Questions and Answers of Development Economics

Consider two sources of human capital accumulation—education and on-the-job training—and think about what factors might be conducive to each. In the education sphere, keep in mind the distinction
Capital might flow from rich to poor countries in one of two ways. Entrepreneurs or corporations in developed countries might set up plants and factories in developing countries: we can think of this
Suppose that production depends on three inputs: land, capital, and labor. Assume that total land is given and cannot be changed. Suppose that two countries are believed to have the same production
Distinguish between two forms of technical progress. One is embodied in the introduction of new goods or machinery. The other is disembodied: with exactly the same inputs, there is an improvement in
Patent protection yields temporary monopoly power to inventors, allowing them to earn rewards from their patenting. But patent protection also slows down the speed of technological diffusion to
Suppose that new technical knowledge arrives in the developed world and later diffuses to the developing world. Countries which lag behind more in the world income hierarchy would then have access to
The economy of Wonderland produces magic potions using capital (K) and labor (L). Total output is growing at the rate of 5% per year. The rental rate per unit of capital is 0.1 bottles of magic
Go to the following World Bank webpage: http://www.app.collinsindicate.com/worldbankatlas-global/en-us In the search box in the upper right corner of the page, enter the following: GDP per capita,
Go on the following World Bank webpage: http://databank.worldbank.org/ddp/home.do In the Database section, choose the first row, "World Development Indicators." As a new page appears, click "Select
Use the Internet to find data for GDP in North Korea and South Korea, going back as far as possible. Look at the trends and interpret them in terms of the comparison between central planning and the
The Cuban socialist economy was once praised for its advanced education and health care systems. However, it relied heavily on Soviet subsidies that ended in 1991. Do some research and find what
Download the following article that advocates a socialist economic system: http://socialistworker. org/2006-1/573/573_12_Planning.shtml. Based on the discussions in this chapter, what fallacies can
If there were no coordination mistakes, coordination by quantities would be superior. Do you agree? Discuss.
What effect should institutions have on vertical integration? What does this mean in the context of developing countries?
Assume that the estimated marginal cost of a technology to purify water has the following form: MC = 2 + 2q. Assume that the estimated marginal benefit of 1 degree of cleaner water takes the
To what extent do Mancur Olson's ideas of the roving and stationary bandit explain differences among dictatorships in developing countries?
What are the differences between autocracies and democracies in terms of the provision of public services? Explain.
Derive the steady state level of capital intensity and labor productivity in the Solow model with a Cobb-Douglas production function, assuming macroeconomic equilibrium (equality of savings and
Follow the same steps as in Question 3 above and download for 2005 the series for "Poverty Headcount ratio at $1.25 a day, PPP (% of population)" and "Life expectancy at birth, Total (years)."
In the May 19, 2012 issue of The Economist (www.economist.com), read the article "African child mortality. The best story in development." Find documentation elsewhere about policies that reduce
Read Chapter 2 in Angus Maddison's "The World Economy: A Millennial Perspective" OECD, 2007. What lessons do you take from it on the effects of Western expansion on countries in Asia, Latin America,
Choose a developing country and look up the data analyzed in this chapter on GDP per capita, the poverty headcount ratio, life expectancy, infant mortality, secondary school enrollment, urbanization,
In Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty (Public Affairs Book 2012) by Abhijit Banerjee and Esther Duflo, read Chapter 2. How do you relate the story of Pak Solhin's
Look up the Programme for International Student Assessment (PISA) data base on international student assessment at http://pisa2006.acer.edu.au. Look up scores for reading, math, and science at the
In Daron Acemoglu and James Robinson's Why Nations Fail (Crown Business Publishers, 2012), read Chapter 3. Does the theory in that chapter help explain the development gap? How?
Explain how to calculate a poverty line.
What is the poverty gap? What is the advantage of this measure over the headcount ratio?
Calculate the poverty gap for a country in which 80% of the population is below the poverty line of 1 dollar a day. In that country, 20% of the population has a daily income below 20 cents, 15% has a
Explain some difficulties encountered by researchers seeking to develop internationally comparable data on poverty.
What is the Lorenz curve and how do you construct it? Draw a relatively equal and a relatively unequal Lorenz curve. Explain the difference.
Draw the Lorenz curve and calculate the Gini coefficient for two countries based on the following decile income share data, where the poorest decile is on the left and the richest is on the right.
How do you calculate a Gini coefficient? How does the Gini coefficient reflect high or low income inequality and why?
Give three theories for why income inequality can be bad for economic growth. Provide your own view on this question.
