A younger country (with a larger percentage of young people) will have a higher population growth rate than an older country (with a larger percentage of old people) even if both countries have the same fertility and mortality rates.
Explain this phenomenon using a pyramid for young and old countries.
Old people cannot reproduce and will die. Young people will reproduce at a certain rate. The higher the percentage of young people, the higher the population growth rate. An age pyramid graphically represents an age distribution from young to old. If most of the people are old and do not reproduce, this means that the pyramid shrinks.
Define balanced and unbalanced growth (for sectors)
With balanced growth, all sectors grow at the same rate
-> No bottlenecks ->Quick depletion (Erschöpfung) of natural non-renewable resources
With unbalanced growth, one or two key sectors are promoted
->Specialization ->Can lead to bottlenecks
Bottlenecks= Engpässe
Discuss the implications of the poverty line, headcount ratio, and poverty gap.
What makes poverty comparisons across regions and countries difficult?
Poverty Line: Minimum income for basic needs.
Headcount Ratio: % below the poverty line.
Poverty Gap: Depth of poverty.
Comparisons Issues:
Varying poverty lines.
PPP: Currency differences.
Data accuracy/age.
Cultural factors (e.g. community support).
Poverty is multidimensional
Armutsgrenze:
Die Armutsgrenze wird in jedem Land unterschiedlich definiert, was internationale Vergleiche erschwert. Sie basiert oft auf dem Mindestbetrag, den eine Person zum Überleben benötigt, und variiert je nach Lebenshaltungskosten und wirtschaftlichen Bedingungen eines Landes.
Kopfquote (Headcount Ratio):
Die Kopfquote misst den Anteil der Bevölkerung, der unter der Armutsgrenze lebt. Sie ist einfach zu berechnen, berücksichtigt jedoch nicht die Tiefe der Armut oder wie weit die Armen unter der Armutsgrenze liegen.
Armutslücke (Poverty Gap):
Die Armutslücke gibt an, wie weit die Einkommen der Armen unter der Armutsgrenze liegen. Sie bietet ein besseres Bild der Armutstiefe, da sie zeigt, wie viel Einkommen benötigt wird, um die Armen über die Armutsgrenze zu heben.
Discuss the statement of the Lewis model that commercial produce in agriculture is so cheap because of the inefficiency in production per man
-In the agricultural sector of developing economies there is a surplus in labor, leading to a lower productivity per worker.
-> Marginal productivity of labor is low (Adding more workers does not significantly increase output)
-> Low wages
-In the process of economic transition workers move to the industrial sector
Discuss the statement: “Economic growth is a necessary but not a sufficient condition for the development of a poor country”
-Economic growth (increase in GDP) can lead to economic development but it does not have to
-Without economic growth, there can be no economic development
-Weak parts of the society cannot profit from the growth
-Economic growth allows investment in health care or education
-But the benefits of growth can go into the pockets of a small group
->GDP can increase while a country gets poorer
Explain the concept of factor abundance (Überflüssigkeit) for land and labor.
-Country A is labor-abundant compared to Country B (is land-abundant)
If the ratio of the total amount of labor to land is higher in Country A
-> The scarce factor in Country A is land
Explain the development strategy for export promotion.
-Focus on the development of sectors to export products to the global market
-Low tariffs
-Subsidies for export industries
Explain the development strategy of sectoral growth.
What are Big push strategies?
-Promoting growth of particular sectors at the expense of others
-Unbalanced growth can lead to bottlenecks
Big push strategies:
-Idea that growth can only be achieved if the government expands many sectors simultaneously
-Stresses coordination problems (infrastructure growth is important for other growth)
-Close communication between government and private sector
What is the goal of family planning policies, and what are the Key Impacts of High Birth Rates (Negative Externalities)?
Family planning policies aim to accelerate the demographic transition by reducing high birth rates through government intervention.
