Development Economics Test

*Note that birth rate in a society is affected primarily by: (a) change in population shares of different age groups, and (2) total fertility rate. Also, according to the textbook, there are three possible reasons why people have a certain number of children: (i) lack of knowledge about contraception; (ii) people are bound by the society's customs; and (iii) it may be rational to have a large family in some social and economic settings. [pages 233-234; a question can be formed based on the information summarized in the last few lines].

-A rise in the share of people of repro- ductive age (roughly 15 to 45) increases the birth rate, as we saw earlier in the discus- sion of population momentum. -i)Evidence against:Yet the evidence suggests that all societies consciously control human fertility. Rarely does the number of children that the average woman has over her childbearing years even approach her biologi- cal capacity to bear children. One exceptional case is that of the Hutterites, ii) Such norms and attitudes are important, but they probably are not the decisive factors in human fertility. Fertility is determined by a complex combination of forces. Social scientists in recent years have given increasing credence to elements of individual rationality in the process. Simply stated, they believe that most families in traditional societies have many children because it is in their interest to do so. iii)it is nevertheless true that children impose certain costs on their parents and confer certain benefits. Benefits:children may supplement family earnings by work- ing. On family farms and in other household enterprises, there usually is something that even a young child can do to increase production. In many poor societies, chil- dren work outside the home. In the longer run, children also provide a form of social security, Explicit Costs: Children entail cash outlays for food, clothing, shelter, and often for education. Implicit:Implicit costs arise when childcare by a member of the family, usually the mother, involves a loss of earning time.

8. *Explain the following two statements: a. In virtually all developing countries, the entirety of income taxes is collected from the top 20% of the income distribution. This means that the very presence of an income tax tends to reduce income inequality. [page 412]

Amal- Due to proportional or progressive taxes, the wealthiest people in a country pay more taxes than others. As in a developing country, most of the income goes to the wealthiest, therefore they comprise of the highest income tax percentage. Hence, we can say that income taxes are a policy to decrease income inequality. i. A significant share of the wealthiest members of society is caught in the income tax net in developing countries ii. Revenues from personal income tax collections in developing countries have been as high as 15% of total taxes iii. Taking money from the the top 20% automatically leads to income inequality regardless of how the money is spent.

*The textbook notes that the relationship between the rate of population growth for a country and the rate of economic growth is complex and that there is no standard pattern observed all over the world. That is primarily because population growth affects both the level of GDP and how many people share the GDP. Hence, the authors suggest, it is more appropriate to ask how population growth affects the core determinants of economic growth: the accumulation of factors of production and the productivity of those factors [page 237; a question can be formed based on the information summarized in the last few lines].

Ansley Coale and economist Edgar Hoover.12 Their work falls squarely into the camp of population pessimists, or anti-natalists, those who perceive pop- ulation growth as harmful to economic development. Coale and Hoover argue that a reduction in the birth rate could raise per capita income in three important ways. First, lower fertility levels would slow future labor force growth. The amount of invest- ment then needed to provide a constant amount of capital per worker for a growing number of workers (capital widening) would go down and permit more investment to be used to increase capital per worker (capital deepening).1

3. *Explain the meaning of Foreign Direct Investment (FDI). How is FDI different from portfolio equity? Explain the three broad categories of activities in developing countries that typically attract FDI. [page 363 and 365]

FDI - long-term investment in which a nonresident entity exerts significant management control (usually at least 10% of voting stock) over an enterprise in the host country b. Portfolio equity - investor takes smaller stake in an enterprise, either through a direct purchase or through a stock exchange i. Quite volatile, can be negative ii. At peak: only ¼ of FDI and about ½ of long-term international commercial bank loans c. 3 categories that attract FDI i. Natural resource-based activities, such as petroleum, minerals, and agricultural production. 1. Firms engaged in these activities tend to be quite large and the investments capital intensive 2. Investments usually negotiated directly with the host government, and the government is often a partner in the investment ii. Manufacturing and services aimed at the domestic market in the host country, including consumer goods (such as processed food or apparel); capital-intensive products such as steel or chemicals; and a range of services such as transportation, communication, finance, electricity, business services, and retail trade 1. These activities protected partially against competition from imports through tariffs and other restrictions iii. Labor-intensive manufacturing aimed for export on world markets, including apparel, electronics, food processing, footwear, textiles, and toys 1. Firms tend to be efficient and competitive, but also move quickly from one country to another in response to changes in production costs or macroeconomic or political instability