Read the article by Branko Milanovic and Lire Ersado "Reform and inequality during the transition: An analysis using panel survey household data, 1990-2005 (downloadable at
Go to the World Bank's website on global poverty: http://iresearch.worldbank.org/PovcalNet/povcalNet.htmlSelect "All" in the box for regions, select "national" in coverage, use the >> button to add
Who was Malthus and what was his theory? Did his theory prove correct? Why or why not?
A younger country (with a larger percentage of young people) will have a higher population growth rate than an older country (with a larger percentage of old people) even if both countries have
Read Imran Rasul, "Household bargaining over fertility: Theory and evidence from Malaysia," Journal of Development Economics 86, no. 2 (June 2008): 215-241. What are the main ideas about bargaining
Choose two developing countries. Research and discuss their family planning policies. Have they been successful? Why or why not?
Why do fertility rates decline as countries become wealthier?
What is the role of social norms in explaining the demographic transition?
Explain the economic rationales for family planning policies.
Suppose there is a country in which 40% of people are below age 20, 40% are between ages 20 and 40, and 20% are between ages 40 and 60.Assume no one lives above age 60 and the fertility rate is 4.
Do the same exercise as in Question 8 but assume initially that 20% of people are below age 20, 20% are between ages 20 and 40, and 60% are between ages 40 and 60. Compare the answers to both
Go on the website of the U.S. Census Bureau International Data Base. In 2013, it was at http://www.census.gov/population/international/data/idb/informationGateway.php. Find the projected age pyramid
Go to the Penn World Tables website, https://pwt.sas.upenn.edu. Click on PWT Data Down- load for the latest version of the data. On the next page, click on Data Download. Select China (version 2) and
Read Paul Krugman's article "The Myth of Asia's Miracle," Foreign Affairs 73, no. 6 (Nov./Dec. 1994), pp. 62-78 (see also http://www.jstor.org/stable/20046929). Explain Krugman's arguments using the
What are expressions for the factor shares of labor and capital using the Cobb-Douglas production function? In quantitative terms, what are the usual estimates of these shares?
What is total factor productivity growth? Give its expression with the help of a Cobb-Douglas production function with A = eat.
How can you compute total factor productivity growth using observable statistics? Take a growth rate of 6%, a growth rate of labor of 3%, a growth rate of capital of 8%, and a share of capital of
Endogenous growth theory claims that growth can, in principle, be unbounded. How can that be? Is this claim incompatible with a scarcity of resources on the planet? Justify your answer based on
In general, economists insist on the importance of respecting property rights. However, they are usually against the strict enforcement of intellectual property rights. Is this a contradiction? Use
Acemoglu, Johnson, and Robinson have established a causal relationship from institutions to growth. Explain. Why can they claim it is causal?
Read "What Is China Doing to Its Workers?" by Arvind Subramanian, http://www.iie.com/publications/opeds/oped.cfm? ResearchID=885. The author states that dictatorial regimes tend to have a higher
Modify the Lewis model and assume that there is a strictly positive marginal product of labor in the traditional sector. Use figures with production functions in the traditional and the modern
Use the same starting point as in the previous question. Derive the demand for labor in the traditional and in the modern sectors. Show graphically what the characteristics of the equilibrium would
Take the Lewis model and discuss what the effect of a declining trend in the terms of trade would be for the modern sector in a developing country on the country's growth path and on the rural to
What is the main difference in prediction between the Lewis model and the Harris-Todaro model on rural to urban migration?
Given the validity of the Harris-Todaro model, what would you tell a government that wanted to eliminate urban unemployment by creating government-subsidized jobs in its cities?
What lessons would you draw from the Harris-Todaro model in terms of immigration policies in the United States? What are the commonalities and differences between rural to urban migration and
Define balanced and unbalanced growth. What are the advantages and disadvantages of each strategy? Give examples for both strategies. For which strategy is it more difficult to find examples?
Read the article by Oded Stark, Manash Ranjan Gupta, and David Levhari, "Equilibrium urban unemployment in developing countries: Is migration the culprit?" Economics Letters 37, no. 4 (1991) 1991:
Research the history of the Toyota company and its success in becoming a major carexporting firm. What help did it receive from the Japanese government and how effective was this help?
Go on the FAO (Food and Agricultural Organization) website, http://faostat.fao.org, and construct figures for the share of agricultural labor in Brazil and Mexico between 1980 and 2000. Which country
What is the difference between Ricardo's theory of comparative advantage and the Heckscher-Ohlin theory of comparative advantage? Do they lead to different conclusions? Explain.
Find information about NAFTA, the North American Free Trade Agreement, online. Can NAFTA be accused of trade diversion? If so, construct an example of possible trade diversion created by NAFTA.
Politicians view trade agreements as a series of exchanges. Which interests are politicians forgetting when conducting their trade policy? Explain why. How could these interests be better represented?
