3. Geography and Institutions Flashcards
According to Sachs, how does latitude determine the GDP of a country?
The poorest countries of the world are located in tropical latitudes, close to the equator, while the rich countries tend to be located in more temperate zones.
What 4 geographic causes, affecting health and productivity, did Sachs find?
- Tropical diseases increase mortality.
- Intense heat makes physical labour challenging.
- Rainfall volatility affects agricultural productivity.
- Energy and natural resource endowment affects industrialization.
True or False?
Bloom and Sachs (1998) found that the prevalence of malaria alone does not reduce the annual growth rate of sub-Saharan African economies.
False.
The prevalence of malaria alone reduces the annual growth rate of sub-Saharan African economies by 26% a year.
According to Sachs (2001), what are the initial advantages of non-tropical countries?
- Technological innovation and transfer.
- Transportation costs, distance to markets, infrastructures.
- Power and colonial rule.
What are the two main criticisms against the geography hypothesis?
- If geography is bad for growth, then its effect should be constant over time.
- Societies in tropics have not always been poor (e.g. Egypt, Aztecs, Inca, China, etc.).
Define the ‘Reversal of Fortune’ (2002), and what does it mean for the geographic hypothesis?
In 1500, there was a negative correlation between economic development and GDP per capita which is measured by urbanisation and population density. However, we experience the opposite effect today, where there is now a positive correlation between urbanisation and GDP per capita.
This refutes the geography hypothesis by contradicting its constant effect. Instead, we see that development is dynamic and always changing.
True or False?
The pattern of reversal is robust when controlling for geographical factors.
True
According to North (1990), why are third world countries poor?
The institutional constraints define a set of pay-offs to political/economic activities that do not encourage productivity.
In terms of the institutional hypothesis, name some proximate causes of poverty.
- Lack of functioning markets.
- Poorly educated populations.
- Outdated or non-existent machinery and technology.
- Low levels and growth rates of total factor productivity.
Define institutions.
Institutions are defined as a set of humanly devised behavioural rules that govern and shape the interactions of human beings, in part by helping them to form expectations of what other people will do.
True or False?
Informal institutions consist of laws, constitutions and contracts.
False.
Informal institutions consist of norms, customs, shared values, ideology, etc.
What is the difference between informal and formal institutions?
Informal institutions are not fixed in the long-term.
What factors determine the quality of an institution?
- The extent of property rights’ protection.
- The degree to which laws and regulations are fairly enforced.
- The ability of government to protect the individuals against economic shocks and provide social protection.
- The extent of political corruption.
What is the reason for inclusive institutions?
Inclusive institutions are necessary to challenge and constrain the political power of elite, otherwise, the elite use political power to protect the status and preserve extractive economic rents, which diminishes the incentive to innovate and invest.
Name some features of an inclusive economic institution.
- Secure property rights, law and order, markets and state support (public services and regulation) for markets.
- Open to relatively free entry of new businesses.
- Access to education and opportunity for the great majority of citizens, i.e., create incentives for investment and innovation.