5. *As a part of tax reform implemented during the last two decades of the 20 th century and the beginning of the 21 st century, several developing countries reduced their top marginal income tax rates and also adopted a Value Added Tax(VAT) system. [pages 408-410] a. Explain at least three reasons for the worldwide shift toward lower income tax rates. b. Explain the three advantages of a tax-credit type of VAT over single-stage sales taxes in limiting the scope for evasion.

a) i. Flatter rates 1. Income taxes imposed at high marginal rate have proven difficult or impossible to administrate a. Incentives to evade taxes or avoid taxes very high 2. Growing mobility of capital across international boundaries has meant that the risk of capital flight from a particular country increases when that country's top rates of income tax exceed those prevailing in industrial nations, where tax rates have been falling 3. Operation of income tax systems of such developed nations has placed downward pressure on tax rates everywhere (foreign income tax credit) a. A country allows foreign income taxes to be credited (subtracted) from their taxes due on income repatriated from abroad 4. High marginal rates of income tax did not prove to be particularly efficacious in correcting severe inequalities in income distributions in either rich or poor countries ii. Broader bases of taxes in order to get more people to pay iii. Reliance on consumption taxes rather than income taxes b) i. It is self-policing because underpayment of the tax by a seller reduces tax credit available to the buying firm ii. Cross-checking between purchasers and sellers bettering the audit process iii. Large about of VAT collected before retail level limiting the need to worry about small-scale retail firms that do not keep adequate records.

10. *We learned that neutrality and efficiency are both desirable characteristics of a tax system. Describe the essential feature(s) of: (a) a neutral tax system, and (b) an efficient tax system. [page 418]

a. A neutral tax system would not change incentives that would prevail in the absence of the tax. Therefore it relies on uniform rates across all incomes, sales tax, etc. i. Cannot be an efficient tax system b. An efficient tax system minimizes the excess burden of a tax. The excess burden is considered the loss in total welfare. c. As we know, we cannot have an efficient and neutral tax system

8. *In some detail, discuss the third of the three different views regarding the effect of foreign aid on economic growth, i.e. the view that "aid has a conditional relationship with growth, stimulating growth only under certain circumstances". In your answer, be sure to discuss the three conditional explanations of the impact of foreign aid on growth. [pages 533-535]

a. Accepts that aid has had mixed results b. Focus on finding key characteristics that explain differences in efficacy of aid across countries c. Conditional explanations i. Characteristics of recipient country 1. Quality of institutions and policies in recipient country ii. Type of aid 1. Emergency humanitarian aid, negatively associated with growth 2. Aid for health, education, and environment might affect growth only after a long period of time (difficult to detect) 3. Aid directly aimed at affecting growth (building roads, ports, and electricity generators, or supporting agriculture) iii. Donor practices 1. Multilateral aid more effective than bilateral aid for stimulating growth because less of it is determined by political factors

6. *Explain the three broad causes of the debt crisis faced by many developing countries in the 1980s. [pages 467-469]

a. Adverse international economic shocks outside of the control of the debtor countries Very sharp increase in world oil prices 1. Higher import bill and sluggish export markets ii. High inflation and increase in nominal interest rates in the US 1. Nominal interest rate = real interest rate + inflation b. Poor domestic economic management i. Continued borrowing to cover a "short-term" deficit ii. Overvalued exchange rates to compensate for rising import prices 1. Discouraged exports and encouraged capital flight c. Bad lending decisions by international banks i. Belief that sovereign debt has a lower risk of default 1. Once banks were involved, further lending to allow servicing earlier loans

