Midterm Study Guide Flashcards
(153 cards)
1
Q
What are the three main forms of foreign financial resource inflows to developing countries?
A
1) FDI and FPI (Direct investment and Portfolio Investment)
2) Remittances
3) Public & Private Development Assistance
2
Q
What are 4 ways in which FDI / FPI can help promote growth in LIC’s?
A
1) Fill the savings-investment gap. Domestic savings may not reach investment level needed, and FDI/FPI can fill this gap.
2) Fill the trade gap (makeup for the fact that export income not enough to cover purchase of imports)
3) Increase govt. revenues by taxes or ownership/participation.
4) MNC’s bring skills to locals by giving them training and experience in (technology, management, entrepreneurship)
3
Q
What are the ways in which FDI / FPI may have a negative impact on domestic savings?
A
Oman: FDI – large amounts of finance raised locally.
a) Money is NOT invested
b) competition is forced out via exclusive production arrangements with govt.
c) inputs are imported instead of coming from local suppliers
4
Q
How could the foreign exchange be made worse by FDI / FPI of MNC?
A
MNC inputs intermediate goods instead of purchasing locally, and repatriates majority of the export profits to home country instead of investing them in developing country production.
5
Q
How could govt. revenues be substantially decreased with regard to FDI / FPI?
A
1) Lax tax rules
2) “Rush to the bottom” in which MNC’s shop around for the best deal from host govt.
3) Transfer Pricing (internally transferring profits to branch of MNC with the lowest tax rate)
4) Subsidies and tariff protection
6
Q
What is a potential limit/setback associated with skills/experience transfer of MNC’s?
A
If the MNC dominates the local market, it may prevent domestic firms from springing up to compete, thus transfer of skills/experience does not diffuse to wider economy.
7
Q
What are the more fundamental / ideological problems associated with FDI / FPI?
A
1) MNC’s mostly produce high-level complex products rather than products of immediate need (agriculture increases)
2) Employment does not always increase as much as hoped due to high use of K rather than L in production process.
3) MNC’s use power to influence the govt to make policies that are best for increasing their profits, not overall development of the country. (protections, cheap land, low taxes, etc)
4) Promote bad consumption behaviors and increase income inequality
8
Q
Definition: Development
A
A process whereby the well-being of a society improves significantly in a sustained manner.
Society usually for our purposes = nation.
*Does not mean that everyone benefits. Society as a whole may improve, but some may be left out or lose.
9
Q
Traditionally, development (as economic concept) has long been measured with what indicators for both current level and progress?
A
GNI per capita (GDP per capita) - level
Rate of Growth of GNI pc - progress
10
Q
The concept of development has been around for how long?
A
Since WWII: Creation of the U.N., breakup of colonial empires, Cold War and competition for allies in developing world, MNC’s seeking consumer mrkts.
11
Q
When did humanity “break” the Malthusian trap? How?
A
After 1800 and the onset of the industrial revolution. By substituting sustained technological growth and K accumulation for natural resources fast enough to keep pop. growth from lowering average productivity and p.c. income levels.
12
Q
Describe the Malthusian Population trap
A
Idea that population is bound to stop growing b/c natural resource (i.e. food) growth can not keep up with population growth rate. As populations rise, pc incomes decline (less land to farm for each person), leading to population existing at or slightly above subsistence.
13
Q
Describe stagflation, when did it occur, and what was effect on developing countries?
A
When you have both high unemployment and high inflation. Occurred in the 1970’s and early 1980’s in the US, forcing Paul Volcker to hike interest rates extremely high. This became one of the main triggers of the debt crisis in Lat America.
14
Q
What is Keynesianism?
A
Important role of government in fine-tuning economy. Markets require active monetary policy from central banks and fiscal policy from governments (i.e. state investment programs). Main thinking after Great Depression
15
Q
What is the “Resource Curse” or “Paradox of Plenty”?
A
The tendency of a country rich in natural resources (particularly oil or other commodity) to manage it poorly:
- negotiate poor deals from MNC’s
- wealth not widely distributed to population
- rents received are invested poorly, if at all
- rents hugely volatile due to nature of commodity prices
- Dutch disease effects
16
Q
Define Dutch Disease
A
Upon receiving large cash inflows from newly found natural resource, the exchange rate of the local currency is pushed higher, making all other exporting sectors of the economy less competitive (as their goods/services are now more expensive to the rest of the world). Domestic firms also compete more with imported goods (which have become cheaper). Growth tends to slow, unemployment tends to increase. Problem comes from converting foreign exchange into local currency. To avoid, Stiglitz says country must spend some resource money on imports and keep some of this cash abroad (stabilization fund - which also helps w/ volatility of prices). First discovered in 1970’s and early 80’s w/ discovery of Dutch North Sea Oil.
