LAD Midterm study guide PDF

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Test Format: True/False - 33 latin american countries - Population of LA(600,000) roughly twice as large as usa (300,0000) - Brazil, Mexico, colombia, Argentina 3-4 Short Essays(Similar to study guide questions) 1-2 Long Essay (3 paragraphs) Maps

Study Guide for Frannko Chapter 1 (Bennett’s Section) 1.

Who coined the phrase“underdeveloped”in 1942? a. Harry Truman b. Milton Friedman c. Paul Rosenstein-Rodan d. Wilfred Benson 2. Which area is NOT studied in development? a. Infant Mortality b. GDP per capita growth c. Number of women in parliament d. None of the above 3. What makes development policy particularly difficult to carry out? a. The “bootstrap” mindset b. Simultaneous evolution Of Political, social, and economic institutions c. Lack of funding D. Local Resistance To New Technologies 5. What is one the elements the United Nations Human Development Report suggests is important in development? a. Equity b. Sustainability c. Empowerment d. All of the above 6. Why Do Developing Countries Rely On Foreign Capital? a. By Definition, they are capital poor b. Foreign Capitalists Target Them For Predatory Loans c. Domestic capital is used inefficiently d. Stigma Against Local Investors 7. What Is Sustainable Development? a. Converting To Alternative Energy Sources b. Protecting All Natural Environments c. Growth that leaves future generations as well-off as the present d. Self-perpetuating increases in standards of living ECON 2220 Latin American Development

7. What is the Chicago school of thought? a. Institutionalists Focused On Social Context b. Planners That Use Mechanism Design To Optimize Markets c. Neoclassicists that believe in the “invisible hand” d. None of the above 1.

How does Franko define development?

I can’t find this in the section Lol this class is dumb I asked her about this question before class and she couldn’t point to it when I showed her the book She peeves me Sandoval hates her Sandoval is a self hating hispanic I know he doesn’t represent us well at all !!

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What quote from Box 1.1 best fits your definition of development? Why?

Pick whichever one suits you the best. Ones that you can combine with lecture notes include W. Arthur Lewis, Dudley Seers, Simon Kuznets, Amartya Sen, and Joeseph Sitglitz. Amartya Sen is my boy. Seems like the wisest chiller to ever chill 3.

What Is Dualism? How Does Dualism Complicate Development Policy?

“The simultaneous existence of modern, capitalist economies and traditional, backwards economies.” When countries grow in annual GDP, the rich become richer and the poor more destitute by the process change. ● Basically, when there is economic growth, the wealthy grow their business and purchase more land/resources, pushing the poor to the margins, where there are less resources, so they become poorer. 4.

What Factors Might Impact A Country's Path To Development?

If a country cannot satisfy the four elements of the human development paradigm (from Human Development Report) ●

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Productivity ○ How can land, labor and capital be combined in new ways to increase productivity and choices available to a population? Equality

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○ To encourage fair outcomes, people must have access to equal opportunities. Empowerment ○ People must be enabled to increase their own productivity and participate as fully in the economy as their talents allow Sustainability

...Then the country will not achieve sustainable growth. Other barriers could be dualism, and local resistance to new technologies. 5. Compare two Latin American countries from Tables 1.1 and 1.2. Which is more developed? Why? I chose the example of Argentina more developed than Honduras Argentina: ● Greater energy use ● More doctors ● More phones, computers and Internet Honduras: ● Lower life expectancy ● Higher mortality rate 6.

What are the three schools of thought on the role of the state in policy?

Dependency Theory ● Planning Model: state intervention was critical to promoting development ● Markets are incomplete and unable to send strong and accurate price signals to economic agents, so state needs to orchestrate growth process. ● State-run activity is necessary in providing infrastructure, education and health ● State is also supposed to counterbalance the power of domestic and international elites Institutionalist Tradition ● Rather than relying solely on price signals, other forms of organization - judges, chieftains, priests, or community councils - may intervene to settle disputes arising from the conflict of scarce economic resources. ● Economic problems must therefore be treated within the context of legal, social, and political systems, because power determines economic outcomes as much as price outcomes. ● Structuralists believe that the particular structure of developing economies warrant a different policy approach. Neostructuralists suggest that the modern demands of global red markets require a balancing hand of the state Neoclassical tradition ● Linked in part to the Chicago School of orthodox economic policies, it places the market at the center of the development equation.