5. *With regards to the effect of foreign aid on economic growth, describe the general agreement on broad issues among aid pessimists and aid optimists. [page 520]

a. Aid pessimists i. Aid has been successful in some countries ii. Aid has helped improve health iii. Aid is an important vehicle in providing emergency relief b. Aid optimists i. Aid has been wasted or stole ii. Aid can have adverse incentives on economic activity

4. *Discuss at least three benefits and three drawbacks of FDI for the country receiving the FDI. [pages 365-369]

a. Benefits: i. Source of capital that adds to total investment 1. Can be equivalent to well over 10% of GDP in some countries (especially in countries with oil or other natural resources) 2. More stable than other forms of private foreign capital ii. Generates employment 1. Investments in labor-intensive manufacturing creates more jobs iii. Increase specialization in production 1. Firms in developing countries can focus on particular activity in which they have a comparative advantage and produce most efficiently iv. Access to world markets v. Transfer of technology, skills, and ideas: spillover effect vi. Training of workers and managers b. Drawbacks i. Environmental damage 1. Air or water pollution → negative externality for host country ii. Net economic loss 1. Protected/inefficient activities leads to loss by misallocating capital, labor, and other resources iii. Loss of local control over businesses 1. Can drive out small local business iv. Profit repatriation 1. Profit leaves host country v. Interference by foreign economic powers

*According to the UN population projections, China, India, and the United States will continue to be the three most populated nations in the year 2050. In what way are the causes of population growth in the three countries between now and 2050 different? [page 231]

a. China - population increase, which is already below TFR replacement levels, will be due to population momentum b. US - immigration will be primary factor to population increase c. India - population momentum and fertility above replacement levels will contribute to more than 550 million inhabitants

9. *Discuss any three ways of improving aid effectiveness. [pages 540-542]

a. Country selectivity: donors should be more selective about which countries they provide aid to, based on the view that aid works best in countries with good policies or institutions b. Recipient participation: aid has been weakened by donor domination in setting priorities, designing programs, choosing implementers, monitoring and evaluating results; and aid recipients should play a much larger role in these areas. c. Harmonization and coordination: managing aid flows from many different donors can be a constant challenge for recipient countries, because each donor have their own initiatives and want to use their unique processes. To solve this problem, donors could more closely coordinate their activities; harmonize their accounting, monitoring and evaluation systems; or pool their funds.

5. *Numerical examples along with the necessary verbal explanation based on the equations (1) D/X= a/(g x - i) and (2) D/Y= (v- s) ÷ (g y - i). [pages 462-463]

a. D/X = a/(g x - i) i. g x - the exponential rate at which X and M (imports and exports of goods and non factor services) grows ii. a - is the ratio of the current account deficit to exports (M-X)/X and is constant, assuming that imports and exports grow at the same rate iii. Long-run ration of debt to exports depends on the size of the current account deficit, the growth rate of exports, and the interest rate. iv. If exports are growing faster than the average rate of interest (g x > i), a country can continue to import more than it exports, meaning that a can remain positive v. Ex: (a = 8) - current account deficit as a share of exports were 8%, the average interest rate were 5%, and exports were growing 9% a year, then the ratio of debt to exports would settle at 2 (or 200%). b. D/Y= (v- s) ÷ (g y - i) i. Y = GDP ii. v and s are the investment and saving shares of GDP iii. g y - the exponential rate at which debt and GDP grow iv. If investment exceeds saving by 1% point, the growth rate of GDP is 7% a year and i averages 5%, the debt/GDP ratio settles at 0.5 (or 50%).