17
Q
How does Stiglitz recommend paying for local infrastructure projects in resource rich countries and why is this difficult to achieve?
A
To protect against Dutch disease, funds should come from local sources and not resources revenues from abroad. Local funding sources, i.e. raising taxes, is hard sell to population who don’t understand why resource revenues shouldn’t be used.
18
Q
Stiglitz’s suggestions for fighting natural resource curse in general?
A
1) Develop strong institutions that ensure money is being widely distributed and well invested.
2) Transparency (citizens right to know how much country is selling and what it is receiving)
3) Reform accounting frameworks to think more in terms of Green NNP instead of GDP
4) Stabilization funds and the ability to use them when needed
5) On the part of Western govts. - not partaking in bribery/corruption, setting good example in their own countries of not giving away nat. resources for free, and with IMF, allowing countries to spend from stab. fund if needed during a downturn.
19
Q
Define Green NNP
A
“Green net national product (Green NNP) is a measure that subtracts out not just the depreciation of capital but also the depletion of natural resources and the degradation of the environment.” Reflects the fact that if nat res. are being extracted but country is not receiving what it should for them, it is in fact getting poorer (GDP on the other hand, may be raising, making it a less effective measure in this case)
20
Q
Basic idea of neoclassical economics and when it experience resurgence?
A
Government shouldn’t have major role in the market, supply creates its own demand and tends to points of equilibrium. Resurgence during stagflation of 70’s/80’s with Reagan/Thatcher and shift in thinking from mrkt failures to government failures.
21
Q
Basic idea of NIE (New Institutional Economics):
A
Broadening of neoclassical economics, essentially bringing back in some aspects of Keynesian thinking by saying that markets need to be organized but won’t do so on their own, so stresses the importance of strong economic institutions to regulate/organize mrkt.
22
Q
Basic ideas of Sen’s “Capabilities” approach to thinking of and measuring development:
A
Income/Wealth = means to well-being, but is not an end in itself.
- Poor are less able to realize their human potential
- Poor have less freedom to choose what they can become and what they can do.
Gives much more focus to health, education, social inclusion, women’s empowerment, etc as ENDS and as MEANS.
23
Q
What is PPP?
A
Purchasing Power Parity: An alternative to using the exchange rate to calculate the cost of goods and services among countries. Takes into account the different prices of goods and especially services (hair cuts!) around the world ($1 will buy you 1/15 of a haircut in US, and 1 haircut in Kenya).
GNI measured with PPP is higher than GNI measured with foreign exchange rate. Sri Lanka’s GNI per capital forex = $1780, and GNI per capital PPP = $4460.
24
Q
What is HDI
A
Human Development Index. Gives equal 1/3 weighting to a country’s Health (as measured in life expectancy), Education (as measured by adult literacy and school enrollment ratio), and GNP per cap.
Began in 1990, created by UNDP.
25
Does money buy happiness?
Differences seen up to income of $20,000 per capita, after, money doesn't seem to have effect on happiness.
26
How is NHDI different from HDI? Do NOT confuse with "Multi-Dimensional Poverty Index".
- Index is now calculated using geometric mean, meaning that a bad score in any one of the three categories drops overall performance and this can't be easily compensated for as before with good performance in another category.
- GNI used instead of GDP
- Average actual education attainment and expected attainment of children today are the new education indicators, replace literacy and enrollment
- Upper and lower "goalposts" have been raises and lowered, respectively
- Gets more into family/household information (education/health) instead of just national stats.
27
Idea of Path Dependency:
Idea from Why Nations Fail of the important part history and institutional formation plays in today's world. i.e. Effect of colonial settler mortality rates on institution forming extractive or inclusive tendencies. Very hard to change.d
28
Idea of Coordination failure:
Many actors fail to coordinate activities or choices which leaves everyone worse off. Due to difficulties of coordination.
29
Complementaries:
Economic activity generates spillovers. "An action taken by one firm, worker, or organization that increases the incentives for other agents to take similar actions. Complementarities often involve investments whose return depends on other investments being made by other agents." - TS text
30
O-ring model:
Model in which "Production functions exhibit strong com- plementarities among inputs and which has broader impli- cations for impediments to achieving economic develop- ment." "the value of upgrading skills or quality depends on similar upgrading by other agents" - TS text
31
Big Push:
State-led investment planning. "A concerted, economywide, and typically public policy–led effort to initiate or accelerate economic development across a broad spectrum of new industries and skills." - TS text
Basic belief is that small size of demand (low p.c. income/savings) means various industries have to grow at same time to create demands for each others' products (by creating forward/backward linkages). Big push tries to do this be overcoming coordination failure.
