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Flashcards in 2nd Exam Deck (51):
1

Economics definition

Economics is the study of how societies make choices under condition of scarcity - (Begg, et al 2014)

2

Advantages of Free Market

Contributes towards political freedom

Ensure competitive markets

Efficient

Consumers voice is heard

Keeps prices low but profitable

3

Disadvantages of Free Market

Inequality

Swings of boom and recession

Production is based on profits not social interests – e.g. pharmaceuticals

4

Advantages of Command Economy

Employment security

Equality

Public goods are funded in relation to social interest not profit

5

Disadvantages of Command Economy

Surplus and shortage because of unreal prices

Information overload – can’t keep track of economic activity

Bad incentives- undermined by job security

Quantity over quality

Inefficient

6

Explain Comparative advantage

Ricardo (1817)

Although Portugal has the absolute advantage of both as it can make both products cheaper, England has the comparative advantage for cloth, since its Cloth costs less units of wine (only 5/6ths of a bottle rather than 9/8ths) than it does for Portugal – it’s opportunity cost is lower

Therefore, maximum efficiency will see Portugal producing Wine, and England producing cloth, England can then trade cloth for wine.

7

Adam Smith Year

Invisible hand in Wealth of Nations

1776

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Ricardo

1817 Comparative advantage

9

Poverty Traps - do they exist

Sachs (2005): Bad geography means poverty traps exist

Easterly (2006) -Poverty can’t be permanent because countries that used to be poor are no longer

Duflo (2011) – Since your income today influences what your income will be in the future, poverty traps are possible, whereby initial investment can get some one out of the trap

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Sachs

2005
Bad geography means poverty traps exist

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Easterly

2006
Poverty can’t be permanent because countries that used to be poor are no longer

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Banerjee & Duflo - Poverty Traps

2011
Since your income today influences what your income will be in the future, poverty traps are possible, whereby initial investment can get some one out of the trap

13

Food Shortages are caused by

Heady and Fan (2008)

Weather shocks

Stock piling (hoarding)

Mounting oil prices: Oil price increase making the processing of crops more expensive

Increased use of biofuels:

14

Heady and Fan

2008 - Causes of food shortages

15

Sen

1985 - Functioning and capabilities

16

Happiness

Layard 2005

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Layard

2005

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Why is growth not always pro-poor

Lack of physical access to market: e.g. rural/remote location. Affects ability to buy inputs, goods and sell produce.

Lack of access to financial markets and assets: poor do not have resources to invest, save and innovate.

Lack of qualifications and poor health: impairs employability in high paid sectors, and hampers business capacity for expansion

Often the poor are self-employed . If the value of their production doesn't rise, their income does not either.

The poor are especially vulnerable to hazards, whence afraid to invest and innovate.

19

Pros of Poverty Lines

Easy to calculate



Easy to interpret



Data normally available

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Cons of Poverty Lines

Arbitrary – being just above or just below doesn’t make a big difference



Transferring among the poor



Poverty is multi-dimensional



Incentive to help those just under rather than poorest

21

Cons of MPI

Trade-offs between dimensions



Needs change with location



Data often not available – particularly in poor countries



Again, if someone is just below 33% does that mean they are not in need

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Pros of MPI

Can apply to person, household, or country



Considers many factors

23

Cons of Happiness index

Correlation does not imply causality – little is known about what really causes happiness or life satisfaction



Self-reported life satisfaction has reporting bias

24

COns of HDI

Equal weights are given embodying implicit normative judgement



Quality of education for example isn’t shown



New HDI is better but unclear that geometric mean is the best way to reflect development



HDI can also hide Inequalities and rights and freedom and happiness

25

Moyo

Dead Aid 2009

Why aid isn't working

people don't value things you give for free

26

Advantages of trade


Comparative Advantage – can trade for manufactured goods which would cost more for poor countries to produce

Specialisation means you can scale up

More product variety for consumer

Improves quality to international standard

Importing helps advance production

Technology/ Knowledge transfer

27

Disadvantages of Trade


Manufactured products are generally elastic, whilst primary goods are inelastic

A richer market disproportionally benefits manufactured goods

Causes urbanisation, with small farmers having to sell land to big farmers



Cultural homogenization

Efficiency can be bad for the environment like use of pesticides

Cutting costs can mean cutting work conditions

28

can be good can be bad - trade


If the poor are net consumers of imported goods they benefit from tariff cuts and imported food is cheaper

If they are net producers, they lose out as food is cheaper than the producer

If industries fight against industries which requires credit, insurance technology then people can’t compete with imported goods

If a country export labour-intensive goods, wages should increase

If they export less labour-intensive goods wages decrease or people become unemployed

29

Infant industry

An “infant industry” is a newly established industry that is (as yet) unable to compete on international markets → relatively high price for these goods

The argument is that established industries are more efficient, at least in part, due to having acquired “learning by doing”

Protection of infant industries expands production, which, via learning by doing, lowers unit costs and prices → potential for developing comparative advantage

Once they “grow up”, barriers are to be removed to allow these to become export sectors.

