Exam 2 Flashcards
Theory (definition)
A proposition about what explains the outcome of interest; makes (a set of) generalization(s) that seek(s) to explain real-world phenomena
Theory (definition’s implications)
Implies hypotheses with observable implications (sets unit of analysis- states, regimes, institutions, parties, individuals, etc.)
How do we evaluate theories?
We evaluate theories by examining if they can account for what we observe in the real world (we can dismiss theories that do not hold and get closer to the systematic knowledge through a continuous process of elimination)
Are theories “right”?
Theories are never right, see building theory
Building theory
The process of continuous scrutiny, re-evaluation, and adaptation (NOTE: some theories widely are almost universally accepted)
Theories must be…
Falsifiable (capable of being proven wrong); ex of a non-falsifiable theory: extra-terrestrials hide among us and periodically save the planet (usually on Christmas)
Research design
Use empirical analysis to evaluate theories and their observable implications (systematic analysis of data, does not make value judgements i.e. normative)
Research design objective
To find cause-and-effect relationships between two or more variables (change in one variable causes change in another variable in a predictable way)
Variable
Any factor, trait, or condition that can exist in differing amounts or types
Variable examples (what explains vote choice?)
Education, race, religiosity, income, ideology, etc.
Dependent variable (DV)
What we are interested in explaining i.e. the object of our study, the variable we expect to be affected by other variable(s), the variable whose value changes as a result of change(s) in the value(s) of other variable(s)
Dependent variable example (voting)
Vote choice
Independent variable (IV)
The factor that influences or causes the dependent variable to vary; ex: A causes B (A=IV, B=DV)
Independent variable voting example
Education, race, religiosity, income, ideology
When only one IV
Univariate analysis
Two IVs
Multivariate analysis
Hypothesis
An observable implication of a theory that can be tested empirically; posits a testable cause-and-effect relationship between IVs and DVs; “if our model/theory is correct, then we should observe in the real world that _______”;
Most important thing about hypotheses
They are testable
Steps in hypothesis testing
1) Defining key terms, 2) specifying hypotheses, 3) identifying variables, 4) collecting and examining evidence (we are looking for evidence that would support and contradict our hypothesis), 5) drawing conclusions (evidence may be a. consistent with hypothesis, b. inconsistent with hypothesis, c. inconclusive)
Correlation
Change in value of IV associated with change in the value of the DV
Positive correlation
IV and DV vary in the same direction (IV increases, DV increases)
Negative correlation
IV and DV vary in the opposite direction (IV value increases, DV value decreases)
Correlation vs. causation
Correlations are necessary to establish a casual effect, but correlation is not explanation (it does not tell us why variables are correlated); correlation is not causation
“Controlling”
Accounting for alternative explanations, ensuring that we only compare “like to like” (and not apples to oranges); ex: testing children’s “general knowledge” finding a positive correlation between height and what children know –> tall kids know more than short kids? (multivariate analysis)
Theory
Proposition about what explains an outcome of interest; generalization that seeks to explain relationships between variables; helps us tell the casual story because it specifies the direction of the “casual arrow” when we observe a correlation (variable 1 –> variable 2 means that change in v1 causes a change in v2)
Endogeneity
Problem of distinguishing cause from effect
Selection bias
Part of case selection, the selection of observations for analysis such that the sample is not representative of the universe of cases (ex: online polls)
Political economy
Combination/intersection of politics and economics
Politics –> economy
Political decisions impact the economy; the economic order depends on stable political system to operate
Economy –> politics
Actions of economic actors and performance of the economic system have a major impact on politics; political order depends on the economic system to generate income, goods, and services
Ideal types of political-economic systems
“Laissez-faire” market economy- right, “Command economy” (ex: Soviet economic system)- left
“Mixed” market economies
Compromise between ideal types: both markets and states are needed for well-functioning economy; most current economies (with exception of Communist states); most economic development strategies (ex: state-led industrialization/mercantilism, import substitution industrialization/ISI, etc.)