32
Linkages:
"Connections between firms based on sales. A
backward linkage is one in which a firm buys a good from another firm to use as an input; a forward linkage is one in which a firm sells to another firm." One of the main strategies to achieving a Big Push is having policies that promote forward and backward linkages in industrial sectors.
33
Externalities:
"costs or benefits that accrue to companies or individuals NOT doing the producing or consuming" - TS text
34
Poverty Trap:
Being stuck at a low-level equilibria (D1 on diagram). At any point between D1 and D2, tendency is to fall back to D1. Big push requires going past the D2 threshold.
35
Multiple Equilibria
"A condition in which more than one equilibrium exists. These equilibria may sometimes be ranked, in the sense that one is preferred to another, but the unaided market will not move the economy to the preferred outcome."
"the benefits an agent receives from taking an action depend positively on how many other agents are expected to take the action or on the extent of those actions. For example, the price a farmer can hope to receive for his produce depends on the number of middlemen who are active in the region, which in turn depends on the number of other farmers who specialize in the same product." - TS text
36
External Economies of Scale
"The lowering of a firm's costs due to external factors. External economies of scale will increase the productivity of an entire industry, geographical area or economy. The external factors are outside the control of a particular company, and encompass positive externalities that reduce the firm's costs." - Investopedia
Example: Invention of the automobile reduces costs/flexibility for all companies w/ regards to transport.
37
Basic idea of Krugman's History vs Expectations:
In determining which equilibria is established, there are two camps split along the lines that either history is the main factor, or, future expectations. Krugman argues that the predominate factor "depends on the underlying structure of the economy - in particular, on the costs of adjustment."
"In the absence of adjustment costs history is irrelevant.... the slower the rate at which the economy adjusts, the more likely it is that history matters; if adjustment is slow enough, history is always decisive." - Krugman's History vs. Expectations
38
Basics of Oman's Model of Society diagram (Slide 2, Session 2)
Consists of two subsystems: "institutional" and "economic", each in turn consisting of two parts:
Institutional = formal (laws, govt regs, judiciary, etc) and informal (values, norms, religious beliefs)
Economic = productive resources (L, K, land) and organization of production
Neoclassical thinking would ignore the institutional subsystem, believing that market would create laws etc if needed. Marx saw both subsystems, but forecasted tension between the two, w/ institutional creating mrkt failures. History shows that institutional has been much more adaptable.
39
Definition of Institutions. Which type tends to prevail?
Rules of the game. The rules that human beings collectively produce to give level of predictability in interaction w/ each other. Both formal and informal, though both are not always aligned (govt. says one thing, your parents say another). Informal institutions tend to prevail over time.
40
Difference between rich and poor countries in terms of average productivity:
```
Rich = higher productivity
Poor = lower productivity
```
41
What are two ways for society to raise productivity
1) Factor accumulation by increasing the productive resources (acquire more land, increase education of people, save more and accumulate more K). Technological change and innovation.
2) Increasing Division of Labor
42
Why is division of labor important?
1) Allows for specialization
2) Waste less time shifting between tasks
3) Specialist has insight and motivation to develop/produce machinery that allows for increased production
When these 3 are combined, this increases material productivity growth.
**Another important point: DOL fosters cooperation and exchange between specialized groups.
43
In nomadic hunter-gather societies, why is culture of sharing so important?
Mutualization of risks is the best survival strategy. The larger the group, the less risk you face (i.e. of starvation). Provided a form of insurance. When you supply food to others, they in turn feel obligated to return the favor.
44
Basic aspects of nomadic hunter-gather economy:
- Little K (only the small tools, etc they can carry on their backs)
- No sense of private property
- Little division of labor (only along the lines/ages)
- Very little inequality (best hunters were not richer)
45
Basic aspects of sedentary agrarian economy:
- More physical K
- More specialization, DOL
- Property Rights established to generate strong incentives for people to invest in improving resources (mostly group prop rights at this time)
- State comes into play: 1st societies to use coercive powers of state
46
Are public goods, such as property rights and social K, typically generated in market system?
No, neither in the amount or types needed. Market institutions, lead by pol. leaders, needed to produced these. Problem is that political leaders often create initiatives to benefit themselves, not society as whole. Gap between benefits to society vs those to pol. leaders.