3. *Describe any three distinct sources of government revenue. [Note:Different kinds of indirect taxes(e.g. sales tax and import duty) count as one source of revenue.] [page 399-400]

a. Direct taxes (income tax) b. Indirect taxes (such as sales tax) c. Selling bonds, loans, grants (particularly when government faces deficit) d. Fees for services such as DVM, Court fees e. Royalties on natural resources

*When evaluating costs and benefits of public investments, the following two additional considerations arise beyond the procedure used for a cost-benefit analysis of a project in the private sector: [pages 354-357] (a) economy-wide cost-benefit analysis When explaining factor (a), be sure to describe the concept of shadow prices and also clarify (with at least one example) why market costs do not accurately measure opportunity costs of resources used for public sector investments. (b) the need to assign welfare weights. Briefly explain both these additional steps.

a. Economy-wide cost-benefit analysis i. Private firms: market prices paid to obtain resources are good estimates of costs of the project ii. Goods/services valued in terms of the net benefits they would have provided if used in some alternative projects - they have opportunity costs iii. Shadow prices are opportunity costs for the economy as a whole iv. Government wages may be higher than market-dominated wages v. Return from alternative investment opportunity may be higher than rate of interest vi. Market price of foreign exchange may differ from government-controlled rate 1. One project (textile mill) earns more foreign exchange but uses more labor, Because the shadow wage rate is below the market rate, the economic NPV of both projects is raised, but the more labor-intensive textile project benefits ore. When the shadow exchange rate is applied, the NPV for the textile mill is raised considerably, and that of the telecommunications system becomes negative. vi. Market price of foreign exchange may differ from government-controlled rate b. Need to assign welfare rights i. Government want to incorporate broader social goals in the evaluation of public sector projects, such as impact on income distribution, poverty alleviation, or environmental degradation. ii. Higher value placed on net additional income to certain target groups, such as the very poor. Then project generating more income for these groups have higher NPVs than otherwise and tend to be selected more frequently. iii. Might adjust benefits to capture environmental goals or further reduce shadow wage rate if it was interested in creating new jobs → social project appraisal iv. Welfare weights = arbitrary, subject to policy makers' or politicians' judgement. 1. Can overwhelm economically based shadow prices that project selection comes down to choice based entirely on arbitrary weights → false sense of precision and sometimes misused

*On page 417 of the textbook, the authors state that: "On the expenditure side of the budget, social cost-benefit analysis can be deployed to enhance efficiency (reduce waste) in government spending. On the tax side, promotion of economic efficiency is more problematic." Explain any three sources of inefficiency in taxation. [pages 417-418]

a. Excessive cost of tax administrations. In the U.S. this would be costs associated with the IRS. i. In Latin America an example can be the stamp tax that costs more to administer than they collect in revenue ii. These costs have been so high that they call into question the desirability of using certain taxes for any purpose b. Granting tax incentives for investment can lead to inefficiencies because it causes people that do not receive the incentives to face higher tax rates to cover costs. Leading to inefficiencies in the economy as a whole. c. Progressive corporate tax rates lead to inefficiencies because they cause companies to split into small units to avoid higher tax rates and lead to inefficiencies in the economy.

*Discuss any three of the implications of viewing childbearing as an economic decision. Note that the first four of the five implications listed on page 234 have empirical support. Describe why the fifth assertion, i.e., higher income should lead to higher TFR, is not observed in the real world. [pages 234-235]

a. Fertility should be higher when children earn income or contribute to household enterprises than when they do not b. Reducing infant deaths should lower fertility because fewer births are needed to produce a given desired number of surviving children c. The introduction of an institutionalized social security system should lower fertility by reducing the need for parents to depend on their children for support in their old age d. Fertility should fall when there is an increase in opportunities for women to work in jobs that are relatively incompatible with childbearing, essentially work outside the home e. Fertility should be higher when income is higher because the explicit costs are more easily borne i. Fertility usually is negatively related to income ii. Cost of children rises iii. Quality of children over quantity

*Explain the meaning of fiscal equity and describe the two broad ways of achieving fiscal equity by using the revenue and expenditure sides of a government's budget. [page 411]

a. Fiscal equity is the use of tax and expenditure policy to influence the distribution of economic well-being b. Two ways of achieving fiscal equity i. Conception of equity requires that most taxes be based on ability to pay (measured by income, consumption, wealth, or combo of all 3) ii. Personal and corporate income taxes employ income as the indicator iii. Sales taxes and custom duties are indirect assessments of taxes on consumption

