Final

Final. = &nb= sp; = &nb= sp; = &nb= sp; Spring 2004

Name:______________________= _ &= nbsp; &nbs= p; Economics of Development

Each question is worth the total number of points in parentheses; sub-questions are allocated an equal share of the total points= per question. Final is worth 30 p= oints.

1) Urban= issues (2 points)

a. Describ= e the concept of “first city bias”.&= nbsp;

b. How can an import subst= itution industrialization strategy contribute to the “urban giantism” problem?

2) The f= ollowing graph is from the textbook. Identify what model it is and explain the model with reference to the graph. (2 points)

3) Is humanitarian distribution of food aid (drought relief) targeted at chronic-= structural poverty or transitory-stochastic poverty?&= nbsp; Explain <= /span>(1 point)

4) Descr= ibe how the “inverse farm size – productivity” relationship can be used to justify a land redistribution policy in a latifundio-minifundio agrarian system. (1 point)

5) Inequality. (2 points)

a. Draw and interpret a Lorenz curve of income distribution.

b. Illustr= ate how to derive a Gini coefficient from a Lorenz curve.

c. Does a Lorenz curve pro= vide information on relative poverty or absolute poverty? Explain.

d. Does the cross country = evidence suggest that inequality in educational achievement within a country is high= er for countries with populations that have low average years of education completed or high average years of education completed? (Circle one)

Low average years comp= leted &= nbsp; High average years completed

6) Pover= ty Measures. (2 points)

Table of income by individual (total income in table is $= 25.00)

Person numb= er	Income per = person per day
1	$0.10
2	$0.40
3	$0.60
4	$0.90
5	$2.00
6	$2.50
7	$8.00
8	$10.50

a= ) If the absolute poverty line is $1 per person per day, what is the headcount of absolute poverty and the headcount index based on the information in the table?

b= ) If the poverty line is $1 per person per day, what is the total poverty gap and what is the average poverty gap per individual below the poverty line?

c= ) Illustrate why the headcount index does not obey the principle of distributional sensitivity when considering the example of moving $0.10 from person number= two to person number three.

d= ) What percent of total income is received by the highest quartile? The lowest quartile?

7) Official development assistance. (1 point) Circle yes or no or fill in the bl= ank.

Statement	Answer
Does the distribution of aid per capita indicate that generally the highest aid per capita is allocated to regions of the world= where income per capita is lowest?	Yes &nbs= p; &= nbsp; No
Is military aid included in measures of official development assistance?	Yes &nbs= p; &= nbsp; No
What country was the largest donor of official devel= opment assistance in terms of overall volume in 1999?
What is the UN target for ODA as a percent of GNP for donor countries?
What two countries receive roughly half of all United States foreign assistance in the current budget?

8) Debt crisis. (2 points)

a. What role did increased= savings by OPEC countries in private banks in the 1970’s have on the debt cri= sis in developing countries?

b. What role did tight mon= etary policy adopted to combat inflation in the US in the 1980’s have o= n the debt crisis in developing countries?

9) Curre= ncy valuation. (2 points)

a. Is an overvalued domest= ic currency more likely to lead to a current account surplus or a current acco= unt deficit? Explain.

b. Illustrate on a supply = and demand graph (where the good supplied and demanded is foreign exchange and = the price is in domestic currency units) how an overvalued currency can lead to excess demand for foreign exchange.

c. If a currency is overva= lued, is GNI per capita using the purchasing power parity conversion higher or lower than GNI per capita using the official exchange rate? (Circle one)

Higher &= nbsp; &nbs= p; &= nbsp; Lower

10) Expo= rt issues. (2 points)

a. What is the role played= by the income elasticity of demand for developing country exports in the Prebisch-Singer hypothesis?

b. What is meant by declin= ing commodity terms of trade over time?

c. Do developing countries= have a higher percentage of their GDP accounted for by exports than developed countries or a lower percentage of their GDP accounted for by exports than developed countries? (Circle = one)

Higher &= nbsp; &nbs= p; &= nbsp; Lower

11) Population. (2 points).

a. Explain the demographic transition.

b. Explain the hidden momen= tum of population growth.