47
Aspects of England during Industrial Revolution economy:
- individual property rights (and stronger incentives)
- Rural-Urban migration (peasants freed from land, providing labor supply for industry)
- In Spain, this "enclosure of land" did not take place due to power to sheep owners.
48
What is the natural resource constraint?
"The food problem" - scarcity of land for food production in LIC's. 1st development problem LIC's face. Most severe in Asia (high #'s of people hungry) and Afrique (highest % of pop. hungry)
49
Ricardian Trap:
Focuses on conflicts of interests between landowners and industrial capitalists. Saw Industrialization leading to growing use of marginal lands. Large property owners would benefit from rents if the demand for food/land went up, shifting distr. of income (DOI) to them, at expense of profits for industrialists.
Important effect on policy making in GB:
1) 1846 GB decides that to overcome this trap (declining profits), it must open to int. trade, export manufactured products and import agricultural goods. Corn laws repealed. Favored industrialists over landowners. This worked b/c GB had manf. goods to export (competitive advantage), and b/c brit population was relatively small on world scale.
50
Explain briefly the British Corn Laws of 1800's:
Banned the import of all grains and cereals into Britain if the price got too low, which was good for profits large landowners, but bad for factory owners who had to pay higher wages so that workers could afford high price of bread. Repealed in 1846.
51
What are some general food trends since WWII? (Population growth, land, and production)
Pop growth: up 2.5x
Farm land: up only 30%
p.c. land down by 1/2
p.c. grain production: up 30% (how? application of science to agriculture - better seeds, industrialization of chem. fertilizer)
52
How did France and Germany deal with natural resource constraint?
Imported food from colonies
53
How did U.S., Canada, Australia deal with natural resource constraint?
Didn't really have to - open frontier of available land
54
How did G.B. deal with natural resource constraint?
Agrarian revolution + food imports
55
How did Japan deal with natural resource constraint?
Investments in increase rice yields both domestically and in colonies (1868 and 1918 respectively)
56
How has Africa traditionally dealt with natural resource constraint?
Open new lands:
- cultivation & grazing onto unsustainable lands
- soil erosion, desertification, other env. damage
- still unable to keep up w/ pop. growth
- only region to not benefit from the Green Rev.
57
Define: pauperization
When speed of substituting tech growth and K accumulation can't keep up with the population growth. Happening in SSA today.
58
Green Revolution in Asia, important figures:
Made possible by technological progress and K in agricultural industries.
- p.c. land availability failing just as fast as SSA
- but p.c. food production increase .8-.9% per year
- India, Pakistan, Indonesia all became self-sufficient in 70's/80's
59
How were higher yields of the Green Rev realized specifically?
- Scientifically selected crop varieties w/ high growth potential (no GMO's yet, just better selection)
- Large amounts of fertilizer and water thru irrigation
60
Why did Green Rev. not take hold in SSA?
Lack of infrastructure here probably most important (irrigation and access to fertilizers)
- shifting cultivation & nomadic grazing still widespread
- Culture of communal sharing of tribes/villages and underdevelopment of private prop. rights means not able to facility L.T. investments in land infrastructure.
- B/c lag in settled agric., also a lag in infrastructure (social overhead K) such as roads, irrigation systems, etc
- Lack of/weak government (collective action) needed to produce these public goods
61
How do govts. get in the way of increased food production in SSA?
- State marketing boards (no private traders/middlemen) often paying farms much less than they should get
- Monopoly powers leads to corruption/inefficiencies
- Focus on transferring wealth from agric. to industry (important to also make investments in agricultural production before or at same time as industrial sectors)
- Strong ties to local/tribal communities makes leaders more inclined to support only those populations and not the society as a whole.
62
Limits/Restraints to Green Rev-type techniques?
- No improved crop varieties for draught-prone, rain fed areas or flood-prone areas
- Too little research into tropical subsistence crops (millets, roots, tubers)
- Growing neoclassical resurgence (getting govt. out of the way when in fact it is needed to orchestra big push) + aid fatigue
- HIC's powerful agric. interests and raising food prices
- RISK-AVOIDANCE for subsistence farmers (family's survival depends on the avoidance of crop failure)
63
How is cash income on substance farms generated?
Nonfarm wage labor (i.e. husband takes job to work seasonally while wife tends to farm & children). In Oman's work in Lat. Amer, found only 15% of income generated from their own farming activities. 35% came from other small commercial activities (selling cow, for example). Over 50% comes from sale of labor.