Consider the market for oranges in Israel. Assume the supply and demand lines take the following form: S = 20 + 20P, D = 200 - 10P, where P is the price for oranges. Assume that the world price is
Read the following article: Alexander Keck and Simon Schropp, "Indisputably Essential: The Economics of Dispute Settlement Institutions in Trade Agreements," World Trade
Go to the World Trade Organization's website http://stat.wto.org/StatisticalProgram/ WSDBStatProgram Home.aspx? Language=E, and click "selection." For Subject, add "Total merchandise trade to the
What are the advantages and disadvantages of pegging the currency of a developing country to a major currency such as the U.S. dollar? List the specific conditions that are incompatible with pegging.
Find the main export specializations of Angola, Bangladesh, Belize, Bermuda, Bhutan, Ethiopia, Grenada, Guinea Bissau, Iraq, Kuwait, Mali, Mongolia, Nepal, Nigeria, Rwanda, and Sierra Leone. The
Assume that the price and volume index for Pakistani exports and imports are at 100 in year t. Assume that the Pakistani rupee devalues by 10% relative to the U.S. dollar. Assume that the elasticity
Return to the World Trade Organization webpage (http://stat.wto.org/StatisticalProgram/WSDBStatProgramHome.aspx?Language=E) and click "selection." For Subject, add "Merchandise trade indices" to the
Give an example (different from those discussed in the chapter) of an economic transaction that is more difficult to complete in developing countries than it would be in developed countries.
Many solutions to informational problems emerge spontaneously as contractual innovations. Is there a role for the formal institution of law with respect to these contractual innovations, and if so,
Reputation is important for contract enforcement when formal institutions are weak. Explain. What conditions in the economic environment make reputation work more or less efficiently? Why?
Give examples of formal and informal institutions as solutions for the cooperation problem that we have not discussed in the chapter. Explain your choices.
Why is the coordination problem important in the context of development?
Assume a coordination problem related to honest business practices, based on the following payoff matrix:What are the conditions on the payoff matrix so that both A and B being honest and dishonest
Write down the problem of cooperation for two countries, A and B, in the fight against climate change and use a payoff matrix as in the case of the prisoner's dilemma. Payoffs are YA(XA, XB) and
Assume that an Indian firm is contacted by a multinational car company to produce brake systems. This requires an initial investment of I from the Indian subcontractor and a variable cost c per
Look up the following article by Simon Brinsmead: "Oil Concession Contracts and the Problem of Hold-Up," downloadable at http://www.dundee.ac.uk/cepmlp/journal/ html/Vol17/Vol17_11.pdf. How do the
Download the governance indicators from the World Bank (click on Download full dataset) in either excel or stata format: http://info.worldbank.org/governance/wgi/index.asp Look at the Rule of Law
Central planning failed because managers did not have enough incentives. Discuss.
Why was there no unemployment under central planning?
Many multinational firms are larger than former centrally planned economies. Nevertheless, they manage to be efficient and produce high-quality goods, whereas centrally planned economies failed to do
Imagine that the whole world had lived under central planning. Do you think central planning would have lasted longer than it did? Discuss.
How is the commitment problem for government solved in a democracy and in an autocracy?
Explain the difference between proportional and majoritarian electoral rule. Give five examples of developing countries with presidential and parliamentary regimes based on either rule.
Is it possible in a majoritarian electoral system that a party can win more than 50% of the seats without having 50% of the votes? Explain.
Download the latest Freedom House Index of political rights (http://www.freedomhouse.org) and the latest World Bank rule of law index (http://info.worldbank.org/ governance/wgi/index.asp) for Brazil,
Take the median voter model, in which the net income of an individual (after tax and redistribution) is (1 - t)yi + f, where yi is the income of individual i, t is the tax rate, and f is a lumpsum
Assume an autocratically led country. The autocrat lives for 2 periods. In period 1, he can choose to tax income y1 = 100 at rate t. In period 2, income that has not been taxed away yields period 2
Read Larry J. Diamond and Marc F. Plattner's article, "Hong Kong, Singapore, and 'Asian values," Journal of Democracy 8, no. 2 (1997): 9-10. What do you conclude about the effects of Confucianist
Do an online and library search on India and Pakistan. What political institutions emerged from the decolonization process? How would you explain the differences in the political evolution of the two
What are the main differences between common-law and civil-law systems? How do these differences relate to the evolution of these legal systems?
Which aspects of shareholder and creditor rights differ most between common-law and civil-law countries? How do these rights vary between developed and developing countries?
Give two reasons why we might be skeptical that the difference between common-law and civil-law systems may be important for economic development.
Search the Internet and find those countries in which financial markets are governed by Islamic law. Which countries have the strictest interpretation of the Qur'an, and which countries have a more

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