Exam 2 Flashcards
(76 cards)
1
Q
Solow Model: limitations
A
- doesn’t explain LR g
- non-convergence (absolute)
- solow residual: most g due to tech. g
2
Q
Solow Model: assumptions
A
- CRS: y=f(k,l)
- dim. returns
- L grows @ n
- assume d
- tech = exogenous
3
Q
Solow Model: contributions
A
- svgs does not leaf to LG g%
- convergence (LDCs catch up)
4
Q
Solow Model: results
A
- sy > (ntd) ^K -> change ^k >0
- ^K > 0 => sy incr
- g until new steady state
- absolute convergence does not hold
5
Q
Know the puzzles unexplained by Solow.
A
a
6
Q
Similar to above point, know the advances in general of the new endogenous growth theory
A
- ideas > things
- increasing returns to scale: double inputs => output more than doubles
- (Lucas) human capital => assumes laborers always same but labor improves w/ education & training over time => L increases
- (Romer) technical progress should be endogenous
=> explains how arises and what it is/comes from
=> explained by 2 notions: 1. Solow residual problem 2. non-converge
7
Q
Lucas’ model assumptions
A
1) y = f(k,l,hk)
2. assumes external effects
8
Q
Lucas’ model contributions
A
1) MPKldc > MPKdc
- > dont see bc HK & educ lvls not high enough to absorb R
9
Q
Lucas’ model results
A
- divergence
- > countries with low HC perform below high HC
10
Q
Lucas’ model limitations
A
- brain drain
- how help educ./grow?
11
Q
Lucas model internal and external effects, and why there is a creation of positive externality
A
why individuals accumulate education:
- internal reason: career, pay w/tuition & time => accumulation
- external reason: learning contributes to societal knowledge - spillover = extra benefit to societ
=> external effect = positive externality –market failure
12
Q
Why there is policy intervention for education
A
why individual accumulate education:
- internal reasons: career, pay w/ tuition & time => accumulation
- external reasons: learning contributes to societal knowledge - spillover=extra benefits to society
13
Q
How policy intervention will not work for LDCs (brain drain)
A
subsidizing education -> smarter citizens- who may leave
problem = weak labor markets in LDCs => not creating enough employment opportunities (problem not lack of sub. educ.)
LDC response: braindrain > in a drain
14
Q
Romer: the externality created here.
A
- ideas are paritally excludable
- > ex. patents (excludable through patents but you can reverse engineer/ideas leak out and partially b/c people can get idea by studying product)
=> govt. intervention
-> positive externality -> adds to stock of knowledge
15
Q
How ideas are different than things?
A
- how things used influence output
- ideas are:
1) non-rival - can be used @ same time w/o decr quality
2) partially excludable - patents (govt intervention) but ideas leak out
=> positive externality
16
Q
how do ideas arise?
A
- production lines - experiment w/ slight (“obvious”) changes (i.e. rearrange)
- profit motive => intentional actions taken by individuals
- individuals = problem solvers & experimenters EX. mass production/assembly line
17
Q
incentive to incr ideas in market econ:
A
- profit
profit from ideas by:
- sell better products
- comparative advantage
- patent new/original idea
18
Q
Know the broad points of what we have learned from growth models (see Homework 2 where we compare the growth models )
A
a
19
Q
Marx’s critique of capitalism (false consciousness, etc.)
A
- alienation -> repeated boring job
=> alienated from self
=> alienated from others
- false consciousness - workers dont know being alienated, being exploited
workers: rely on incr salaries for motivation more than other reasons
20
Q
How Marxist-communist-socialism can appeal to LDCs
A
appeal:
- equality & security to a highly unequal & insecure society
- soviet union industrialized so fast
- centralized power -> authoritarian gov’t possible
21
Q
How Marxist-communist-socialism can not appeal to LDCs
A
limitations:
- corruption: “some are more equal”
- not many incentives to work harder -> equal society
- associated with “big brother”
22
Q
The Marxist influence on development thought (power relations to cultural imperialism)
A
a
23
Q
Advantages of market/when market fails. In particular how govts intervene with declining AC curve.
A
a
24
Q
What we mean by state capitalism and state capitalism 2.0
A
- (china, brazil, venezuela): large presence of state
- many of the world’s biggest oil firms are state backed (75% of world’s reserves)
25
state capitalism: adavantages
- infrastructure, mergers create big companies for emerging markets allows innocation
- mergers incr strength and incr bargaining power vs small private LDC firms
26
state capitalism: disadvantages
low productivity, state owned enterprises, political corruption
27
Know all the main points of the big China article, especially those covered in class, I have also added some slides with the main points, also know the expectations model with Deng Xiaoping’s announcement.
a
28
surplus labor
3 interpretations
1. can remove workers w/o decr output
2. marginal productivity of labor (MPl) = 0
=\> no contribution of additional worker
3. MPl = m, subsistence wage [surplus labor]
29
dualism
- wider concept of 2 contrasting sectors co-existing
- agricultural production function
- agr./industry
30
double dualism
- formal/informal
- \> urban sector - (1) high wage govmt jobs -\> formal
or (2) lower wage street vendors -\> informal
-\> rural sector - (1) township enterprises -\> formal
or (2) small landowning farmers -\> informal
31
Know the Lewis model and its policy implications (for example, China and its labor surplus policies)
a
32
Lewis model assumptions
1. urban wage, w-bar, is a fixed mark-up, rigid downwards-\> urban higher cost of living
2. both agri. and industry produce same good -\> not worry about terms of trade
3. Y = F(L) shortrun
4. subsistence wage in rural = m \< w-bar
33
lewis model: movement from agriculture to industry necessary for 2 reasons
1. engel's law
2. economies of scale
34
Contrast the implications of the Lewis model and reality
part I
during 70s and 80s, UN conference on urbanization
=\> poll: was urbanization a problem?