3. *Describe at least four factors that motivate donors to provide foreign aid. [pages 514-518]

a. Foreign Policy Objective and Political Alliances i. Try and gain support and recognition for their government from countries around the world ii. To former colonies as means of retaining some political influence b. Income Levels and Poverty i. Help those in need in poorest countries c. Country size i. More aid goes to smaller countries - difference they make is more noticeable d. Commercial ties Help support economic interests of certain firms/sectors in the donor country e. Democracy i. Strengthening fragile democracies, supporting the transition of non democracies to democracies, or building democratic institutions, including financing for parliaments, election monitoring systems, and groups supporting civil rights and free speech

1. *Discuss the meaning of foreign aid. Provide at least one example each of financial flows that are considered foreign aid and flows that are not considered foreign aid. [pages 501-502]

a. Foreign aid - financial flows, technical assistance, and commodities given by the residents of one country to the residents of another country for development purposes, either as grants or as subsidized loans i. Must be designed to promote economic development and welfare as its main objective (excluding aid for military or other non development purposes) ii. Must be provided as either a grant or a subsidized loan b. Commercial loan from Citibank to build an electricity generator is not aid nor is a grant from the British government to purchase military equipment. c. A grant from, the British government to build an electricity generator

5. *In what way is purpose and context of FDI important when drawing any conclusions about the impact of FDI on economic growth? [Note:Your answer to this question should describe how the impact of FDI on economic growth depends on the nature of the economic activity (the three broad categories from question 3 above) supported by the funds]. [pages 369-370]

a. Foreign investment that produces for the domestic market and relies heavily on subsidies or protection from competition is much less likely to be beneficial and may even generate economic losses for host country b. FDI in natural resource-based industries depends heavily on impact of the industries themselves i. Ex: helped: Diamonds in Botswana, petroleum in Indonesia/Malaysia ii. Ex: Curse: Oil in Nigeria and Venezuela. Diamonds in DRC c. FDI aimed at firms producing manufactured exports and operating in competitive global markets often positive relationship with growth and development i. Economically efficient and conducive to importation of new tech, training new workers and managers, and positive spillovers to suppliers and competitors

2. *Note that a country's debt sustainability depends on (1) how much it owes; and (2) its capacity to make required payments. Describe at least two numerical indicators each of a country's debt sustainability that measure (1) and (2) above. [pages 459-461]

a. How much it owes i. The total stock of debt 1. Sum of the face value of all debts outstanding 2. NPV of debt, to account for difference in loan terms 3. Debt service/revenue - government's ability to generate tax revenues to make payments due in a single year ii. Debt service 1. Amount due for principal and interest payments in a given year 2. Debt service/exports - amount owed in a single year relative to the export earnings available to make the payments, tells less about overall burden of debt over time b. Capacity to make required payments i. GDP 1. Larger country's productive capacity and corresponding income, greater ability to repay debt 2. debt/GDP - compares total debt to economy's total capacity to generate resources to repay (broadest) ii. Exports 1. Focus attention external transfer problem - challenge of generating sufficient foreign exchange to transfer to external (foreign) creditors 2. debt/exports - compares the total debt to the capacity to generate foreign exchange iii. Government tax revenue 1. Internal transfer problem - government's challenge of raising enough revenue from households and firms to enable the government to repay the nation's debts 2. debt/revenue - ability to generate tax revenue to repay the loans (most relevant when government is the largest debtor)