Key Impacts of High Birth Rates (Negative Externalities):
1. Pressure on Natural Resources: Overuse and depletion of water, land, and energy.
2. Increased Demand for Public Services: Education, healthcare, and infrastructure become strained.
3. Population Pressure Leading to Migration: Overcrowding can push people to seek better opportunities in developed nations.
4. (Potential Positive Impact): The influx of migrants can benefit host nations through economic contributions and cultural diversity.
Explain the MDG
Millennium Development Goal
-Agreement made during the Millennium Assembly of the UN
-Eight goals
-The overall goal was to support the development and minimize poverty until 2015
Explain the protection of infant industries
-Dependency on imports will stop growth
-Development of native industries to replace imports
-These new industries are called infant industries
-Protection from imports by using tariffs
Explain three theories for why income inequality can be bad for economic growth. Provide your view on this question.
1. Limited Access to Opportunities
-Unequal education limits a significant portion of the population from developing skills, reducing long-term productivity and innovation
2. Credit market imperfections
-In countries with more equal income distributions more people have access to credit (thus resulting in more economic growth)
3. Political economy
-Extreme income inequality can exacerbate social tensions and political instability. Discontent among marginalized populations may lead to protests, strikes, or even conflicts
Explain why population growth remains high in sub-Saharan Africa.
-Sub-Saharan Africa is a very underdeveloped region
-Children are seen as an investment that returns child labor and financial support when the parents are old
-Child mortality is high
-Parents have children up to the point where:
Marginal cost of a child = Marginal economic benefit
Given the Harris-Torado Model, how can governments battle urban unemployment in cities?
-Rational economic considerations stimulate migration but also psychological
-> Expected rise in income and the hope of a better future for children
-> Due to those expectations migration rates exceed urban job creation rates
-Governments should not subsidize jobs in cities but rather in rural areas
-Promotes migration back and lowers unemployment rates in cities -> Urban job creation isn’t a solution
How can the economy be structured?
1. Agricultural
2. Industrial
3. Sevices
-Economy is represented by the shares of each sector
-Change of shares in terms of employment or GDP is called structural change
In what case does population growth contribute to the development gap?
-Leads to GDP growth because a larger labor force can produce bigger output
-If population growth > GDP growth, the GDP per capita decreases
How is an investment in agriculture not a good investment?
-The agricultural sector in many developing countries is characterized by low productivity/ low levels of technology, leading to a low income
-By investing in this sector the returns will be low
-Rather invest in healthcare or education with higher returns
How is economic growth measured?
Increase in Real National Income (GNI/GDP)
How is education inequality measured and related to income inequality.
-Measurement: Literacy rate
-There is a correlation between income and literacy but the direction of the causality is unclear
How is extreme poverty defined?
$2.15 per day
-> Around 648 Million people in 2019
How is the agricultural sector in developing economies different from other economic sectors?
-Mostly small farmers
->Low elasticity of supply and productivity
-Lack of infrastructure, credit, and technology
How is the development gap in education measured?
What is the disadvantage for poor countries?
-Primary or secondary school enrollment
-High-quality education helps realize high productivity gains
-> Poor countries can’t afford it (the gap gets bigger)
How is the development gap in health measured?
-Life expectancy measures the number of years a newborn would live if living conditions remained the same
-Positively correlated with income
-Infant mortality rate measures the probability that a child will die before turning one
-Negatively correlated with income
*Highest in Sub-Saharan Africa
Present your understanding of the world banks classification based on income.
Classifying countries based on GNI per capita
-Low income (less than 1.135$)
-Lower-middle income (between 1.136-4.465$)
-Upper-middle income (between 4.466-13.845$)
-High income (more than 13.846$)
-Developing countries (less than 13.846$)
-Developed countries (more than 13.846$)
The World Banks Chief Economist and the President of Senegal both overestimated the economic growth rate of African countries, why?
-Lack of political stability in Africa
-High corruption
-Lack of basic infrastructure
-Dependence on Primary Commodities
-Lack of Diversification
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