Econ case study Essay
Econ case study
1) Why is economics central to an understanding of the problems of development?
It is because that the development of a country depends on economic factors. Economics helps you to interpret how a country is developing, economic policies of a country that determine whether or not it develops and how fast it develops if it performs. In addition, economics helps you to understand how wealth and finance are distributed, and the causes and effects of borrowing and lending. Problems of development are like not having enough money, economics teaches us about problems in development and so we can better interpret these problems primarily by looking at the economic components that define the troubles. Furthermore, economics is a social science and is concerned with people and economic development problems also stemming from people so these fields are related and understanding the one helps you better understand the other because you can build up a bigger picture.
5) Why is an understanding of development crucial to policy formulation in developing nations? Do you think it is possible for a nation to agree on a rough definition of development and orient its strategies accordingly?
It is important because, like I answered on question number one, development of a country rely on the economic policies of a country which decide the country is developing or not, and how fast it develops. Depends on what policy formulation the country select, it may result different ending. In my opinion, currently nations cannot agree on a rough definition of development because most of them have different approaches, measurements and standards. However, I believe in the future there might be a working definition that the nations can agree on and orient its strategies. Like the textbook mentions there are three basic components that help understand the meaning of development which are sustenance, self-esteem and freedom.
6. Why is a strictly economic definition of development inadequate? What do you understand economic development to mean? Can you give hypothetical or real examples of situations in which a country may be developing economically but still be underdeveloped?
The Strictly economic definition of development was inadequate due to not taking into account the factors other the financial or economical. I considered that economic development meant financial growth or the increment in yield of goods. An example of a country that is developed economically, but still underdeveloped would have to be India, which I selected for the group presentations, because it is producing a lot of goods and services, but many of its citizens are living in poverty and there’s still a high inequality between genders.
7. How does the concept of “capabilities to function” help us gain insight into development goals and achievements? Is money enough? Why or why not?
The capacities to function help us clear insight into development goals and achievements by letting us determine how much freedom of choice a person experiences in their country which makes it a full measurement of growth. Money is not enough to gain insight of development goals and achievements because money does not help people from living long, and it does not guarantee people’s happiness.
8. What forces may be at work in giving the Millennium Development Goals such a high profile in international economic relations?
In my opinion, money forces work in giving the Millennium Development Goals. If a country get high incentive of money, they can borrow money easier than the other country who does not perform well on money.
2. Brazil has special interest because its growth performance from the 1960s through the
1980s was the best in Latin America, with at least some parallels with East Asian policy and performance (Todaro & Smith, P.28). Moreover, other indicators of development in Brazil lagged, eventually undermining growth prospects. After the civil war and gaining benefits from the other Central American countries, it seems that Brazil should have been in a much better position to fight extreme poverty trap and social equity. Rather, it has continued to insure an extremely high percentage of its population in extreme poverty in an upper middle income country, and remains one the countries with the highest degrees of inequality in the world.
3. Chapter 2
1) According to the textbook, the problems that most developing countries have in common are poverty, high levels of unemployment and underemployment, low levels of agricultural productivity and sizable imbalances between urban and rural levels of living and economic opportunities (Todaro & Smith, P. 92). The most significant problem is serious poverty because every person should at least have the most basic needs such as home, basic clothes and food.
2) According to the textbook, low levels of living is the amount of money on average a person makes in a country. (Todaro & Smith, P. 29). In my opinion, low levels of living can exist simultaneously with high levels of per capita income because there might be a few that are earning a lot with the majority of the population earning less. For instance, on 1980’s Portsmouth, Ohio and Brazil, which is an upper medium income country with nice levels of per capita with a bulk of its citizens living in poverty.
4) In my opinion, among health, labor productivity, and income levels, there are huge, and strong relationship because I think labor productivity decides the income levels, and it also affects people’s health. For instant, people can observe that people’s health is low when labor productivity is low and it comes with low productivity the income levels are lower than the normal countries.
5) “Dominance, dependence, and vulnerability” in their relations with rich nations is that many developing countries do not have any means of their own that they come to depend on the rich nations handouts and pretty much become vulnerable and dominated. In other words, rich nations can kind of force the developing countries to do what they want, and make them poor if they refuse. For example, rich countries are forcing or suggesting Iran and North Korea to give up nuclear weapons by interrupting their economy. Moreover, a developing country is so poor that it cannot invest and that is where the rich countries come and provide financial aid to make that poor nation depend on rich countries.