6. *In about four to five sentences each, describe the three broad strategies used by developing countries that are interested in attracting FDI. [pages 370-373]

a. Improve the general environment for all kinds of investment (foreign or domestic) by strengthening infrastructure, reducing red tape and improving the quality of labor i. Governments can improve road and ports infrastructure, invest in utilities to make them more reliable and less expensive, reduce trade tariffs, strengthen the judicial process and the rule of law, and reduce unnecessary regulations and red tape that to the cost of doing business. These steps should help attract new investment, both domestic and foreign, and help make existing investments more productive and profitable b. Introduce specific policies and incentives to attract FDI, such as export processing zones, worker training, import protection, or tax holidays i. Host governments can provide effective and timely information to potential information to potential investors that markets might not provide on their own. ii. Governments can undertake specific expenditures aimed at making their country more attractive for FDI, and establish industrial parks of export- processing zones (EPZs) to increase investment and manufactured exports. iii. Governments can provide specific incentives to MNCs to increase their profitability, including protection from import competition, subsidies or tax breaks. Governments provide protection by introducing tariffs and quotas to reduce imports of competing goods to provide outright monopoly control over local markets. iv. Income tax incentives, like tax holidays, exempt firms from paying taxes on corporate income (3-6 yrs) c. Impose requirements on MNCs (such as limits on equity holdings or repatriation of profits) in an attempt to capture more benefits locally i. Host countries have made it mandatory for foreign investors to sell a specified share of equity to local firms to form joint ventures, to ensure the transfer of tech and managerial skills, limite the repatriation of profits, and maintain local control. ii. Countries impose domestic content requirements on MNCs, requiring them to purchase a certain share of their inputs locally, often with the share increasing over time - idea is to encourage local suppliers and ensure stronger links between the MNC and local firms. iii. Ceilings on repatriation of profits to the parent corporation and stiff taxes on profit remittances

11. *Why does efficient taxation require the use of Ramsey rule (or the inverse elasticity rule)? In what way would such a tax system be regressive? Also, why is it that "a neutral tax system cannot be an efficient tax system"? [pages 418-419]

a. In order to achieve the most amount of tax revenue, using the Ramsey rules says that tax rates need to vary depending the elasticity of the product. Tax rates will be lower for goods with elastic demand like TVs or cars, but higher on inelastic products like food, shampoo, or toothpaste. b. This tax system would be considered regressive because it taxes at a higher rate, items that are considered necessities. While products and services that are not needed would be taxed at a lower rate. c. A neutral tax system cannot be an efficient tax system because in a neutral tax system, all taxes are treated equally based on rate.

4. *Differentiate between an insolvent borrower and an illiquid borrower. Explain how at least one of the indicators of debt sustainability you discussed in question 2 above measures a country's solvency and how another indicator measures its liquidity. [pages 461-462]

a. Insolvent borrower - lacks the net worth to repay outstanding debts our of future earnings b. Illiquid borrower - lacks the ready cash to repay current debt-servicing obligations, even though it has the net worth to repay the debts in the long term c. Debt/GDP ratio is a measure of overall solvency, indicating the value of debt relative to aggregate economic resources d. Debt service/exports - measure of liquidity indicating whether a country has the capacity to make the payments due this year

8. *Explain the three arguments in favor of providing debt relief to low-income countries facing the debt crisis. [page 475]

a. Large debt impedes economic growth i. Debts are so large that they were impeding growth and development, partially by undermining private sector incentives but also by impeding the government's ability to make critical investments in health, education, and infrastructure b. Creditor governments should not have provided this level of financing i. Countries lacked capacity for growth ii. Difficulty sustaining and initiating growth, due to 1. Adverse geography, disease burdens, weak institutions, frequent climate and trade shocks, and poor policies iii. Providing loans based on presumption that growth could be turned around relatively easily, providing these countries with the basis to repay their loans c. Odious debts (obligations accumulated by an illegitimate government in name of a country) i. Creditors knowling lent money to dictatorships to garner their political support, even when dictators wasted and stole the money ii. Once dictators left, citizens of the country were left with responsibility of repaying the debts iii. Odious debts should be forgiven with costs born by the creditor

