Economics Dr.

Katie Sauer

Chapter 13 Reading Guide: Development Economics I. Introduction Give some examples of what it means to be poor in Malawi.

According to the UNs Food and Agriculture Organization, about ___ billion people dont get enough food to eat. There are ___ billion people that live on the equivalent of $2 or less per day. Economists do not have a recipe for making poor countries rich but they do have an understanding of what makes rich countries rich.

Factors that make a difference in the wealth and poverty of nations: II. Effective Government Institutions To grow and prosper, a country needs The above need to be reasonably honest and not corrupt. Some economists have hypothesized that developing nations that had formerly been colonized were affected by the quality of the institutions that were left behind. In places where Europeans could settle without much hardship:

In places where Europeans could not easily settle:

In the study of 64 ex-colonies, the findings are:

Good governance matters for economic growth.

III. Property Rights People in developing nations often have informal property rights. What is the consequence of this?

Explain what dead capital is using the Malawi couples example.

Explain the less obvious benefit of property rights.

IV. No excessive regulation Russia example:

Excessive regulation goes hand in glove with corruption. Explain.

Peru example:

Economist Robert Barro studied the like between government spending and GDP per capita growth in 100 countries. He found:

V. Human Capital Human capital is what makes individuals productive and productivity is what determines the standard of living. 2

How can education benefit poor countries?

Explain the human capital trap and the brain drain problem.

VI. Geography Only ___ of the 30 rich nations in the world lie in the tropics. Economist Jeffrey Sachs theorized that ___________________ can explain much of the worlds income distribution. Why are the tropics so bad for economic growth?

Jeffrey Sachs proposes 2 solutions. - encourage more technological innovation aimed at the unique situation in the tropics Explain why this is hard.

- open the economy to ________________________

VII. Openness to Trade Explain how many developing nations have closed themselves off from trade.

Among poor countries, the closed economies grew at ___% per capita per year during the 1970s and 1980s while the open economies grew at ___% per capita per year. When a previously closed economy opened up: 3

VIII. Responsible Fiscal and Monetary Policy Explain how it is troublesome for a government to consistently overspend.

Explain how Argentina is the poster child for irresponsible monetary policy.

IX. Natural Resources Explain using examples, how natural resources matter less than one would think.

Economic Growth has actually been found to be higher in nations with lesser endowments of natural resources. Explain how mineral riches can change an economy.

Explain the origin of the term Dutch disease.

X. Democracy Explain how democracy makes a difference in nations.

XI. War Almost ___% of the worlds billion poorest people are caught in a civil war or have recently been through one. Security is a prerequisite for most of the other things that have to happen for an economy to flourish. XII. Woman Power Explain the analogy between the farmer who only plants half of his field with an economy that doesnt allow women to participate.

When women in the developing world get wealthier, what do they spend their money on?

What do men in the developing world spend additional income on?

XIII. Other Some other factors that matter: If we know what good policies look like, why is it so hard to help developing nations become richer?

What are some of the things that the rich countries can do to help the poor countries?

Explain how just giving foreign aid might not have an effect.

___________________________________________________________________________________ In your own words, summarize the main points of this chapter.