64
Why would some farmers not partake in Green Rev. techniques even if they could (govt. support, needed infrastructure, etc)?
Essentially risk aversion for subsistence farmers
- They do not possess "perfect knowledge" of input/output relationships and factor/product prices (i.e. price uncertainty)
- Green Rev. techniques mean that if a drought occurs, more likely that entire crop will be wiped out whereas if they stayed with traditional methods, at least some of it would survive. Crop failure = starvation in these cases.
- Only derive 15% of income from their own farm, so even doubling crop yields would mean about 15% increase in income, benefits not outweighing potential costs/risks.
- Limited access to insurance and credit to cover risks/costs.
65
True or False: The more a farm/household is above the subsistence level threshold (the more output they produce), the more likely they are to adopt new technologies & techniques such as those of the Green Rev?
True
66
Definition of Sharecropping:
"Sharecropping occurs when a peasant farmer uses the landowner’s farmland in exchange for a share of food output, such as half of the rice or wheat grown." "Represents a compromise between the risk to the landlord that the tenant will not do much work and the risk to the tenant that a fixed rent will in some years leave him no income [if crop failures occur]"- TS text
67
Is sharecropping less efficient compared w/ farmers working their own land?
Evidence = yes. Marshal approach found that incentives were less for tenants, though Cheung argues that if work of tenants can be easily monitored, landlords would replace poorly performing tenants with better ones, and full productivity would be reached. But...
Shaban found that farmers who owned land AND were tenants on sharecropped lands tended to use few fertilizer and produce few outputs on sharecropped land when compared to their own land.
68
Definition of Interlocking Factor Markets
"Factor markets whose supply functions are interdependent, frequently because different inputs are provided by the same suppliers who exercise monopolistic or oligopolistic control over resources." -TS
Example: landlord to peasant = prospective employer (sharecropping), loan officer, customer of output, provider of farmland.
69
Definition of "screening hypothesis" of sharecropping
"landlords may offer tenants an option of either sharecropping or pure rental contracts precisely because higher-ability people more often choose pure rental arrangements. The motivation may be to enable landlords to squeeze more profits out of the renters, charging higher effective rents for pure rental contracts than for sharecropping contracts" - TS
70
Definition of Diversified (mixed) farming
"The production of both staple crops and cash crops and simple animal husbandry typical of the first stage in the transition from subsistence to specialized farming" -TS
71
Lack of innovation in agriculture is usually due to:
a) poor motivation
b) fear of change
c) inadequate or unprofitable opportunities
Correct answer: C
72
On subsistence farms, especially in SSA, most of the work is done by men or women?
Women (who also usually work longer hours than men) Concept of "time poverty". Women responsible for over 2/3 staple food production. Men try to find paid work.
73
Definition of Human Poverty Index:
Designed to complement the HDI.
"An index measuring deprivation in basic human development in a country, based on:
- the percentage of people expected to die before age 40
- the adult illiteracy rate
- the percentage of people without access to health services and safe water, and the percentage of underweight children at age 5." - TS text
74
Of cash crops, women control and are responsible for:
a) the production and profits
b) the weeding and transplanting
c) other
Correct answer: B
75
How do women help to stabilize household income?
By being:
- primarily responsible for food security: growing food for their own consumption, insulating family from price swings
- involved in revenue generating activities (selling extra output, homemade beer, processed foods, handicrafts et textiles)
76
How can increases in household income not necessarily lead to increases in health and nutrition?
"a considerably higher proportion of women’s income than men’s is used for nutrition and basic necessities. Thus if men’s incomes rise at the expense of women’s resources, as many studies have indicated, an increase in household income will not necessarily lead to improvements in health and nutrition"
77
Studies have found that households are not necessarily unitary in that they cooperate to maximize shared objectives. Instead, they bargain. What increases/decreases bargaining power?
Essentially who brings home the money and controls it. If the wife is contributing the most income to the household, she tends to have much more bargaining power over how that $ is used.
78
Women spend a higher amount of the income under their control on health/nutrition than men, on average. What else do they spend more on?
Children's health and education
79
Shifting subsistence crops to men and cash crops to wives would have what effect? (both good and bad)
Good: effectively more $ would be spent on health/education/children
Bad: less control over direct food production for family consumption, possible that less food would be available for family as a whole.
80
How do many state-led programs to improve agriculture development effectively exclude women?
- Women barred from owning property or conducting financial transactions w/o husband, meaning they often lack collateral
- Land reforms distribute new titles only to men
- Focus on training women on low-productivity tasks instead of new agricultural techniques that would be more productive
81
What is the "trickle-across" theory and has it proven to be true or false?
