Econ 333

Econ 333
10/18/13
Assignment 3
Chapter 3: Questions for Discussion
1. The distinctions among the stages-of-growth theory of development, the structural-change models of Lewis and Chenery, and the theory of international dependence is that each one takes into account different factors or focuses on specific factors. The Stages-of-growth theory has a five stage to which a developing nation must go through. The Structural-change model of Lewis focuses on a developing country transforming itself from an agricultural economy to an industrial economy. Chenery model was similar but took into account more factors. The neo-Marxist theory of international dependence focuses on the unequal power partnership between an underdeveloped country and a developed country and in the false-paradigm it focuses on the well intention guidance and help that usually does not work or inappropriate for that developing country. I think that the theory of international dependence provides the best explanation of the situation in most developing nations because most of those nations are usually being exploited by a developed nation allowing a small group of people to benefit financially.
2. According to Economic Development Eleventh edition, dual societies is basically rich and poor countries exist in the world and dualism is idea that the rich are getting richer and the poor are getting poor causing the gap between them increase. In my opinion I do believe that this concept portrays the situation in most developing countries because the poor usually have no means of improving their financial situation.
3. I think what people mean by claiming that international dualism and domestic dualism are merely different manifestations of the same phenomenon is that each one looks different but is from the same cause. I think it is a valid conceptualization because in both international and domestic the gap between the poor and rich is growing.
4. According to Economic Development Eleventh edition, the term neoclassical counterrevolution means the developing countries should let the market guide the distribution of resources and promote economic development. The principal arguments are the free market approach that says that gov’t intervention in the market is not good. Also it argues that gov’t is corrupt and inefficient. I think it is valid because the markets are efficient that will promote development.
5. No, because each nation is different and develops differently that I don’t see one theory working for all the developing countries.
Chapter 4
1. Some examples of complementarities from everyday life are when homeowners want to increase the value of their homes all the homeowners would have to invest in their homes to make them look nice and therefore increasing the their home values. Another example is in order to decrease pollution everyone must in some way invest in stopping pollution. I do think my example somewhat help as a metaphor for economic development problems because in order for complementarities to work everyone must invest.
2. International trade and foreign investment can solve some the lack of unskilled workers and the lack of technology needed to increase productivity. O-ring model I would say it would allow the firms to acquire workers with high levels of skill and retain them with high wages as long as there is adequate investment made by all the parties involved.
3. I am pretty sure that developing countries can escape all the traps described in chapter 4 because as mentioned, trap usually has a way out one way or another although it will be difficult. In my opinion the ones that would be the most difficult to escape are the poverty trap and the middle-income trap. I’m not sure develop countries can do much do to the large amount of corruption that infests those developing countries. Developing countries could maybe try to work together to improve some situations that occur in those countries.
4. I think that high levels of inequality lead to lower rates of growth of growth and development because there is a small group that profit and the rest don’t. In other words there are no incentives for those who are poor. Well, I think no one is really able are willing to help improve those who are less fortunate. Another reason I think is a coordination failure.
5. I think the government is sometimes a part of the problem of coordination failure rather than the solution because it doesn’t provide proper polices or laws to help coordination or it might not even provide enough incentives. I don’t think the problem is hopeless because polices can be change of modified to improve coordination.
6. I think that the O-ring can shed light on the problem that is shared by many developing economies which is the low level of trust of people outside one’s extended family. The o-ring model I think can be a good model.
7. Well a law firm would hire a skilled secretary this is because a simple mistake due to an unskilled secretary would or could end up costing the law firm a lot of money. Another example of an o-ring production is when producing a car the workers would have to be skilled in what they do because one mistake could end up messing up the rest of the car being produced. I think my examples aren’t the best but I guess they could be used as metaphors for development problems.
8. I country I chose is Thailand and upon research I found that it just recently upgraded its status to low income country to middle income country. This is good but it seems that it might end up in a middle-income trap that many of the middle income countries are experiencing. One way I think to avoid this or to get out of this trap is to invest in education and the people.

Chapter 5
1. GNI and per capita income do not provide sufficient measures of a country’s development because it doesn’t take into account other factors affecting the country’s development. Per capita doesn’t provide a sufficient measurement because each country have different population sizes and also by focusing on only money there are other factors like education or healthcare that get overlooked.
2. Size distribution of income lists the income not taking into account where the income came from and the functional distributions focuses more on the sources to which the income came from. The sources include are labor, physical capital and land as stated in the Economic Development Eleven edition. I think that the size distribution is the more appropriate concept because it is taking into account all sources of income individuals make.
3. Absolute poverty is pretty much the lack of basic human needs that include safe drinking water, sufficient food, shelter, basic health services and basic education as discussed in class. Also, absolute poverty can also be seen as the people living on less than $1.25 a day. The measures of income poverty that are favored by development economists are Headcount index, Total poverty gap, The foster-greer-thorbecke index, the new MPI, and the ACWI. These measures differ from the Multidimensinal poverty index I think because the MPI focuses on the overlap of deprivations across the three dimensions that include living standards, health, and education. I also think that another reason that it differs is that it doesn’t use income.
4. Some economic characteristics of high poverty groups are that they are unevenly located in rural areas, involved in agricultural activities, more likely to be kids and women and mainly minorities or indigenous people. These characteristics tell us that in order to focus on a development strategy is that the strategy should focus on rural areas and bettering the agricultural sector.
5. In the Kuznet’s inverted U hypothesis is a connection between development and inequality. As the rich get richer at the beginning of development the poor get poorer which intern the income distribution becomes more and more uneven or unequal. But as the developing nation continues to develop and reach the final stages of development the inequality should start to diminish.
6. Qs 7) The relationship between a Lorenz curve and a Gini coefficient is that from the Lorenz curve you can calculate the inequality of income through Gini coefficient.
7. Qs 10) I think that one way that inequality lead to faster growth or development is by the few individuals or the government that push to increase growth only because in doing so would increase their financial interests. It might lead to slower growth because of the lack of incentives and polices.
8. Qs 11) I think progress is being made in the fight against poverty because more and more countries are trying a little harder to improve their situations. Like Thailand recently went from a low income country to a middle income country. This doesn’t mean that poverty is gone it just means that it is getting a little better but there’s a long way to go still.
9. Qs 12) The types of poverty policies that have proven effective are the ones that focus on increasing infrastructure, health, and education. Usually, these policies aren’t just one police that tries to focus on one thing they are a group of polices that support one another.