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The key is to ensure that economic agents face accurate price incentives without interference. State-led activity has led to misallocations of resources and poor performance. The private sector, through the profit motive and Adam Smith’s invisible hand, will generate the greatest good for all. Foreign trade and international prices should become the engine for growth.

7. What are the five primary challenges to development that policy makers face in Latin America? 1. INTERNAL VS EXTERNAL MACROECONOMIC BALANCE Developing countries are, by definition, capital poor. They are reliant on international capital to fuel the growth process. Thus, Latin American countries have to weigh carefully the effects of changes in domestic macropolicy - traditional money supply and fiscal tools - against their effects on the external sector. In order to integrate a nation into international capital markets, they may rely on direct foreign investment (multinational presence dominating the local economy) or compromise international labor standards in order to have a competitive exchange rate. 2. STABILITY VERSUS CHANGE: THE QUESTION OF TIMING Markets like stability. Officials in Latin America must be agents of change, flexibly adapting to the dynamic needs of the economic transformation while also acting as strict guardians of confidence and stability. Past policy responses have often been volatile and unpredictable, creating uncertainty. Latin American governments have a smaller store of institutional credibility than the Bank of England or the U.S. Fed. Confidence building is a long and slow process - one not easily achieved when the economic waters are rough and choppy. We should always ask how the proposed policy is going to affect the confidence and long-run credibility of economic agents. 3. POLICY FOR WHOM? Economic policy affects various groups within an economy differently. Latin America is characterized by high degrees of income inequality. The goal becomes promoting not only growth but some form of equitable growth, which is a tall order. 4. PRESENT VERSUS FUTURE VALUE: THE ENVIRONMENTAL DIMENSION When half of a population lives on the verge of starvation, or when inflation eats away at meager earnings of the working poor, officials face limited resources, and prioritize daily crises over long-term planning. This becomes quite evident in the environmental arena. Even in more industrial economies, it is hard enough to promote incentives for sustainable use of resources,

so you can imagine the difficulty in compelling more fragile economies to do so. Yet, without an environmental sensitivity to the future, policy will not be sustainable over time. 5. THE STATE OF THE MARKET: PROMOTING PARTNERSHIP Who should be the primary development actor in the region? What is the relative balance between the state and the market in promoting development. There are three schools: planning/dependency theorists, institutionalists, and the Chicago School / orthodox model. See question 6 for details on each school.

Econ2220 Study guide for Todaro’s Chp1 Multiple Choice (Harrison and Cavan’s Section) 1. Traditionally countries tended to be classified as more or less developed based on a. the literacy rate. b. the poverty rate. c. the level of income per capita. d. the types of goods they produce. 2. Which of the following demonstrates international interdependence? a. the oil shocks b. the debt and financial crisis c. global warming d. all of the above. 3. A subsistence economy is a. a very low income economy. b. an economy in which people make what they consume. c. an economy in which people receive food for pay. d. all of the above. 4. Development economics is the study of the a. alleviation of absolute poverty. b. transformation of institutions. c. allocation of resources in developing countries. d. all of the above. 5. Development economics must have a scope wider than traditional economics because a. values and attitudes play little role in the pace of development. b. people in developing societies do less utility-maximizing. c. transformation of social institutions is necessary for development. d. all of the above.