1. slow urbanization
2. reverse migrations
3. maintain urbanization
4. speed up migration
(lewis model goes in opposite direction (4,3,2,1)
35
Contrast the implications of the Lewis model and reality
part II
surprising: vs. lewis & industrial bias
poverty & slums
double dualism
pop. growth: incr surplus labor
labor absorption: labor intensive industries
(rate of pop g \< rate of labor absorption)
policies misguided: kenya 1964
why do people migrate?
- \> very complex decision ( not only b/c of lewis wages ideas or jobs)
- \> interactions, culture, public goods
36
policy misguided: Kenya 1964
- larger number of govt jobs available to decr unemployment, but actually incr unemployment
- \> more people migrated to city so unemployment incr.
37
Understand the Fei-Ranis model of Lewis (Homework 2)
a
38
Know some of the lessons from moving from agriculture to industry, Engel’s Law and sectoral shifts contribution to growth.
a
39
Understand the meaning behind Rosenstein-Rodan’s shoe factory model (big push theory) and how it can give rise to a market failure
big push idea: hard for modern industry to start up in LDC bc not enough ppl w/ $ to buy products of 1 (shoe) factory
=\> situation 1 - if expand, who will buy the shoes?
- when ravelling backwards-\> will not expand
- instead, develop wide range of industries all @ same time so workers in each factory have income to buy products
=\> situation 2 - shoe, food, clothing all expand @ same time
-\> only way to achieve broad-based development = government plan (=\> guide producers & guarantee demand)
SEE NOTES FOR THE REST
40
Understand the limitations of the shoe factory model
- (1) said would not expand, but could sell on a global scale
(2) -\> assumed closed economy =\> cant export shoes (pessimism)
how to resolve: some nontradables that cannot import/export
41
Examples of backward linkages and forward linkages and leading sectors
backward linkage - demand reaches back to other industries
=\> ex. coal, iron, steel
forward linkage - output of industry is used for other industries
=\> ex. transportation
leading sector pulls/pushes rest of economy through series of linkages
=\> has linkages on its own
ex. railroad: leading sector
42
Difference between balanced and unbalanced growth
balanced growth: growth @ same time
unbalanced growth: only focus on some b/c you dont have enough funds to focus on all
43
Determining which is a good sector to get into
1. # of linkages
2. strength of linkages
3. intrinsic profitability
44
Know the advantages of consumption over income in calculating distributions.
ppl consume income -\> difficult to get actual income -\> use consumption instead -\> many poor LDCs
- hard to measure income in poor countries
- consumption may be more reliable indicator of welfare bc does not fluctuate as much
45
Know the shape of frequency distribution of income and consumption
- log normal (log of normal distribution
- greater mass/"hump" focused at lower end of income (left)
- similar for all countries not just LDCs
46
Calculate Quintile Ratios
top 20%/bottom 20%
47
Draw the Lorenz Curve and calculate the Gini Coefficient (see also homework)
a
48
Know the limitations of the Lorenz Curve and the Gini Coefficient
a
49
Know the stylized facts on inequality and Gini coefficients around the world
a
50
Know the difference between inequality and poverty.
poverty = absolute concept
inequality = relative concept
51
headcount index and why it matters which we use
- % of people below poverty line
- most direct
- proportion of ppl that are poor
52
poverty gap
- measures "depth" of poverty
- the transfer needed to bring ppl out of poverty
53
squared poverty gap
- looks @ severity of poverty
- value what happens to the poor more - weighs poorest more
54
Calculate headcount index and poverty gap given certain numbers (see homework 3 too)
a
55
Know the stylized facts on Global poverty (is it falling, where is it most concentrated, etc.)
a
56
Understand the Kuznets curve relationship, if it holds, and why the Lewis model predicts the Kuznets curve
a
57
Know the main points of Piketty article as discussed in class
a
58
Know the combination of history and politics and policy causes (or reduces) inequality
a
59
Understand why inequality is possibly inevitable and what are some harmful effects of inequality
a
60
Know if global inequality is rising or falling (depending on how we measure it)
a
61
Article: Botswana
a
62
Article: Country Case Study 2 – China
a
63
Article: China After Party (I know we didn’t go over this but need to know main points)
a
64
Article: Is China still a developing country ?
a
65
Article: Labor Surplus in China
a
66
Article: The Nomadic Village of Phala
a
67
Article: Country Case Study 3: Brazil
a
68
Article: Brazil and the World Cup
a
69
Article: Piketty and Inequality (only what we discuss in class)
a
70
Article: The Gold Medalist (and the discussions in class on S Korea)
a
71
Article: What do you do when you reach the top ?
a
72
romer model: assumptions
1. y = f(k,l,ideas)
73
romer model: contributions
1. ideas dont hit diminishing %
2. need education -\> foster ideas
3. define tech
74
romer model: results
1. IRs w/ ideas
2. makes g & accum. possible
75
romer model: limitations
1. LDCs contributors to ideas? (imitators vs innovators)
2. LDCs adapt/improve on existing ideas
76