12) Grow= th theory. (2 points) Circle eit= her true or false for each statement.

Statement	Is the stat= ement True or False?
The Harrod Domar model focuses on declining commodity terms of trade as a force leading to underdevelopment.	True &nbs= p; False
The Solow growth model assumes diminishing marginal returns to capital.	True &nbs= p; False
The “O-ring” theory suggests that highly productive workers will work with other highly productive workers rather = than with less productive workers.	True &nbs= p; False
Endogenous growth theory defines spillovers as negat= ive externalities imposed on one economic agent by another that inhibit growt= h in developing countries.	True &nbs= p; False
The Big Push model is based on the idea that there c= an be increasing returns to scale in production functions if there are positive externalit= ies generate by the total economy wide capital stock	True &nbs= p; False
The commitment problem focuses on how agreements mad= e ex ante are not always credible = ex post. <= /o:p>	True &nbs= p; False
Rostow’s stages of growth theory illustrates w= hy migration to urban centers in developing countries can continue in spite = of high urban unemployment.	True &nbs= p; False
Solow finds that the majority of the US growth experience from 1= 909 to 1940 is accounted for by technological change rather than capital accumulation.	True &nbs= p; False

13) Heal= th. (1 point)

a. What is a Disability Ad= justed Life Year, and how does it differ conceptually as a measure of health from = the adult survival rate used as a health proxy in the Bhargava article?

14) Education. (2 points)

&nbs= p; a. Circle the appropriate response in the table

Question	Response
Social rates of returns to education are highest at = which level of education in developing countries?	Primary = Secondary Tert= iary
Private rates of return to education are highest at = which level of education in developing countries?	Primary = Secondary Tert= iary
Female enrollment rate is closest to male enrollment= rate at what education level in developing countries overall?	Primary = Secondary Tert= iary
Are social rates of return or private rates of return higher for all levels of education in developing countries?	Social &nbs= p; &= nbsp; Private
Do education budgets in developing countries tend to= be allocated in a way that reflects the fact that marginal social returns =3D marginal social cost for primary education, and marginal social returns a= re less than marginal social cost for secondary and tertiary education?	Yes &nbs= p; &= nbsp; No

b. Describe justifications= for developing a policy explicitly focusing on girls’ primary education in developing countries noting: = social rates of return to education; population growth issues; health issues; and = the impact on overall economic growth.

&nbs= p;

15) Kuzn= ets curves. (2 points)

a. Verbally distinguish be= tween an environmental Kuznets curve and the original Kuznets curve.

b. Illustrate the original= Kuznets curve on a graph.

c. Illustrate the environm= ental Kuznets curve on a graph.

d. What is the critique of= the use of cross country data to derive the original Kuznets curve?

16) Multinational corporations. <= /span>(2 points).

a. Four arguments in favor= of multinational corporations were provided in class. Provide three of these.

b. Define the meaning of t= ransfer pricing in the context of a multinational corporation.

17) Envi= ronment and Development (2 points)

a. If my country’s c= urrent year financial savings rate is 14%, physical capital depreciation rate is 7= %, natural capital depletion rate is 11%, and human capital change rate is 0% what is = my adjusted net savings rate?

b. Is this a sustainable or unsustainable savings rate? (Circle one)

Sustainable &= nbsp; Unsustai= nable

c. Is this the savings rat= e used in the Harrod Domar model? &nbs= p; (Circle one)

Yes &= nbsp; &nbs= p; No

d. What is meant by “= ;land sparing” technological improvement in agriculture?

Extra Credit: (1/2 point, no partial credit on this one).

Sen, in the 1983 article in the reader, suggests there= were four main themes pursued within the sub discipline of development economics= up until the time he wrote the article. What are these four themes?