The idea that when men receiving training from an agricultural extension program, he will in turn train his wife. Has proven to rarely occur in practice.
82
Shortcomings of the T&V (training and visit) programs in Kenya?
- To few know about credit program
- Training agents still primarily men
- Women not included in the design phase of the program
- Not yet strongly involved in environmental issues
83
Definition of Engel's Law
Two aspects to remember:
1) As income rises, the proportion of income spent on food decreases. Low income-elasticity of demand for food. Spending on food by different households:
Rich: 5-10% of income
Poor: 80% of income
2) Dependence on land for sustaining growth declines as country develops. No longer substituting K for land in food prod. but K for labor in manufacturing.
84
As income rises, consumption of what type of good increases?
Manufactured goods
85
Definition of Structural transformation:
"The process of transforming an economy in such a way that the contribution to national income by the manufacturing sector eventually surpasses the contribution by the agricultural sector. More generally, a major alteration in the industrial composition of any economy." - TS text
86
Definition of Lewis "dual economy" model:
Idea that economy of developing countries is split into one "traditional"/inefficient sector and one "modern" manufacturing sector. "Labor was used so inefficiently in the traditional sector, according to Lewis, that it could be reallocated to the modern sector without reducing the amount the rural sector could produce" - WNF
"surplus labor from the traditional agricultural sector is transferred to the modern industrial sector, the growth of which absorbs the surplus labor, promotes industrialization, and stimulates sustained development." - TS text
WNF says that while two sectors existed in South Africa, one was feeding off the other. Modern extracted (low labor costs) from the traditional sector.
87
Vicious cycle of poverty:
low p.c. income --> low savings --> low investment --> p.c. productivity remains low --> low p.c. income
88
In theory, one way to escape the vicious cycle of poverty is to export primary products. What are three real-world problems with this potential solution?
1) Engel's law (as well as...downward trend of commodity prices, price volatility of commodities, center-periphery paradigm)
2) Resource Curse (including Dutch disease, bad govt.)
3) Example of China in Africa today (reliance on Chinese imports, China there to develop its own interests, not Nigeria's)
89
Harrod-Domar growth model:
Essentially is the economic model that explains how more investment leads to more growth. Misused by WB b/c assumed a constant K/O ratio.
"A functional economic relationship in which the growth rate of gross domestic product (g) depends directly on the national net savings rate (s) and inversely on the national capital-output ratio (c)." - TS text
90
Pecuniary externality:
A positive or negative spillover effect on an agent’s costs or revenues.
91
Growth Diagnostics:
A decision tree framework that helps identity the causes of a country's development problems. i.e. low private investment and entrepreneurship are the problems, what policies would help fix these? Important because it identifies one or two policy priorities that are country specific and most important to pursue instead of blanket of reforms that don't target root problems.
92
In what ways does WTO and bilateral trade agreements usually work to the benefit of HIC's?
- tariffs and subsidies in agricultural and labor-intensive industry. These impede growth in LIC's
- Limits to free movement of labor via immigration barriers
These are the major complaints from the "South" or LIC's
93
What was the WTO Doha:
WTO Development Agenda that sought to address the unfair trade advantages the North (HIC's) receives. Fell apart due to US, EU resistance in 2003 - US in particular refused to budge on its cotton subsidies (which are hugely detrimental to Africa).
94
Are remittances or FDI higher as a percentage of GDP in LIC's?
Remittances
95
Foreign aid (ODA) is defined as the flow of capital to a developing country that meets what two criteria?
1) Objective should be non-commercial, non-profit
| 2) Concessional terms (lower interest rates than what the mrkt provides)
96
3 reasons why aid difficult to measure:
1) Cost of interest must be accounted for
2) Aid can by tied by source (buy only goods/services from donor country) or by project (spend only on specific project).
3) Difference between nominal and real value (when compared with rising prices) of aid. In many cases real value aid levels are dropping.
97
Two-gap model
"A model of foreign aid comparing savings and foreign-exchange gaps to determine which is the binding constraint on economic growth." - TS text
98
Savings gap
The excess of domestic investment opportu- nities over domestic savings, causing investments to be limited by the available foreign exchange.
99
Foreign-exchange gap
The shortfall that results when the planned trade deficit exceeds the value of capital inflows, causing output growth to be limited by the available for- eign exchange for capital goods imports.
100
Two advantages that NGO's have over bi or multilateral aid:
1) Not as motivated by political reasons, thus able to work more effectively with people they are trying to assist.
