Final Exam Flashcards
Link Between Health and Education
- both investments made in the same person
- investment in health increase health capital –> raise return on the investment in education
- investment in education increase education capital –> raise return on investment in health
Child Labour
- children under the age of 15 shouldn’t work, and if they do it disrupts/prevents schooling (Asia and Sub-Saharan Africa)
- work helps support necessities (food/nutrition, school fees)
Education and Gender
- Niger, Mali, Guinea, Benin, South Asia
- female literacy rates less than half of men
- 123 million youth lack basic reading & writing (61% young women)
Closing the Gender Gap
Desirable for 3 reasons:
- rate of return on women’s education is higher than men’s
- increases women’s productivity –> earnings, higher labor force participation, later marriage, lower fertility and improved child health/nutrition
- reduces poverty because women carry disproportionate burden of poverty
Derived Demand and Supply
- derived demand: demand for a good emerges indirectly from demand for another good
- supply: quantity of school places is determined by political processes
Developed Countries: High Demand for Education, Educational Certification
- jobs for the uneducated are limited, individuals seek increasingly higher levels of education
- govts and employers in developing countries reinforce this trend through educational certification requirements
- educational certification includes the requirements by which particular jobs require specified levels of education
Social Benefits of Education
- benefits that accrue to others or a society as a whole (i.e. benefits of a more literate workforce)
- in developing countries SB of education is less than PB
Social vs. Private Costs of Education in Developing countries
- SC increases quickly when education increases
- SC are borne by society from education (i.e. government subsidies)
- SC contain opportunity cost to society; government is spending limited resources
- PC include the costs borne by students themselves
- PC increases slower when education increases because social costs include the opportunity cost
Health Definition
- a state of complete physical, mental, and social well-being and not merely the absence of disease and infirmity
AIDS/HIV
- final and fatal stage of infection with the human immunodeficiency virus (HIV)
- close to 70 million people have been infected with HIV, half of the infected have died of AIDS
- most severe in Sub-Saharan Africa
- more than 95% of all HIV cases and AIDS deaths occur in the developing world
Malaria
- transmitted through the bite from an infected mosquito that carries a parasite, when mosquito bites you the parasite goes into your bloodstream
- mostly affects impoverished African children, directly causes over 1 million deaths each year
- big impact on pregnant women, even if the children survive, about 15% of the children experience substantial neurological problems and learning disabilities
Schistosomiasis (bilharziasis or snail fever)
- one of the worst parasitic diseases, big negative impact on development
- caused by waterborne flatworms released from infected freshwater snails
- infects about 200 million people in 74 developing countries, half are school age children
African trypanosomiasis (sleeping sickness)
- insect (infected fly) borne parasitc disease
- mainly in remote areas of sub-Saharan Africa
- due to weaknesses of health systems, most people who contract sleeping sickness die before they are even diagnosed
- also kills cattle and leads to the abandonment of fertile but infected land
Robert Fogel Study
- found that citizens of developed countries are substantially taller today than they were two centuries ago. - says height is a useful index of the health and general well-being of a population –> increases in height in recent decades signals improvements in health conditions in developing countries.
- If height is an indicator of general health status –> higher productivity –> taller people should earn higher wages.
John Strauss and Duncan Thomas
- found in Brazil that taller men earn more money
- also found a link between height and wages in the U.S. but it a weaker connection
- shorter individuals are more likely to be unemployed and taller people receive more education than shorter people
4 Reasons for Effective Government Role in Health Systems
- Health is central to poverty alleviation,
- Households spend too little on health
- The market would invest too little in health infrastructure, research and development
- Public health programs in developing countries have many proven successes
Subsistence Agriculture
- refers to the fact that they are struggling to survive with their agricultural activities
- goal is to achieve development and make sure development becomes self-sustaining
Integrated Rural Development
contains rural development activities (i.e. small-farmer agricultural progress), the provision of physical and social infrastructure, the development of rural non-farm industries, and the capacity of the rural sector to sustain and accelerate the pace of these improvements over time.
