p.c.
GDP p.c. with ER vs PPP:
when $ > US =>
when $
rises
lowers
GDP p.c. with ER vs PPP:
LDCs understatement ratio =
aid depends on GNP ->
higher
dont like moving up b/c aid decr.
Historical facts on growth: 1 BCE to 1000: 1000 to 1820: 1500: 1580 - 1820: 1820 - 1890: since 1890:
g=0% g=0.05% richest in world: china & india Netherlands 0.02% UK = world leader 1.2% US 2.2%
mobility matrix
income mobility of countries
each # is how rank in world order
shows how difficult to move up rank/ladder
GNI p.c. rank - HDI rank:
countries greater than or = 30
countries
development > growth
ex: NZ, Cuba, Georgia
growth > development
ex: Gaben , Qatar, Kuwait, South africa, Botswana, Guinea, oman
Highest HDI
norway
lowest HDI
congo
positive of MDGs
standardized across the world; do together
criticisms of MDGs
countries @ different levels=> timing & institutions
Economic growth alone is not enough to meet all MDGs
can w/ E Asia (poverty)
cannot w/ S-S Africa (poverty)
none for any in under 5 mortality
2 sources of increased output (production function)
- factor accumulation: (incr K & L => incr. Y)
- Productivity growth: each factor you get more output
- efficiency change - reorganize process
- technological change - get more current machines/laborers
middle income country trap
- escape poverty but slow down => don’t become rich
- went through 1st stage of (K/L) but now hitting dim. returns
- (17/200 overcame)
- $5000 to $6000 p.c. (china @ 4,120)
What drive growth?
=> 50% investment (gk)
=> 10-20 incr. workforce (gl)
=> 30-40% leftover g -> TFP (catch all, incr eff via k or L)
how to increase TFP enough to escape trap?
looking for sustained growth. not downsize state owned enterprise not urbanization not imitation INNOVATION
Secret: not to g, but to how to sustain g?
one decade, only 1/3 LDCs >5%
20% negative any odd year (snakes and ladders)
in 5 decades, only 2 countries grown >5%: S. korea, Taiwan
ideas of economists & philosophers > powerful than commonly understood. => world ruled by little else
keynes
slaves of defunct economists
=> believe their exempt from intellectual influence
practical men
from keynes
hear voices in the air
=> distilling frenzy from academic scribber
madmen in authority (from keynes)
solow (neo-classical) model
most influential model constant returns to scale: y=f(K/L) fundamental growth equation: comparative statics solow's lesson: incr savings (investment) does not provide LT growth, just ST growth - but economy reaches higher level of y
problem with solow
predicts convergence (focus on steady state & g% influences) but not understanding of pathways factors influence output and growth