6. A good definition of the meaning of development is the a. elimination of absolute poverty. b. improvement in the quality of life. c. fulfillment of the potential of individuals. d. all of the above. 7. Which of the following is not an important objective of development? a. increases in per capita income b. the expansion of available choices c. increases in individual and national self-esteem d. all of the above are important objectives of development 8. The original Millennium Development Goals include a. eliminating the proportion of people living on less than $1 per day. b. universal primary education. c. increasing exports by one half. d. all of the above. Pretty sure that the answer should be only B? A and C are not in the 8 Millennium Developmental Goals !! - Good catch - Harrison and Cavan dropping the ball AGAIN Questions 1. Provide a definition of development economics. Justify your choice carefully. Todaro Definition of Development Economics: The study of how economies are transformed from stagnation to growth and from low-income to high-income status, and overcome problems of absolute poverty. While necessarily also concerned with efficient resource allocation and the steady growth of aggregate output over time, development economics focuses primarily on the economic, social, and institutional mechanisms needed to bring about rapid and large-scale improvements in standards of living for the masses of poor people in the developing nations. Consequently, development economics must be concerned with the formulation of appropriate public policies designed to effect major economic, institutional, and social transformations of entire societies in a very short time. 2. Is it possible that there could be growth of per capita income without sustainable reduction of poverty and the growth of self-esteem? (students need to learn that using growth of pc income even ppp as measured of development has an implicit assumption that growth of per capita income alone is sufficient to guarantee the reduction of poverty and the growth of self-esteem and such assumption might not hold for most developing countries). Yes it is possible. This is because in developing countries it is very likely that growth of per capita income will mean a growing income gap and higher inequality in the country, thus not reducing poverty or increasing self-esteem. In fact, it can actually lead to a widening income gap causing the number of impoverished citizens to increase. 3. In what way is development economics greater in scope than traditional economics?

Development economics is greater in scope than traditional economics because it takes into account many more factors that better determine the true level of development in a county. For example, development economics takes into account the quality of economic, cultural, social, political, and institutional mechanisms in a country. 4. Why do you think it is in the material interests of high-income countries to help lowincome countries improve their economic performance? or why not? It could be in the interest of high-income countries to improve low-income because further development in low income countries could provide greater markets to export to, greater production capabilities (better import opportunities) - Mention how economics and trade isn’t a zero sum game and how every country benefits when a particular country develops. Come on we need a better answer than this I can’t think of a better answer. Other input would be encouraged 5. How is happiness related to development? One of the factors of development is happiness. Development is concerned with general well being of a nation. Happiness come from stable/safe living conditions, freedom to make choices regarding one’s own life, etc- all of these are factors that contribute to development. IE improvement in these areas IS development. 6. What are the Millennium Development Goals (MDGs) and how did they come about? What do you consider to be the most important of these and why? 8 Millennium Development Goals: 1. Eradicate extreme poverty and hunger 2. Achieve universal primary education 3. Promote gender equality and empower women 4. Reduce child mortality 5. Improve maternal health 6. Combat HIV/AIDS, malaria, and other diseases 7. Ensure environmental sustainability 8. Develop a global partnership for development The Millennium Development Goals were constructed in 2000 between 189 countries that are part of the United Nations. 7. Why women are often referred to as playing a central role in economic development? This is because women tend to be poorer and deprived in health, education, and in freedom in all forms. Women have primary responsibility for child rearing, and the resources they bring to this task will determine whether the cycle of transmission of poverty from generation to generation will be broken. Children need better health and education and it is shown that mothers tend to spend a higher fraction of income under their control for the benefit of their children than fathers. Women also transmit values to the next generation. 8. What are the most important characteristics that have shaped Brazil’s economic and social progress during the last three decades?

