Name: _________________ PAI 730-4 Economics of Development
20 points (each question is worth the number of points in parentheses)
1) Categorizing countries.
a. By what measure does the World Bank define which countries are “developing countries”? (1 point)
b. What are the five categories of countries defined for this measure, and which of these categories are called the developing countries by the World Bank? (1 point)
c. Approximately what percent of the world’s population lives in what are considered developing countries by the World Bank standards? (1 point)
2) The Human Development Index (HDI).
a. Does the HDI imply that national income growth is a matter entirely unrelated to development (1 point)? Explain.
b. Based on the view Sen argues in his Economic Journal article, is the Human Development Index or a measure of income per person per day more closely related to what he views as the goal of development (1 point)? Explain.
3) The Lewis model of structural change.
a. According to the Lewis model, what is the main role of the agricultural sector in the process of economic growth (1 point)?
b. The Lewis model describes structural change. Describe this structural change and the process by which it occurs (1 point).
4) Todaro describes a set of reasons why the process of growth for current Less Developed Countries (LDC’s) may not be analogous to the process of growth for that lead to high incomes in the current developed countries.
a. What is the point he makes with regard to the role of international migration (1 point)?
b. What is the point he makes with regard to international trade and the LDC’s role in the world economy (1 point)?
5) Harrod-Domar (HD) growth model.
a. Growth in income in the HD growth model is based on what two variables, and are these based on Marxist, Monetarist, Keynesian, Greenspanian, or Mathusian theories (1 point)?
b. Is the HD model a model that explicitly describes a transformation of an agricultural society to an industrial society (1 point)? Explain.
c. Is the key constraint to development in the HD model a constraint in the supply of capital or labor (1 point)?
6) Technological Progress.
a. Contrast the role of technological progress in economic growth for the following types of theories: Malthusian, Solow growth models, The Big Push model, and Endogenous growth theories (2 points).
a. What two conditions does Todaro argue lead one to think that lower income countries can catch up to higher income countries over time in terms of per capita income (1point)?
b. Does the theory of positive assortive matching support or call into question the argument that poorer countries will catch up to higher income countries over time (1 point)? Explain.
c. Does the evidence Barro presents in his article lead one to believe unconditional convergence or conditional convergence is a more realistic view of the world economy (1 point)? Be sure to define both types of convergence.
8) Coordination issues.
a. Comment on the following. The Nash theory of best response implies that each individual acting in their own best interest will lead inevitably to the socially optimal outcome. (1 point)
b. What role is accorded the state in resolving coordination failure according to the “Market Fundamentalism” approach to economic growth? (1 point)
c. Coordination issues in development theory tend to be concerned with what type of externality – negative or positive (1 point)? Be sure to define what is meant by each type of externality in your answer.