Introduction and Chapter 01 Flashcards
What is developmental Economics?
Compare Traditional and Developmental Economics:
Traditional Economics:
- Efficient, least cost, allocation
- Optimal growth
- Neoclassical (perfect market, consumer sovereignty, automatic price adjustment, marginal, pricate, and profit, utility, rational)
Development:
Efficiennt allocation of resources and…
- Sustainability
- Social
- Political and Institution
- Culture, historic, religious
- frictions (struggle to adjust)
Poverty
What was the understanding of poverty throughout the 1960s to the 1970s?
Changing understanding nature of poverty:
- 1960s: “Poor but efficient”Poor doing best with what they have
- Later: “Poor but neoclassical”Not inherently efficient; agent rational choice but market inefficient → need for policy
Washington Concensus (1970s) - push to more liberal economy
Now…
“Poor but rational”, (Duflo 2003)
Rational consumer might bahave differently when poor than rich
Therefore, Development Agenda:
- Approach: Fix “deficient” foreign aid
- Research Agenda: market failures
- Evaluation of interventin of fix deficiencies (through randomized control studies)
What is the current understanding of poverty and adgenda in development circles?
Now…
“Poor but rational”, (Duflo 2003)
Rational consumer might bahave differently when poor than rich
Therefore, Development Agenda:
- Approach: Fix “deficient” foreign aid
- Research Agenda: market failures
- Evaluation of interventin of fix deficiencies (through randomized control studies)
Agenda
What is the Foreign Aid Agenda
Agenda: (1) Foreign aid and (2) Trade and Industrial Policy
Issues: (1) unintended consequences, (2) tied aid, (3) Missing aid, (4) role conflict?
Tied aid: give money in exchange that receiving country must pruchase their exports
dgenda
What is the issues with Trade and Industrial Policy Agenda?
Agenda: (1) foreign aid and (2) trade and industrial policy
Issues: (1) anti-dumping, (2) help produced locally, (3) excess local products dumped global market
Agenda
What is the policy actions regarding Trade and Industrial Policy Agenda?
Agenda: (1) foreign aid and (2) trade and industrial policy
(1) Greater Labour Mobility:
- Huge earning returns to migrant recieving countries
- Remittances (1) big impact sending coutries, (2) may be larger than aggregated foreign aid and loans
**Note: **Capital is a lot easier to move than labor
(2) Consumer Purchasing Power: fair trade
Agenda
What is the research actions regarding Trade and Industrial Policy Agenda?
Agenda: (1) foreign aid and (2) trade and industrial policy
- RCTs: rigorous, identifying causal effectsIssues: SCALE (give raliability)
- Important local content and research
- Diversity research methods → importance collaborating
RCTs: Randomized Control Studies
Why is measurement important?
Why is measurement important?
How is it done (on the aggregate level)?
Why is measurement important?
Maximize utility (hapiness, minimize suffering) ⇒ economic wellbeing
How: HDI, GDP, GINI, Happiness levels (issues on aggregate level)
Measurement
What are the Problems with Aggregate Measures?
- Inequality
- Sensitivity to measure
- Regional/gender differences
- Gross (not net) - ex: environment
- Missing important sectors of economy
GD(N)P
Define GDP:
GDP: Market Value of all goods and services produced in the economy over a period of time
- Aggregate value (issue measurements)
- “Within” country → domestic
Market Value:
Based on tradable goods → which results in issues due to the lack of inclusion of non-market goods, so often (especially for economies where a lot of the activity is not in the market) undervaluation of economic activity
What is Market Value
Market Value:
Based on tradable goods → which results in issues due to the lack of inclusion of non-market goods, so often (especially for economies where a lot of the activity is not in the market) undervaluation of economic activity
Market Price times Quantity
Define GNP:
GNP: Market value of all goods and services produced by residence of a nation (dep on tax,etc)
Market Value:
Based on tradable goods → which results in issues due to the lack of inclusion of non-market goods, so often (especially for economies where a lot of the activity is not in the market) undervaluation of economic activity
Market Price times Quantity
Distinction between GDP and GNP
Distinction: Who generates it?
Domestic (geographically in the country) and nations of the country
Importance of taking populatoin into account when using GDP?
Note the importance of distinguishing between GDP per capita and just GDP, because comparisons without taking poputlation sizes into account might be misleading
How (especially in Developing Nations) is GDP and GNP often not completely accurate?
- Not sufficient authority (tax) to reprot informal sector
- Lot of foreign workers changes persepctive
- Large Companies: “Foreign direct investment” → investment in country in GDP, but ~GNP
Define an indifference Curve
Combination goods provide the same level of utility
- Indiff every point on curve between good one and two
- Downwards slope: trade-offs
- Slope: Marginal Rate of Substitution(Ratio marginal utility goods)
Equilibrium: Marginal rate subsitution ⇒ income
(1) Optimize utility bundle
and (2) Want highest point indifference cu
Constraint: Budget Constraint
- Never upwards sloping: logical fallacy (transitivity)
- Always have a budget contraints
Therefore, Want to optimize own wellfare with a budget constraint
Relationship between GDP and Indifference Curves (utility)
Utility’s relation to well being:
- mpossible to measure utility
- Can measure income → means to an end
Therefore, Income is a proxy for wellbeing in a nation
Sayss NOTHING about distribution though
Note: GDP per capital (equate to income) and (living standards and happiness) have a strong positive correlation
What is the Human Development Index?
HDI = (1) Average Life Expectancy + (2) Education Index + (3) GNI/GDP
Add “liberty” to measure of income
- Measure 0-1 (all weighed equally)
- Also: issue measuring distribution
Note: similarily between HDI and Multi-Dimentional Index (OPHI)
PPP
What is the reason for having something like PPP?
Reason: Difference in relative prices and exchange rate
PPP
Define PPP and how to Calculate PPP dollars for two countries:
**Compute exchange rate so some basket of goods have the same PPP dollar value (fixed prices in space) **
How to calculate GDP in PPP dollars:
Market Exachange rate: based on only tradable goods.
- Add up Quantity X price (all goods) in local currency
- Convert one currency to another (market exchange rates)
PPP:
- Use the relative price X quantity for other country
- Add together and determine if undervalued or not
PPP
What is the Big Mac Index:
Big Mac Index:
- Takes homogeneous good
- Determine implied exchange rate for particular good
- Detemine if under/overvalued
What is the Development Gap?
Development Gap: Difference between economic development between advanced eveonomies and poorer economies
Measurements: (1) Income, (2) health, (3) education, (4) urbanization ra