2) B/c working directly with local population, they are more able to convince them that their motives are genuine.
101
Six principles that NGO's should be following (Alexandra Mitsotaki's lecture)
1) Inclusiveness
2) Bottom-Up Approach
3) Local Ownership
4) Local Responsibility
5) Sustainability
6) Respect of local knowledge
102
Governments are becoming more hesitant to allow NGO's to operate because...
NGO's are more focused on empowering people and teaching them about their rights, which is threat to governments. Shift from a needs based approach to a capabilities-based approach.
103
What are the three main domains of NGO work?
1) Community project-based
2) Humanitarian
3) Policy & Campaign
104
What are a few challenges NGO's face when accessing the impact they're making?
1) Data can be hard to come by, especially baseline data
2) Hard to measure something like empowerment
3) Smaller NGO's may not have resources to devote to measuring impact.
4) NGO data may be biased.
5) Results due to growth or work of NGO?
105
3 ways beneficiaries can help NGO accountability:
1) They are the ones in charge of project
2) Transparent in the way they operate
3) Interaction with donors
106
3 simple things NGO's should avoid:
1) ignorance
2) inertia (keep moving!)
3) ideology
107
True or False: Few empirical studies have shown that aid tends to promote growth in systemic way.
True *though aid shown to be more effective when good governance observed.
108
Stiglitz argues that aid shouldn't be cut back b/c international collective action is needed to provide global public goods. What are two examples of global public goods?
1) Prevention of armed conflict
| 2) Public Health (i.e. humanitarian action)
109
As an average, ODA is what % of EU DAC countries GNI?
a) 0.2%
b) 0.4%
c) 0.7%
Correct answer: B
110
ODA is what % of US GNI?
a) 0.2%
b) 0.4%
c) 0.7%
Correct answer: A *but the largest donor in value terms - $32 billion in 2013.
111
Most ODA takes the form of loans or grants?
```
Grants = 90% of total ODA
Loans = 10% of total ODA, of which 70% is a grant element
```
112
What is the OECD DAC?
Development Assistance Committee, which collects data on ODA since 1960. Developed method to calculate "grant element". DAC countries provide 90% of ODA.
113
Of reported ODA, how much is "tied"?
8%, though Easterly believes the figure is much higher when accounting for the fact that many believe tied aid isn't reported.
114
True or False: Bilateral aid accounts for 70% of ODA, Multilateral aid accounts for 30% of ODA.
True
115
What percentage of ODA is program aid (compared to project aid)
50%
116
Major criticisms of aid:
- Much Wasted
- Supports corrupt regimes
- Tends to go to rich instead of poor
- Makes control of govt. worth fighting for (jackpot if war is won). Also stimulates corruption.
- Govt. less accountable to citizens (not receiving revenue through taxation, but through external source)
117
True or False: The majority of people do not support increasing aid their governments provide.
False
118
What is the agreed upon level of ODA countries should give and what do they actually give on average?
Target: 0.7% GNI
Actual: 0.3% GNI
119
What is program aid? What is project aid?
Program: Given to govt. to reduce debt to invest in programs not tied to any one particular project. Popular with Washington consensus in the 1980's - 1990's.
Project: i.e. building a bridge. Becoming more popular now.
120
What were the motivations for the Marshall Plan (1948-1950's)?
- Contain spread of communism
| - Trade & Investment opportunities for U.S. firms in countries that are being helped.
121
2005 Paris Declaration focused on what?
Aid Effectiveness
- measure dif. ODA makes in lives of poor and not inputs
- max'ing recipients' ownership
- donors working better w/ each other
- mutual accountability on donor/recipients
122
Underlying objective of Stiglitz's 5-pronged agenda to reduce corporate abuse.
Aligning private incentives with social costs and benefits
123
MNC's practicing business social responsibility (BSR) benefit in what two ways? How to force everyone to get on board?
- Avoid negative publicity
- Attract high quality workforce
Regulations the only way to have all business's comply.
124
How does Stiglitz recommend limiting the power of large MNC's?
The focus is on monopolies (i.e. Microsoft). He believes an global competition law and authority to enforce the law should be created. Believes multiple oversight is needed, and b/c of this, national oversight (i.e. FTC, DOJ in US).
125
Of the poor population at any given time, what portion is typically "chronically" poor?
About 1/3 - concentrated in India and SSA.
126
What are the limits to simpler aid solutions such as microfinance, business training, etc?
