Policy Implications for Developed Nations Key Concepts Flashcards
Productivity
Productivity: Average amount of goods and services produced by a worker in a given amount of time
- Often measured by evaluating GDP per hour worked
- Productivity is an important difference across countries
- A country’s standard of living depends on its ability to produce goods and services and thus on productivity
4 types of capital
Human, Physical, Knowledge, Social
Human Capital
Human Capital: Intangible aggregate resources possessed by individuals and groups within a given population
-These resources include knowledge, talents, skills, abilities, experience, intelligence, training, judgment, and wisdom possessed individually and collectively, the cumulative total of which represents a form of wealth available to nations and organizations to reach their goals
Externalities
Externality: Side effect or consequence of a market activity (production or consumption) that is not reflected in the price or costs nor taken into account by the market.
-Positive/Negative externalities result in market failures
Positive externality
Positive (external benefit): a benefit received by people other than those that pursue the activity (eg vaccination reduces the probability of getting sick for other people, bee farming improves nearly orchard yields through pollination)
Ex: Vaccines: For yourself, but you reduce probability that everyone around you gets sick
-Private returns are smaller than social returns, market outcome is too low
Negative externality
Negative (external cost): a cost that falls on people other than those that pursue the activity (eg smoking affects people around the smoker, pollution affects quality of air that everyone breathe, etc)
Ex: You smoking affects the bystanders (they lose utility)
-Costs to society larger than private costs, market outcome is too high
Flying geese vs ying starlings patterns to development strategies
Lead goose: Japan. With accumulation of competences comes an increase in wages -> reduction in competitiveness
Opens the door for the next geese in line: the “Four dragons” (HK, Singapore, Taiwan and Korea)
Next wave: the “Four Tigers” (Thailand, Philippines, Indonesia, Malaysia)
“Flying starlings” pattern of development rather than flying geese: a lot more random/uncertain
De-nationalized comparative advantage
-Create “nexus” of cross-border flows and thus “nexus” of necessary disciplines
–Competitiveness involves mix-and-match comparative advantages
–National performance depends upon non-national factors
-Regional comparative advantage matters now more for developing countries than in the past
-Cities matter almost as much as in developed countries
BUT distance still matters due to face-to-face costs
Physical Capital
Physical capital: Tangible assets that assist in the production process
-Ex: Buildings, machinery, office supplies, transportation and computers
Knowledge Capital
Knowledge capital (intellectual capital): intangible asset that represents valuable ideas, methods, processses, and other intuitive talents that belong to a company
- Knowledge capital largely depends on the talent and expertise of employees ( and thus on their human capital). This form of capital is important because it is what gives firms an advantage over other firms (this capital is hard to replicate)
- Examples: Coca-Cola’s secret formula, next iPhone design, patents, trademarks
Social Capital
Social capital: defined by the OECD as “networks (of families, friends, colleagues) together with shared norms, values, and understandings that facilitate co-operation within or among groups.”
- In short, human interaction that depends on trust and reliability (often based on unspoken and unquestioned rules/norms)
- Social capital is important because economic interactions require trust and the presence of a sense of social justice
- Social capital varies significantly across countries
