The Long View & Role of Demographics Flashcards
What is the cause of poverty?
Low labour productivity
Why might productivity be low? (5)
- Lack of skills?
- Limited access/investment in new tech
- Small market size limits investment in tech
- Financial constraints limit investment
- Market and policy capture by incumbent elites
What is a large source of inequality?
Difference between countries
How do we define a rich/poor person and a rich/poor country
Rich person -> 90% of nation’s income distribution
Poor person -> 10% of nation’s income distribution
Rich country -> 90% of world income distribution
Poor country -> 10% of world income distribution
What did Europe look like in the 19th century?
European countries shared some characteristics, those being
1. Relatively educated and skilled labour
2. Institutions that protected property rights
They were conductive for absorbing new mass production techniques
What is Periphery and what happened during the 19th century?
Periphery -> outlying regions with poor communications and sparse population
During the 19th century, periphery failed to industrialize. They instead specialized in commodities and raw materials. They were forced into free trade in commodities
What was colonization like in the 19th century?
The search for raw materials encouraged colonization. The most vulnerable were resource rich countries.
Colonizers often set up extractive institutions with the goal to extract resource cheaply, no focus on property rights/education
What was the overall record of globalization?
Most periphery countries didn’t benefit much, though there were “miracles” that did.
What was the first miracle?
It was Japan. Despite the periphery traits it held, they industrialized before 1914 with the Meiji Restoration of 1868 which involved reforming economic development and modernization through education, banking and more. Industrial policy was key as their policy focused on promoting new industries and in training workers.
Lessons from the first miracle?
Japan managed to develop a world class cotton textiles industry and by 1914, they displaced UK as the biggest textile exporter in Asia.
The key lesson was that the state could play a key role as Japan combined activist state with energetic private sector
What was the second miracle?
It was S. Korea and Taiwan. Both countries started off poor but started transforming in 1960’s similar to Japan. Their important initial step was land reform and combined the private initiative with public policy.
What were the lessons from the second miracle? (3)
- They held state interventions in markets such as subsidies for identified priority sectors, loads, etc.
- They discouraged foreign MNCs from entering local markets
- They held protections and incentives contingent on meeting export targets.
What was the third miracle?
It was China. The Chinese revival started in 1978. They were poor but the state became active and followed the same approach as the other two. Their first reform was agrarian, and their policy allow private sales after meeting targets thus incentivizing farmers.
What were the TVEs and why did they succeed? (3rd Miracle)
The TVEs were new policy established in Town and Village Enterprises. They were owned by local govs and produced consumer and capital goods. They succeeded because local govs found these to be revenue generators and provided protection which was a form of property right.
What are Special Economic Zones (SEZ)
Countries needed foreign tech and investment so SEZs were introduced in the 1980’s. They had better infrastructures and duty free imports. MNCs found it profitable to set up operations and SEZ firms focused on exports -> western know-how + cheap labour.
What is the Pessimistic view on Population (3)
The belief that population growth makes countries poorer because…
1. Capital accumulation spreads too thinly over people
2. Technical progress contribution is overwhelmed
3. Too many mouths swamp the per capital dynamics
What is the Optimistic view on Population (2)
The belief that population growth makes countries richer because…
1. Population growth creates big markets -> facilitates capture of economies of scale
2. More people implies greater human capital -> encourages technological progress and promotes innovation
What are the sources of population growth?
Population growth occurs due to either higher fertility or lower morality thus productivity of economy depends on age mix of labour
What happens when there is a general decline in morality? What if it is only a decline in old age mortality
General decline in mortality has no effect on productivity, and all age groups are equally affected. The dependency ratio is unchanged
Decline in old age mortality has a negative effect since # of retirees rise. The dependency ratio also rises
What happens when there is a rise in the fertility rate?
Initial negative productivity effect as dependency ratio rises, though there is a positive effect on labour supply in a few decades. There is a delayed positive effect on growth though it dissipates gradually in 3-4 decades
What are examples of typical demographic transition? (3)
- Poor and low net population growth rate
- Poor but transit to high net population growth
- High income and low population growth rate
Steps of population growth rate transition? (3)
- Initially high birth & death rates
- High birth rate but low death rates
- Low birth & death rates
What is the World Labour Divergence
By 2050, there will be worker gaps -> extra workers will be needed to maintain dependency ratio at 2020 level
There is a gap in upper-middle and high income countries by 0.7 billion
Most of the rise in world working age population will be in poorer countries
What are the policy challenges in DEVELOPED economies in regards to the demographics (3)?
Ultimately, it faces a higher dependency ratio in richer countries with…
1. Negative growth effects
2. Fiscal Crisis
3. Security Issues
What are some potential solutions to addressing policy challenges in DEVELOPED economies (4)?
- Encouraging higher fertility rates
- Extending retirement ages
- Greater automation
- Greater off-shoring
What are the policy challenges in DEVELOPING economies in regards to the demographics (5)?
- High population and worker growth
- Need to provide productive employment
- Most job creation currently in low productivity informal or self-employed sector
- Excess demand for good jobs
- Challenge to avoid turning demographic dividend into curse
What can Migration do?
There is excess demand for workers in developed economies and excessive supply of workers in developing countries. Therefore we could possibly move people and thus both can gain
What are some challenges with the Migration Solution (5)?
- Skill gaps between poor and rich workers
- Policy coordination -> for absorbing new workers in receiving countries & reintegrating returning workers
- Human rights issues for temporary workers
- Assimilation issues
- Long-term social cohesion