Agrarian system
represents the pattern of land distribution, ownership, and management, and the social and institutional structure of the agrarian economy
Market Failures in Agricultural Sector and the Need for Government Policy
- govt plays a role to alleviate poverty because most of the worlds poor are farmers
- poverty prevents farmers from being prosperous and since they don’t have collateral they can’t get credit with good interest rates
- no credit = can’t hire workers –> hire their kids –> kids out of school
- kids have poor nutrition –> don’t perform at best capacity –> not enough income to afford better health
- NGO provides some help to these issues but govt needs to play some role/support
Latifundio
- A very large landholding that is especially seen in Latin America
- usually employs more than 12 people and are owned by a small number of landlords comprising a disproportionate share of total agricultural land
- operating well below productivity potential
Minifundio
- A small landholding especially found in Latin America that is considered too small to provide adequate employment for a single family
- usually are capable of providing work for fewer than two people
- in poverty
Family Farm
- A farm plot owned and operated by a single household
- Provide work for two to four people
- more efficient
Medium Size Farm
- A farm employing between 4 to 12 workers
- more efficient
Transaction Costs
costs of doing business such as gathering information, monitoring, establishing reliable suppliers, formulating contracts, obtaining credit, etc.
Sharecropper
a tenant farmer whose crop has to be shared with the landlord based on a rental contract
Tenant Farmers
farms on the land but has no ownership and has to pay for the use of that land
ex. by giving a share of output to the owner of the land
Moneylender
- is a person who lends money at high interest rates to peasant farmers to meet their needs for seeds, fertilizers, and other inputs
- if farmers can’t make payments on loans, the land is transferred to moneylender which then sold to rich landlords
Subsistence Farming
includes most activities of farming such as crop production and stock rearing which are conducted mainly for personal consumption.
Shifting Cultivation
tilling land until it has been exhausted of fertility then moving to a new land in order to make sure that the former land will regain fertility so that it can be cultivated again later.
Cash Crops
crops produced entirely for the market
Women in Agriculture
- duties are usually limited to the strenuous jobs of weeding and transplanting (unrecognized and unpaid)
- government sponsored programs usually exclude women (lack collateral, cant conduct financial transactions w/o husbands)
- rarely given training
- social/cultural barriers: women income is threat to mens authority
- *development programs working directly w/ women are more successful
3 Stages in the Evolution of Agricultural Production
- The pure, low-productivity, mostly subsistence-level traditional (peasant) farm.
- Diversified or mixed family agriculture.
- The modern farm.
Staple Food
the main food consumed by a large portion of a country’s population
cassava, wheat, barley, sorghum, rice, potatoes, or corn
produced in the subsistence farm as the primary sources of nutrition –> output and productivity are low (traditional methods and tools)
Diversified (mixed) Farming
- the production of both staple crops and cash crops and simple animal husbandry; this could be an intermediate step in the transition from subsistence to specialized farming
Specialized Farming
the final and most advanced stage in agricultural production in which farm output is produced wholy for the market
goal is pure commercial profit
specialized farms with a variety of sizes and functions.
2 Sources of Technological Innovation to Increase Farm Yields
- introduce mechanized agriculture that would replace human labour
- Biological (hybrid seeds and biotechnology), water control (irrigation), and chemical (fertilizer, pesticides, insecticides, etc.) innovations
Green Revolution
the boost in grain production associated with the scientific discovery of new hybrid seed varieties of wheat, rice, and corn that have resulted in high farm yields in many developing countries
Land Reform
involves the changing of laws, regulations or customs regarding land ownership
may consist of a government-initiated or government-backed property redistribution, generally of agricultural land
Export Dependence
a country’s reliance on exports as the major source of financing for development activities
Current Account
the portion of a country’s balance of payments that reflects the market value of the country’s exports and imports
Capital Account
the portion of a country’s balance of payments that shows the volume of private foreign investment and public grants and loans that flow into and out of the country
Current Account Defecit
the excess of import payments over export receipts
Income Elasticity of Demand
- the % change in quantity demanded divided by the % change in price
- primary products (raw materials) = low income elasticity
- fuels and most manufactured goods = high income elasticity
Export Earnings Instability
fluctuations in developing country earnings on exports due to low price and income elasticities of demand lead to erratic movements in export prices
Commodity Terms of Trade
- The ratio between the price of a typical unit of exports and the price of a typical unit of imports
- Px / Pm, Px = export price index AND Pm = import price index
- deteriorates for a country if Px/Pm falls
Prebisch-Singer Hypothesis
- theory for the declining commodity terms of trade
- states that the commodity terms of trade for primary-product exports of developing countries tends to decline over time causing harm in developing country economies since it leads to an ongoing transfer of income from poor to rich countries
Opportunity Cost
the value of the next best alternative that is foregone. It depends on the available resources in the country
Comparative Advantage
A country has a comparative advantage at the production of a commodity if they can produce it at a lower opportunity cost than any of the alternative commodities that could be produced
Absolute Advantage
the production of a commodity with the same amount of real resources as another producer but at a lower absolute unit cost
Factor Endowment Theory
- assumes that countries will tend to specialize in the production of the commodities that they will be able to produce with their relatively abundant factors of production
- used to determine comparative advantage
Factor Price Equalization
The proposition is that because countries trade at a common international price ratio, factor prices among trading partners will tend to equalize
The North-South Trade Model