I have no fucking clue. Where the fuck did this question come from? Apparently there was a brazil article we were supposed to read? some economic growth, not as much social development

continuing racial disparities government spending on health, education, pensions, unemployment benefits, and other transfer payments frequently go to the top 20%

Institutions and the Historical Roots of Latin American Divergence Chp1” by Luis Bertola and Ocampo 1. Describe the relative performance of Latin America (LA) to the West and the rest of the world during the following time periods: a. 1500 to 1820 ● Similar GDP during conquest of LAC b. 1820 to 1870 ● Independence of LAC countries ● Growth of gap between per capita GDP in LA and West ● LA growth paralleled that of European periphery and higher than Asia and Africa c. 1870 to 1913 ● “Lost decade” - foreign debt exceeded earning power and countries were not able to repay d. 1913 to 1940 ● Didnt cover e. 1940 to 1980 f. 1980 to 1990 g. After 1990 2. What precipitated/accelerated the great divergence between LA and the West? ● During 1500-1820, the West industrialized and Latin America was largely left behind. The conquest and subordination of latin american countries by larger european powers set up a mono agriculture system and a lack of human capital investment. When the West experienced industrialization in the 19th century, Latin American countries remained exporting. GNI in the West increased and stayed stagnant in Latin America for a lack of development. ● Post 1820, high GDP growth and high population growth yields productivity and sparks fast growth. After independence, LA grows slowly and the gap between the “west and the rest (latinamerica included) widens.” 3. According to Neo-Institutional theories what are the fundamental causes of LA lack of development? What is then their policy implication? ● Economic and political institutions set up after Spanish conquest ○ Implications: ○ High concentration of wealth and political power ○ Rigid social structure ● Institutions are path-dependent and prone to inertia

● No policy recommendation can make changes without domestic change ● neo-institutional= non optimistic 4. What are institutions? Provide examples. ● Institutions = value structures ● Informal institutions= ways of behaviors, beliefs Humanly devised constraints that structure interaction ● 1. Property rights 5. What are the two distinct set of institutions- encompassed by the New Institutional Economics approach- that explain modern economic growth? 1. Property rights ○ Economic dimension: defense of rights ○ Political dimension: defense and attainment of civil rights ○ Capital accumulation 2. Inequality ○ Concentration of wealth hampers accumulation of human capital ○ Therefore impede growth 6. What are “bad” institutions? ● Further foster the concentration of wealth and political power ● Coercive labor relations in places with large indigenous populations ● Fail to protect political and civil rights ● Examples: ○ High economic inequality ○ Political dominance by elites ○ Exclusion of groups from political power 7. Provide 2 theories of how colonial institutions were established. 1. “Endowment deterministic” a. Neo-institutionalism b. Inequality NOT a result of colonial powers c. Abundance of labor and natural resources d. Factor endowments like soil, density, population, location serve as a predisposition to wealth 2. Labor and visibility of settlement a. Most important currently b. AJR c. Measures fear/ likelihood of dying d. Distributional outcomes of previous processes

Franko Chp2 Historical Legacies ** 1. Explain the strategy of economic development most Latin American governments pursued during 1820 to 1870, post-independence years. What were its main characteristics? Explain two internal factors and two external factors promoting this economic model. Latin American countries created an economic system of mono agriculture ● Internal factors ○ Political turmoil

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○ Production based on hacienda(latifundia and minifundia) ○ Isolated from rest of world industrializing ○ Spain cut developmental ties with other countries External factors ○ Trade barriers for lack of previous ties ○ West growing quickly ○ Relative value of agricultural goods decreases because of innovations

**2. Explain the strategy of economic development most Latin American governments pursued between 1870 and 1940. What were its main characteristics? Explain at least two internal factors and two external factors promoting this economic model. ● Internal factors: ○ Industrialization and investment in human capital ○ Greater infrastructure (ports, airports, ports, electricity) ○ Mono-agricultural export model ○ Elites did not want to develop institutions ○ Comparative advantage - abundance of labor ● External factors: ○ Lower transportation cost ○ England cut trade barriers ○ Steam engine and new technology

“Economienda or Slavery” by Yeager (John and Griffin’s Section) 1. According to Yeager, the Spanish Crown used the Encomienda as a system of labor organization that was different from slavery. Explain the main reasons the Spanish Crown used this form of labor organization in LAC and how it differ from slavery. Why was the Encomienda considered as one of the most damaging institutions used in LAC during colonial times? -Spanish wanted to set up institutions to favor mechanisms of extraction of existing wealth over the creation of new wealth -Aimed to Christianize, as...