6) Developed countries produce large quantities of goods, services, and in general do a lot of manufacturing. Countries such as these use science to improve technology and generally have good health care and education for their people. Compared to developed nations, developing countries practice subsistence agriculture and often suffer a miserable income, clothing, and housing. Only few people in developing countries receive proper health care or education. In addition, and life expectancy is relatively short. Most developing countries also lack the resources needed for economic growth. Also, developing countries’ primary sector of economic is the major contributor to the GDP of the country. Low GDP per capita is there. Usually exports agricultural goods or natural resources and imports value added goods from developed countries.
7) The composition of the Index reflects dissatisfaction with income as a measure of well-being: income is not the only argument in a person’s utility function. The Human Development Index is an attempt to develop a better measure of well-being. If I design the new HDI, I want to set up the standard of get information from people. Quality and trustworthiness of those data is disputable, especially when we get the information from UN non-democratic members. It is because I think it might much better if we have a standard method to get adequate data which shows their own interest for strengthening their credibility and legitimacy.
12) According to Jan Kees van Donge, he states that in Southeast Asia, the transition to sustained growth has consistently been associated with policies aimed at macroeconomic stabilization; improving life in the rural sector, increasing agricultural productivity, and ensuring an ample supply of food. In contrast, sub-Saharan Africa initiatives in these directions have in some instances been present, but the concurrent pursuit of all three policy objectives has not. Other factors that appear to be of somewhat lesser importance, but that nevertheless deserve further study are: industrialization on the basis of foreign direct investment; systems of politics and governance; and cultural patterns as manifest in policy choices. (“Tracking Development in Southeast Asia and Sub-Saharan Africa: the primacy of policy”, par.3)
13) According to the textbook, colonial legacy is described as the colonies and institutions that were created and controlled by European and other foreign powers. These colonies and institutions that were created in the developing countries had a negative effect on the development of those countries that still continues today (Todaro & Smith, P. 69). The advantage of colonial legacy is that arrangement might be exists. A disadvantage would be that in many cases, these countries or institutions will not rich by its own country’s ability.
14) According to the textbook, five characteristics of the developing world are physical and human resource endowments, per capita incomes, climate, population, and historical role of migration. It says that developed countries are more natural resources when the country started to grow were as most developing countries usually did not have a lot of natural resources (Todaro & Smith, p.71). Per capita incomes are a lot higher in developing nations than in growing nations. The growth rates of populations in developing rural areas are usually higher compared to that of a developed nation.
15) The differences between the traditional HDI compare to NHDI, HDI uses arithmetic mean. In contrast, NHDI uses geometric mean. HDI uses GDP and the NHDI replaces that with GNI. Traditional HDI added the three components and divided by three. However, NHDI takes the cube root of the product of the three component indexes. In my opinion, NHDI is better than HDI because it gives us a realistic average and the traditional HDI gives us an arithmetic average which is not realistic.
a. R1=-21%, R2=42%, R3=59%, R4=9, R5=0.87%
b. R1=-40%, R2=56%, R3=-90%, R4=0
c. R1=-20%, R2=78.12%, R3=91.34%
5. Chapter 3 (page 136-137): Questions for Discussion 1-6
1) The structural change model of Chenery focus on structural changes in the stages of the process of economic change, industrial and institutional structures of emerging economies. Chenery research conducted on the transformation of production structure shows that the increased role of the industrial sector in the economy in line with the increase in income per capita is happening in a country closely linked with the accumulation of capital and improving human resources (human capital). The neo-Marxist is an indirect outgrowth of Marxist thinking. The main idea is that a disproportionate relationship between the central state which consists of the developed and the periphery is composed of the developing world.
The false-paradigm model is the model that advice or suggestions may mean well but often do not have enough information about the country to be assisted, especially developing countries. For the developing nations, I think the best explanation is related to the situation in most developing countries is the neocolonial dependence model (neo-Marxist). This model explains that economic development on developing countries depend on developed countries, especially in direct investment in the mining sector and import of goods produced.
2) Dual societies means that rich nations and poor nations at world level are exist; and a few rich complemented with a majority of poor people in the developing countries. Thus, dualism is a concept which represents the existence. I think it does not portray the development picture in developing country because it seems like a concept that divide the world into only two part. Development or developing countries.