- focuses specifically on trade relations between rich and poor countries
- examines the unequal exchange between the North developed countries and the South developing countries and tries to explain why the South gains less from trade than the North
Vent-for-Surplus Theory of International Trade
- when a country produces more than it can consume it produces a surplus (underutilization)
- argues that opening world markets to developing countries through international trade helps those countries to make better use of the under-utilized resources
- Trade with another country is then used to vent off this surplus
Synthetic Substitutes
- artificially produced commodities that can be substituted for the natural commodities
- developing world market shares of natural commodities have fallen steadily because of synthetic substitutes
Tariff
fixed percentage tax on an imported commodity levied at the point of entry into the importing country
Quota
limit on the quantity of any item that can be imported into a country
Subsidy
a form of financial aid or support extended to an economic sector (or institution, business, or individual) generally with the aim of promoting economic and social policy
Enclave Economies
- small, economically developed regions in developing countries in which the remaining areas have experienced much less progress
- substantial foreign-owned mining and plantation operations
- foreigners pay low rents for rights to use land, bring in their own skilled labour, hire local unskilled workers at subsistence wages
Outward-looking Development Policies
encourage exports, often through the free movement of capital, workers, and enterprises welcoming multinational corporations and open communications
Inward-looking Development Policies
- stress economic self-reliance including domestic development of technology, the imposition of barriers to imports, and the discouragement of private foreign investment
- focus on the need for nations to develop their own technologies by “learning by doing” that are aligned with the country’s resources
Import Substitution (IS)
- an effort to replace consumer imports by promoting the emergence and expansion of domestic industries
FIRST-STAGE: A developing economy should initially substitute domestic production of imported simple consumer goods such as furniture and simple household appliances
SECOND-STAGE: substitute through domestic production for more sophisticated manufactured items
-inward looking policy
Export Promotion (EP)
- contains efforts to expand the volume of a country’s exports through increasing export incentives in order to generate more foreign exchange
- encourages firms that are competitive on world markets
- focuses on the benefits of free trade and competition and the importance of substituting large world markets for narrow domestic markets
International Commodity Agreements
- formal agreements by sellers of a common internationally traded commodity to coordinate supply to maintain price stability
- goal is to guarantee participating nations a relatively fixed share of world export earnings and a more stable world price for their commodity
Infant Industries
newly established industries that are protected by a tariff barrier as part of a policy of Import Substitution, eventually “grow up” to compete in world markets
Official Exchange Rate
rate at which the central bank will buy and sell the domestic currency in terms of a foreign currency
Overvalued Exchange Rate
the official exchange rate is set at a level higher than its real value
Non-tariff Trade Barrier
- barrier to free trade that takes a form other than a tariff, such as quotas or sanitary requirement
- more difficult to administer and more subject to delay and inefficiency but are still helpful to restrict the entry of some commodities
Trade Optimists
advocates of free trade, outward-looking development and export promotion policies
believe in the benefits of open economies and outward-looking development policies
Trade Pessimists
advocates of greater protection, more inward-looking strategies, and greater import substitution.
argue that without tariff or restrictions on trade, developing countries gain little or nothing from an export oriented open-economy
New Protectionism
- idea of the formation of nontariff trade barriers by developed countries against the manufactured exports of developing nations
Trade Liberalization
removal of obstacles to free trade (removal of quotas, nominal and effective rates of protection, and exchange controls)
Industrialization Strategy Approach
- an outward-oriented development strategy that focuses on overcoming market failures through government policy and encouraging technology transfer and exports of progressively more advanced products
Economic Integration
occurs when a group of nations join together to form an economic union or regional trading bloc by raising a common tariff wall against the products of nonmember countries while freeing internal trade among members
Customs Union
a form of economic integration in which two or more nations agree to free all internal trade while levying a common external tariff on all nonmember countries
Common Market
holds all the attributes of a customs union (common external tariffs and free internal trade) plus the free movement of labour and capital among the partner states
Trade Creation
trade flows are redirected due to the formation of a free trade area or a customs union - trades take place between countries in the customs union
Trade Diversion
trade is diverted from a more efficient exporter towards a less efficient one by the formation of a free trade agreement or a customs union
ex. UK bought goods from New Zealand because it was efficient producer of a good. Denmark and UK form a customs union and NZ now suffers loss of sales because trade was diverted from NZ to Denmark
A multinational corporation (MNC)
- a corporation that conducts and controls productive activities in more than one country
- economic/political power over the countries in which they operate
- typically produce products only demanded by a small, rich minority of the local population
Foreign direct investment (FDI)
- represents overseas equity investments by private multinational corporations
Main Characteristics of MNC’s
- large size
- their worldwide operations and activities tend to be centrally controlled by parent companies
Global Factories
various operations are distributed across a number of countries to take advantage of existing price differentials
Transfer Pricing
- an accounting procedure often used to lower total taxes paid by MNCs
- they artificially invoice their sales and purchases of goods so that profits accrue to their branches located in low-tax countries
- goal: show little or no taxable income in their offices in high-tax countries.