They aren't very effective at reaching the poorest of the poor, or the "ultra poor", typically living on 54 cents a day and experiences malnutrition, other health problems, and long term chronic poverty.
127
Grameen's BRAC targets what portion of the poor population?
The ultra poor
128
In very broad terms, why is it important to focus poverty reduction solutions more on women?
They make up the substantial majority of the poor, especially the ultra poor (woman = head of household). Less likely to have access to education, social security, employment programs, etc.
129
Are children in female headed households more or less likely to be enrolled in school.
Surprisingly, less! Typically because income is so low, they are needed to work to provide additional income.
130
Reasons why poverty can slow growth:
1) Poor have little/no access to credit leading to lost investment opportunities
2) Rich are less interested in saving and investing (??)
3) Lower health, education, nutrition levels = lower productivity
4) Rising income = rising demand for local products
5) Psychological factors
131
Why is it so easy for coordination failure to occur?
Because every actor is better off waiting for others to take the lead. Oman's classic example: investments by many investors are needed for any investor to make a profit.
132
India and China were originally influenced by what country's apparent success?
Russia (USSR) = central planning mechanisms
133
Many newly independent countries after colonial period came setup market mechanisms or central planning (SOE's)
SOE's. Market seen as mech of colonial exploitation. Most SOE systems included IS, which largely failed (except E. Asia)
134
Kuznet's study of historical growth patterns led to what major policy shifts? Did it confirm or deny Solow's model?
Shift away from K accumulation and toward borrowing technology from developed countries. Thought was that even LIC's could achieve high growth w/ borrowed techs.
Found that 80% of labor productivity growth due to TFP (technology progress).
135
Solow’s (1956) “exogenous” growth model gives what two main sources of growth:
1) Factor mobilization
| 2) Tech progress.
136
Did Kuznet's study confirm or deny Solow's model?
Confirm it by showing tech major factor.
137
Gershenkron (1962): argued for K accumulation or tech progress to stimulate growth and why?
K requirements actually much higher for latecomers (because of high fixed costs, high K-intensity of borrowed tech) and thus strong K accumulation needed to benefit from borrowed technology.
** Also found latecomers had higher growth rates than early industrializer countries.
138
Which route did the E. Asian countries take during their development, the Kuznet model (borrowing technology), or the Gershenkron model (K accumulation to pay for borrowed tech.)??
Gershenkron: heavy reliance on K accum. (factor mob.) in successful tech-borrowing catching-up industrializa?on processes
139
True or False: FDI is often financed by local borrowing
True
140
What are two examples of NFI (New Forms of International Investment)?
- Minority foreign-owned Joint Ventures
| - non-equity ventures
141
The first MNC's were seen in what time period?
1600's with Dutch and British East Indian Companies.
142
The early MNC's where vectors for what?
Imperialism and Colonialism
143
Early MNC's (East Indian Companies) had what extraordinary powers?
- Power to make treaties
- Power to wage war
- Power to confiscate local property
- Power to trade
144
During period of 1854-1914, FDI or FPI dominated?
FPI - railroads, utilities, govt. bonds. By 1914, 90% of all foreign investment was FPI.
145
What time period did you first start to see signs of FDI?
1920's-30's, mostly in LatAm. Really starts to take off after WW2 in 50's and 60's.
146
FDI of 50's - 60's was geared mostly to serving home or host markets?
Host
147
What were the 3 goals of the UN Commission, Centre on TNC's?
- improve understanding on MNC impact on developing economies
- strengthen host gov negotiation
- enhance MNC's (+) contributions to developing countries and limit (-) contributions.
148
If you had to sum up Washington Consensus polices in three terms, they would be:
liberalization, privatization, de-regulation
149
EPZs / SEZs have grown or declined over the years since the 1980's. Limited by what?
Grown over time, though limited by slowing growth of HIC's. And only a small fraction of workforce employees in EPZ's.
150
The majority of FDI inflows go to developed or developing economies???
Developed, (HIC or UMIC)
151
When govts and economies have benefited from FDI, what was the common thread between all of them?
Strong, adaptive, inclusive institutions.
152
Countries that have been successful in transferring technology and skills?
China and Singapore
153
Multidimensional Poverty Index (MPI)
Created in 2010, took the place of original HPI. Gets more at household data and looks at ten indicators below. Higher the # (ranges from 0-1), the deeper the poverty. Brazil = 0.011 / Burkina Faso = 0.536
- Child mortality
- Nutrition
- Years of school
- Children enrolled
- Cooking fuel
- Toilet
- Water
- Electricity
- Floor
- Assets