3) According to the text book, it says that different sets of conditions, of which some are “superior” and others “inferior,” can coexist in a given space (Todaro & Smith, p.125). Also, the interrelations between the superior and inferior elements are such that the existence of the superior elements does little or nothing to pull up the inferior element, let alone “trickle down” to it. These are reason why it is a valid conceptualization.
4) According to text book, neoclassical economic theories designed to accelerate the growth of GDP as the principal index of development (Todaro & Smith, p.125). it is valid policy because it is all connected to the False-Paradigm Model and a policy of autarky.
5) I do not think that there is a single unified theory that explain the one country. Including the economic theory, a situation should be explained by the several theories arising from various branches. Also, we can observe that there are many factors which are put into the section of output or input.
6) Even though the free-market theory and the dependence theory indicates the opposite meaning of explaining the market, in my opinion, neoclassical, free-market theory is not necessarily incompatible with dependence theory. In case of the rich countries or the country, which is developed country yet it was developing countries at past, both free-market and dependence theory is needed to explain their economic status.
6. Chapter 4 (page 195-196): Questions for Discussion 1-10
1) Actions can be taken by one agent reinforces incentives for others to take similar actions. With Multiple Equilibria graph, there are pressure which hit equilibrium point. Also, one equilibrium to other points there are demand shock, supply shock and government interruption which indicates the metaphor of economic problems. For example, on our daily life basis we can observe the invisible hand in the market which means that government makes decision for economy and affect our life.
2) According to the PowerPoint, indivisibilities in amounts of investment imply a region of increasing returns to scale, as in the fixed costs of the big push model. Once again, increasing returns plays a key role in generating multiple equilibria. This is related to how the investment works with big push model. In case of O-ring model, investment is one of the outpour sector which effects the formula. It was hard to find the limitation in o ring model, but I would like to say and would like to ask why q is only between zero and one. It can be the limitation points of O-ring model?
3) I do not think that developing countries can escape all of the traps described in this chapter. Especially developing countries cannot escape from the poverty trap because poverty fuels move the poverty. It is happening in underdevelopment countries. Therefore, if a country is in poverty trap and try to escape, they should have positive information externality from development countries. In case of development countries, it is still hard to escape the poverty trap but it is movable than the developing countries.
4) High levels of inequality lead to lower rates of growth and development because it makes rich countries more rich and poor countries poorer. If there is a high level of inequality on growth and development rate, it supports the poverty trap, which is the most difficult thing to get out of the trap, to develop.
5) In case of central planned market, such as public ownership of resource and governing board that makes decision for economy. If government interrupt the free market and give pressure to equilibrium point, it makes new prices from government. Also, it leads to a lack of private investment. Finally, the market might have a failure results.
6) In my opinion, low level of trust of people outside one’s extended family is related to information externality. It always better to accept positive information. Also, it is connected with the Haussmann-Rodrick-Velasco Growth Diagnostic Decision Tree theory. In case of low levels of private investment and entrepreneurship, it may causes low return to economic activity and high cost of finances which cause low social returns and market failure.
7) O-ring production function is complementarity between workers’ skills. Therefore, we can find O-ring production on our daily life where the place indeed high technology or the worker’s skills. For example, if the producer of IPhone 6 has more significant skills, the price may different.
8) I think the two approaches cannot be used together to inform each other. If I assume that logically cohesive model with strong assumptions is the big push model, the other theories, such as O-ring model can supports the limit of the big push. However, in my opinion, the two approaches cannot be used together to inform the same situation at the same time. Because there might be some overlap sections and limitations between two theories.
9) As a reader of chapter 4, The Big Push model described in this chapter is useful in shedding additional light on the nature of problems considered. It shows market failures lead to a need for public policy intervention. Moreover, it is more efficient for economy because it assumes that perfect competition with traditional firms operating, limit pricing, monopolist with a modern firm operating. If there is an intertemporal, urbanization, infrastructure and training effects, a big push may necessary.
10) According to my research,
Egyptian reforms launched in 2004 appear to have focused well on the most critical constraints-reducing red tape and tax rates, and improving access to foreign exchange-thereby getting a strong growth response out of a limited set of reforms. However, inefficient bureaucracy remains an important obstacle to higher growth and reforms in this area should continue to have high payoffs. Ongoing reforms are also addressing constraints that are likely to become binding soon (or have become so already), such as inefficient financial intermediation and high public debt. Improvements in education may rapidly become a critical factor for sustaining higher growth ( Enders, Klaus-Stefan, sec.1).