Private Portfolio Investment
- consists of foreign purchases of stocks (equity), bonds, certificates of deposit, and commercial paper
Remittances
- a sum of money sent, especially by mail, in payment for goods or services or as a gift
- migrants often send money and build houses for their families which are needed for keeping kids at school and better fed –> help reduce poverty
Foreign Aid
- public (official) development assistance
- private (unofficial) assistance provided by nongovernmental organizations (NGOs)
any flow of capital to a developing country that meets two criteria:
- Its objective should be non-commercial from the point of view of the donor,
- It should be characterized by concessional terms.
Concessional Terms
terms that the interest rate and repayment period for borrowed capital should be softer (less stringent) than commercial terms
Official development assistance (ODA)
net disbursements of loans or grants made on concessional terms by official agencies, historically by high-income member countries of the Organization for Economic Cooperation and Development (OECD)
Two-gap model
- model of foreign aid comparing savings and foreign-exchange gaps to determine which one is the binding constraint on economic growth
- model is not 100% accurate
- model says most developing countries face either a shortage of domestic savings or a shortage of foreign exchange
Savings Gap
- represents the excess of domestic investment opportunities over domestic savings which causes investments to be limited by the available foreign exchange
Foreign Exchange Gap
results when the planned trade deficit exceeds the value of capital inflows. It causes output growth to be limited by the available foreign exchange for capital goods imports
Fiscal Gap
- deficiencies of government investments including infrastructure and human capital that are complementary to private investment
Technical Assistance
- a type of foreign aid that takes the form of the transfer of expert personnel, technicians, scientists, educators, and economic advisers
- usually takes the form of high-level worker transfers to ensure that aid funds are used most efficiently to generate economic growth
- filling the skill-gap in developing countries.
Absorptive Capacity
- ability to use aid funds wisely and productively
- interpreted as the ability to use the funds as donors want them to be used
Tied Aid
requires the recipient country to use the funds to purchase goods or services from the donor country
Nongovernmental organizations (NGOs)
- provide one of the fastest-growing and most significant development assistance
- voluntary organizations that work with, and on behalf of, mostly local grassroots organizations in developing countries
Advantages of NGO’s
- They are less constrained by political imperatives –> able to work much more effectively
- able to avoid the suspicion and cynicism on the part of the mostly poor people whom they serve because they work directly with local people’s organizations; people see that their help is sincere and not likely to be short-lived
Conditional Cash Transfer (CCT) Programs
programs that aim to reduce poverty by making welfare programs
money is transferred only if person(s) meet certain criteria
Industrial Policy
strategic effort to encourage development and growth of part or all of manufacturing (and sometimes other sectors of the economy)
Globalization
when businesses or other organizations develop international influence or start operating on an international scale
The General Agreement on Tariffs and Trade (GATT)
an international organization established in 1947 to help trade negotiations, searched for ways of reducing tariffs on internationally traded goods and services
replaced in 1995 by the World Trade Organization
World Trade Organization
deals with global rules of trade between nations
main function is to ensure that trade flows smoothly, predictably, and freely as possible
Growth Poles
Regions that are more economically/socially advanced than others around them
Barter Transactions
refers to the trading of goods directly for other goods
Balanced Trade
when an economy runs neither trade surplus or trade deficit
countries agree to purchase as many goods as it sells to the other
Effective Rate of Protection
measure of the total effect of the entire tariff structure on the value added per unit of output in each industry when intermediate and final foods are imported
p = (v’ -v)/ v (v’ = value added w/ protection, v = value added w/o protection)
Nominal Rate of Protection
the percentage tariff imposed on a product as it enters the country
Free Trade Area
area within which goods may be landed, handled, manufactured or reconfigured, and reexported without the intervention of the customs authorities