Provides the basis of the “import substitution” approach.

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Flaws of infant industry

Industries can rely on protection that they do not need to improve quality because they have monopoly of national market

Investment can only come from profit

No-incentive to cut prices

Nation is left behind the rest of the world in that product Brazil

No Competition = Low Quality

Sometimes other industries just thrive instead – Portugal cigarette lighter became cheaper than protected matches

31

South- South trade

Reputation effects less important in developing country markets

Common standards for quality certifications – less high standards

Gains from economic integration

32

WTO

Tariff and non-tariff barriers erected by rich countries are a major impediment to developing counties exports

These are especially high in markets for primary sector goods in the EU and NAFTA

WTO round have been ineffective in reducing such barriers: Doha round stalled over right countries reluctance in reducing barriers to developing world exports

Could resistance against rich countries’ protectionism be, a fair target for globalisation discontents?

33

Trade reading - blaming countries as well as WTO

Banerjee 2006
Free trade and globalisation can harm poor countries, but we should be focusing on making those countries better at implementing the appropriate policies rather than focusing on the bad trade is doing. YES, WTO should be doing more to help provide the infrastructure and institutions to deal with the impacts of globalisation, but each Nation must do also and if a nation doesn’t have the ability to deal with the impacts of globalisation, it is dangerous to open up to trade without any provision

34

Banerjee - Trade

2006
Free trade and globalisation can harm poor countries, but we should be focusing on making those countries better at implementing the appropriate policies rather than focusing on the bad trade is doing. YES, WTO should be doing more to help provide the infrastructure and institutions to deal with the impacts of globalisation, but each Nation must do also and if a nation doesn’t have the ability to deal with the impacts of globalisation, it is dangerous to open up to trade without any provision

35

Free trade raises income but has no impact on inequality - text

Winters 2009

36

Winters

2009
Free Trade raises income but doesn’t better inequality

37

South Korea and Taiwan Protectionism

Rodrik 1994

38

Rodrik

1994

39

Example of RCTs

Vledder, et. al 2011

Zambia – a lot of health facilities were running out of drugs- randomised trial tried two systems

A- one where drugs were distributed at district level and requested by health facilities

B- the other whether drugs were sent in anticipation of how many would be needed

The impact was larger after B, so this was scaled up and drastically minimised the severity of diseases like malaria

40

Vledder et al

2011

Zambia – a lot of health facilities were running out of drugs- randomised trial tried two systems

A- one where drugs were distributed at district level and requested by health facilities

B- the other whether drugs were sent in anticipation of how many would be needed

The impact was larger after B, so this was scaled up and drastically minimised the severity of diseases like malaria

41

Gathering support RCTs

Mexico- Progresa 1997 – conditional cash transfer to mothers as long as they ensured their kids went to school and got vaccination

Evidence showed it was able to improve child health and education

2000 election change of government and wanted to get rid

Rigorous impact evaluation convinced the government to keep it (changing the name to oportunidades) and similar programmes have been replicated worldwide

42

3 reasons to care about policy impact evaluation

Duflo Ted 2010
Knowledge for change
FUnding
Accountability

43

Duflo Ted

2010
reasons to care about impact evaluation

44

Experimental and non-experimental designs

Experimental design

Randomised evaluations

Non-experimental methods – compares individuals exposed to an intervention with others not exposed to it under a set of untestable assumption – if assumptions fail then the evaluation does also

Regression discontinuity design

Matching

Difference in differences and several others

45

Examples of how successful RCTs have been

De-worm the World initiative: now active in 27 countries from the success in Kenya

Hilary Clinton – Global Alliance for Clean Stoves: pledge to provide 100 Million clean stoves in developing countries

46

Benefits of RCTs

Duflo & Kremer (2008) and Banerjee is 2012 debate


Precise, accurate and look simple in policy circles

Not much costlier than those who also require data collection

You can control all potential confounders, observable and not

In a better position for funding, accountability, and knowledge

Shows the extent under which results reflect implementation, not external factors

NGOS are well suited to do RCTs, rather than governments – this avoid political bias

Much of its limitation are true of competing methodologies

Less prone to publication bias, with publishers open-mined about RCTs

Can be combined amongst other evidence to prove the data is not context specific

47

Texts- RCTs

FOR: Duflo & Kremer (2008), Banerjee (2012 debate)

AGAINST: Ravallion (2009), Deaton (2012 debate)

48

Duflo & Kremer

2008 for RCTs

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Banerjee vs Deaton

2012

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Ravallion

2009 against RCTs

51

Problems with RCTs


AGAINST: Ravallion (2009), Deaton (2012 debate)

Many things you might want to find out are infeasible, like whether to build a bridge or not

Only short-term impacts because you can’t make the control group wait forever

Conditional randomisation can introduce bias – poor are the beneficiaries = sample bias

Individuals on programmes may be self-selecting on the basis of unobserved gains

External validity -only relevant for specific context

Slightly more expensive

Intervention can harm people

Unethical- control group are denied benefits

May need high number for sample,