Who controls the factors of production? (Laissez-faire)
Private actors control their own factors
Who controls the factors of production? (Command)
The state
Who determines which goods are produced? (Laissez-faire)
Private actors make decisions
Who determines which goods are produced? (Command economy)
The state devises a detailed economic plan specifying production of each good
Who determines the values of different resources and goods (Laissez-faire)
Allocation based on actions of consumers and producers; no state interference
Who determines the values of different resources and goods? (Command)
The state’s economic plan specifies who will receive what amounts of which goods
Who decides how factors of production and goods will be allocated? (Laissez-faire)
The market sets the value based on the equilibrium of supply and demand (the “invisible hand”)
Who decides how factors of production and goods will be allocated? (Command)
The state sets the value in all exchanges
How big a role does the state play in answering these questions? (Laissez-faire)
State has only a minimal role; enforces contracts, protects from violence
How big a role does the state play in answering these questions? (Command)
State is dominant, controlling virtually all aspects of the political economy
Key problems (Laissez-faire)
Resource inequality, economic hardship (ruthless competition, indifferent to hardships of the less fortunate, increasing income inequality); production for profit, not need (needs of disadvantaged are ignored, bad externalities); severe economic cycles (severe swings between busts and booms, no state intervention to counteract or ease the cycles)
Key problems (Command)
Limited incentives for productivity (absence of competition hurts innovation, efficiency, work attitudes, quality of goods); unresponsive production (consumer demands matter little, oversupply some goods w/ shortages of others); over-centralization and inflexibility (see above)
Key problems (Mixed)
Experiences the same problems as other types, depending on the “mixture” of free market and intervention, BUT problems are less severe (mixed economies are the norm in today’s world but on a continuum –> different degrees of free market and state intervention)
Economic policy tools (fiscal policy)
Taxes, spending (investment)
Economic policy tools (monetary policy)
Interest rates, money supply
Economic policy tools (regulation)
Making economy more efficient in general and across industries, public goods
Economic policy tools (trade policy)
How (and how much) foreign trade is regulated
Fiscal policy (taxes)
Pay for government services and redistribution while also being a tool of economic and social policy (encourage people to spend or save money, encourage spending on some goods over others, encourage particular social structure- marriage, children, etc.); winners and losers (progressive vs. flat taxes)
Fiscal policy (spending- investment, distribution)
Of money, goods, services, opportunities inn capital (human and otherwise), labor, and infrastructure; possible objectives: efficiency, equality, both
Monetary policy (Central Bank)
Sets national interest rate (the rate charged to banks when they borrow from the central bank), aka the “cost of money”; does so largely by “open market operations (buying and selling credit instruments, foreign currencies, or commodities)
Monetary policy (money supply)
How much money there is in the economy (increasing interest rates reduces the supply of money and vice versa); seeks to control inflation, without depressing economic activity
Monetary policy (Central Bank “Independence”)
The more a central bank is “independent,” the less role the government plays in the economy
Monetary policy (national interest rate)
The national interest rate affects both economic growth and unemployment and inflation
CB lowers national interest rate
–> More borrowing, less saving –> more money circulates and is being spent –> more growth, higher inflation
CB raises national interest rate
–> Less borrowing, more saving –> less money circulates and is being spent –> lower inflation, less growth
Monetary policy (goal)
Goal is usually a balance of growth and inflation (but, in China, for example, the goal of monetary policy to achieve a particular exchange rate between the Chinese renminbi and foreign currencies)
Regulation
Regulation of “the market” to achieve certain goals; for businesses: property rights, contractual obligations, response to violates, subsidies; for employees: protection against exploitation, discrimination, safety standards, working standards, sometimes wage bargaining; for consumers: protection against fraud, manipulations, “externatilies” (toxic waste, environmental degradation, etc.)
Trade policies
Quotas (import and export, limit quantities of incoming or outgoing goods), tariffs (taxes on imported goods), non-tariff barriers (rules- ex: environmental, safety, health, affect cross-border economic activity)
Indicators of economic development
GDP, GNP, PPP
Gross domestic product (GDP)
The total market value of all goods and services produced within a country over one year
Gross national product (GNP)
Total value of goods and services produced by residents of a country, including income from abroad, over one year
Purchasing power parity (PPP)
A method for estimating GDP or GNP across countries, estimates the buying power of income in each country by comparing costs of similar products, an alternative to using nominal prices
Economic development
States (and their populations) want to develop economically (agricultural –> industrial –> service economy); how: more state involvement (import substitution industrialization, export oriented industrialization), less state involvement
More government involvement (import substitution industrialization)
Develop domestic industries by replacing imports with domestically produced goods; restrict imports (high tariffs), subsidize domestic industries, overvalue currency to help manufacturers import capital goods (ex: heavy machinery); often leads to growth… in the short term
ISI (protectionism, high tariffs) –> Increased domestic prices make exports less competitive
–> Less foreign currency (but need to import capital goods) –> devalue currency to make exports competitive –> inflation
ISI (protectionism, high tariffs) –> subsidizing inefficient industries is costly
–> Budget deficits –> borrow or print money to cover costs –> inflation
Export-oriented industrialization
Protect domestic industries, goal is international exports; drawbacks: leads to inefficiencies, large state sectors, reduced domestic competition, dependence of economy on few big firms, uneven distribution of benefits
Less government involvement (economic development)
Neo-liberal economic reforms (structural adjustment): 1) liberalization (lower taxes, lift trade restrictions –> more free trade, reduce industry regulation), 2) stabilization (reduce government spending and debt; tighten monetary policy to control inflation), 3) privatization (move property to private vs. state control), 4) attract foreign investment
Less government involvement (drawbacks)
Reduces investment in education, infrastructure, welfare state provisions; higher inequality; economic dislocation
Do political regimes affect development (what’s better for the economy- democracy or dictatorship?)
No tradeoff between democracy and development (no evidence that democracies are inferior in generating growth, democracies better credibly committing to protect property rights)
Explanations of democratization
Structural explanations, international explanations, actor-based explanations
Structural explanations of democratization (or its absence)
Modernization theory, resource curse, national heterogeneity
Modernization theory (economic development)
Economic development –> democracy (endogenous explanation; role of middle class, role of civil society- people need time and resources to organize parties, excessive inequality is bad for democracy?)
Modernization theory (convergence)
Predicts convergence: all states develop and become democraies
Modernization theory (exogenous explanation)
Democracy is established independently of development, but is more likely to survive in developed countries)
