Chapter 12

Foreign portfolio investment

refers to an investment that is financed with foreign money but operated by domestic residents.

Foreign direct investment

refers to a capital investment that is owned and operated by a foreign entity.

In the following table, match each example to the productivity determinant it represents. A. The knowledge workers receive from training sessions on how to use and repair the printing presses B. The presses used to print documents C. The trees that are used to create pulp for the production of paper D. A method of coating the paper that goes through the printing presses and significantly reduces paper jams

A. Human Capital per Worker B. Physical Capital per Worker C. Natural Resources per Worker D. Technological Knowledge

Which of the following policies are consistent with the goal of increasing productivity and growth in developing countries? Check all that apply. A. Increasing taxes on income from savings B. Providing tax breaks and patents for firms that pursue research and development in health and sciences C. Protecting property rights and enforcing contracts D. Pursuing inward-oriented policies

B, C

Which of the following policies would lead to greater productivity in the printing industry? Check all that apply. A. Sharply increasing the interest rate on student loans to people pursuing advanced degrees in printing B. Offering free public education to every worker in the country C. Subsidizing research and development into new printing technologies D. Encouraging saving by allowing workers to set aside a portion of their earnings in tax-free retirement accounts

B, C, D

What is a significant factor in long-run economic growth that Robert Fogel, an economic historian, is best known for suggesting? A. Inward-oriented policies that protect domestic firms from foreign competition B. Improvements in the protection of property and enforcement of contracts through the maturation of the civil and criminal justice systems C. Improvements in technology from the incentives created by a better patent system D. Improvements in worker health from better nutrition

D. Improvements in worker health from better nutrition

Factors affecting productivity

Physical Capital (K)- Human Capital (H)- Natural resources (N)- Technological Knowledge

Productivity Formula

Y/L (output per worker) Y = real GDP = quantity of output produced L = quantity of labor

Natural resources

are the inputs into the production of goods and services that are provided by nature, such as land, bodies of water, forests, and mineral deposits.

Human capital

is the knowledge and skills that workers acquire through training, education, and experience.

Physical capital

is the stock of tools, machinery, equipment, and structures that are used to produce goods and services.

output per worker

output/ number of workers

Physical Capital per Worker

physical capital/labor

What is productivity?

the quantity of goods and services produced from each unit of labor input

catch-up effect

when higher productivity growth in countries with less capital per person helps those countries grow faster and catch up to the per-capita incomes of countries with more capital per person.

technological knowledge

which is society's understanding of how the world works.