Developing Countries and Econ

1. T or F: HIV and AIDS caused major declines in life expectancy at birth in many West African countries.

2. Fill in the blank: _______ is the name for the benefits that countries with young populations realize by having fewer children to support, larger fraction of women join or remain in workforce, and more available resources for investment in human capital.

3. Economic research has shown that deworming children in Kenya has larger benefits that earlier studies had estimated __________________________ (need several words, not just one)

4. T or F: in Developing Countries, the social return to higher (i.e., tertiary or university) education is usually higher than the private return.

5. A low _______elasticity of demand tends to make the international markets for the primary products in which Developing Countries specialize volatile. A low income of elasticity of demand tends to contributed to deteriorating ________ (need several words, not just one) for such products.

6. T or F: Factor price equalization implies that wages and the share of GDP going to labor will rise over time in developed countries, that is, countries where labor is relatively scarce.

7. A _____ __ (need several words, not just one) refers to a situation where resources such as labor and land are unemployed, increasing the gains from trade.

8. T or F: Dividends on a stock owned abroad are found on the capital account of the balance of payments.

9. The setting of performance standards that a country must meet to be and remain eligible for disbursements under an International Monetary Fund lending facility is known as ________. 

10. A non-governmental organization is often said to have a comparative advantage vis-a-vis goods that are somewhere between private and public, that is, they are _________ but not _______ or vice versa.Numerical or graphical questions (18 points)

Choose 2 out of 5 @10 points each

Numerical:

Choose 1 out of 2

See the attached Excel spreadsheet. You may answer your question (i) in Excel and attach the spreadsheet; (ii) in Canvas, showing your work; or (iii) in Word of Excel, showing and attaching your work.

1.

1a. What is the nominal import tariff rate on imported basketballs?

1b. What is the effective import tariff rate on imported basketballs.

Real and Effective Tariff RatesVariableDataPrice of imported basketball at border$18Import tariff on basketballs22%Domestic cost of producing basketball $30Price of imported rubber to make basketball$23Domestic value-added in producing basketball$8Domestic price of imported basketball$21.96

2.

2a. What probability do each of the other 24 voters out of 36 have of gaining from the reform?

2b. Will the reform pass? Why or why not?

2. Status Quo Bias under UncertaintyFactsDataNo. of voters3620 voters each gain from policy reform$6516 voters each lose from policy reform$40Among the 36 voters, 12 know for sure that they will gain from policy reform

Graphical:

Choose 1 out of 3

3. Draw a graph of the Malthusian Population Trap. Demonstrate what would happen if the Total Income Growth rate rose at all levels of income per capita. Extra credit: are both equilibria in the graph stable? Explain your answer.

4. In a figure depicting Trade with Variable Factor Proportions and Different Factor Endowments, demonstrate the gains from trade for a Developing Country engaging in world trade in a two-commodity world. Extra credit: can there be any gains from trade if the domestic and international price ratios of the two goods are the same? Explain your answer.

5.  In a graph of the labor market for workers in a Developing Country, show good and bad stable equilibria with respect to child labor. Extra credit: If the labor supply curve still sent through the good equilibrium (no child labor) point, but the demand curve for labor was more elastic, would there still be two stable equilibria? Explain your answer.

Regular Lecture:

General lecture:

Choose 2 of 5 @12 points

6.

a. What motivates households to have large numbers of children in Developing Countries, and what factors tend to cause them to reduce the number of children that they want? Why does the mother in Niger in the video say that she has had so many?

b. If children are a normal good, according to the microeconomic theory of fertility, higher income should increase the demand for children. Is the theory consistent with the prevailing smaller family sizes at higher levels of income?

c. b. Is relatively rapid population growth in such countries a major problem for the world? Why might it not be from the point of view of sustainable development and climate change?

7. 

a. How does Michael Kremer’s (and his colleagues’) work on deworming children in Kenya demonstrate that health and education are interrelated as determinants of social welfare in Developing Countries?

b. In what sense do Developing Countries often overinvest in higher education and underinvest in primary and secondary education? Extra credit: use the concept of Status Quo Bias to demonstrate why it may be difficult to correct this resource misallocation.

c. In what sense is the mica mining in the video on Madagascar an example of the worst form of child labor? Would banning the use of such labor in the production of mica be effective? Is there anything that the government of Madagascar can do to improve conditions for these children?

8.

a. Why have Developing Countries pursuing such a strategy of import substitution often chosen to overvalue their currencies, even though doing so tends to harm exporters?

b. Why has promoting traditional exports from Developing Countries generally not been conducive to economic development?

c. What social problems does the video on globalization cite as accompanying foreign direct investment in the poorest countries that includes them in global supply chains? What are the benefits of globalization according to them? What standards would you use to tell whether such investment is on net helpful or harmful for the purposes of stimulating economic development?

9.

a. Evaluate the following statement: large deficits in merchandise trade in Developing Countries are often balanced within the current account of the balance of payments by large surpluses on services trade?

b. Evaluate the following statement: a large current imbalance in a typical Developing Country is to be expected. The real issue is how they are financed–some ways of financing them are harmful but others are not.

c. The International Monetary Fund at one time imposed harsh conditions on countries with structural imbalances in order for those countries to be eligible for its lending programs. What were the effects on the poorer Developing Countries of imposing such conditions? Should there be special conditions for those countries, distinct from those from Upper Middle Income Countries with poor macroeconomic policy?

10.

a. In what sorts of activities do non-governmental organizations (NGOs) have a comparative advantage? How does that advantage relate to the characteristics of public goods?

b. Evaluate the following statement: while NGOs did not have any clear role to play under the Washington Consensus, the more recent consensus (post-Santiago, 1998) opens the door for a greater role for them,

c. What is meant by voluntary failure? Is it more likely to be a characteristic of major international NGOs (e.g., CARE) or smaller, local ones? Explain your answer.

Guest Speakers:

Choose 1 of 3@10 points

11. According to Dr. Annette Brown, what are the sources of health inequalities within societies? What steps can governments take to reduce such inequalities? Do you think that this issue is important in the U.S., and, if so, to which, if any of the steps that Dr. Brown outlines would be appropriate here?

12. According to Nick Klissas, what are some of the areas that the proposed U.S. free trade agreement with Kenya will cover? How does the Kenyan government’s regulation of the economy reduce competition and cause inefficiency? Which country is more likely to benefit more from such an agreement?

13. Compare and contrast the steps that Todaro and Smith outline countries can take to fight corruption with the efforts that USAID has undertaken in Haiti to achieve this end according to Alexious Butler. Which of the steps that USAID has undertaken is the most likely to succeed, in your view? Explain your answer.

Banerjee and Duflo (11 points)

14. For one of the following areas — Health, Education, and Demography — answer the following questions:

a. What distinguishes their research methodology — and those of their colleagues at MIT — from previous empirical work on economic development? 

b. Why has the take-up of free resources — e.g., mosquito nets, visits to trained medical care providers, primary education, birth control/sexually transmitted disease protection– often been disappointing?

c. How does household/individual behavior in Developing Countries create poverty traps in your chosen area? To what extent can central government supply-side policies — e.g., building schools and clinics — enable people to escape those traps? If such a strategy has proven ineffective, what would you recommend doing instead (or in addition)?

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