*(a) Describe the meaning of life expectancy, which is a measure of a country's health status. (b) Explain at least one factor that can lead to an increase in life expectancy and one factor that can lead to a decrease in life expectancy in a country over time. (c) In the African nation of Sierra Leone, the life expectancy at birth was 49 years in 2008. In the same year, the life expectancy for the 5- to 9- year-old age group was 60 years. Explain how it is possible for an older age group to have a higher life expectancy compared to a younger age group. [page 304]

a. Life expectancy is derived from data on mortality and is the most common statistic that provides a snapshot of a country's health issues i. Based on probability of surviving ii. Assumes age-specific death rates remain unchanged iii. Calculated for specific demographic subgroups such as age, sex, and race b. Factors i. Increase - rising incomes and advances in medicine lead to decline in age-specific death rates ii. Decrease - new diseases, like HIV/AIDS, can lead to shorter than expected lifetimes c. In countries with high infant mortality, life expectancy for children who survive the early years can be higher than at birth ("bonus" for surviving)

*Population policies pursued by governments of several countries around the world are aimed primarily at lowering birth rate by: (a) reducing the share of population of reproductive age, and (b) reducing the fertility rate. Describe two ways each of achieving the two goals. [pages 245-246].

a. Reducing the share of population of reproductive age i. Raising the average age of women at childbearing ii. Better education and employment opportunities for women b. Reducing the fertility rate i. Educating girls ii. Reduction in child mortality iii. Overall economic development iv. Interventions that reduce infant and child mortality

*Briefly explain the four stages of demographic transition experienced by today's high-income countries. For each stage, describe the relevant trends in birth rate, death rate, and the rate of natural increase in population. [pages 220-222]

a. Stage 1 (1785) i. High birth rate ii. High death rate iii. Rate of natural increase in population was 0 b. Stage 2: (1800s) i. No change in birth rate ii. Death rate declines more quickly iii. Rate of natural increase in population doubled c. Stage 3: (1830) i. Birth rate falls more quickly ii. No change in death rate iii. Rate of natural increase in population was 1.2% d. Stage 4: (2008) i. Low birth rate ii. Low death rate iii. Rate of natural increase in population almost 0

*Explain the concepts of total fertility rate (TFR) and replacement rate (RR). Describe the broad trends in TFR observed over the last forty years or so in developing as well as developed countries of the world. What do those trends predict about the demographic future of the planet? [pages 224-227]

a. TFR - measure of the average number of children a woman will bear (synthetic measure) i. 1967 - Africa, Asia, Latin America TFR = 5.5+ 1. Only high-income economies and europe/central asia had TFR = 3 ii. Now - TFR in high-income economies has fallen below RR iii. Future - significant increase in population but unlikely that it will double b. RR - women must have at least 2 children each during their childbearing years for the population to replace itself

*Describe the cause-effect relationship between health and economic growth of a country. In other words, does higher income lead to better health or does improved health lead to faster economic growth in a country? Or is it both? Be sure to present adequate reasoning for your choice. [pages 313-321]

a. There is a strong positive relationship between better health and economic growth i. Better health and higher incomes work together in a mutually reinforcing and virtuous cycle, in which improvements in health support faster economic growth leading to higher incomes, and higher incomes facilitate even better health b. Income → Health i. Incomes increase, individuals, households, and societies at large are able to increase spending on a range of goods and services that directly/indirectly improve health 1. Individuals and households can buy more and better food, strong causal link from higher income to improved nutrition to better health 2. Greater ability to build public and private health systems Gains in life expectancy from upward shift in the curve rather than movement along the curve 1. Improvements in health and income are both consequences of new technology c. Health → Income i. Better health affects both underlying causes of economic growth 1. Productivity gains 2. Increased investment d. Health → productivity i. Healthier people tend to be more economically productive ii. Healthier workers lose fewer workdays iii. Poor health can affect children's education and, in turn, future income e. Health → Investment i. People who expect to live longer make long-term investments in their business and human capital ii. Poor people facing catastrophic illness may have to sell their assets iii. Effect of health on public saving and investment iv. Reduction in incidence of diseases can help increase the amount of usable land f. Mortality rates are highest in poorest countries, and drop off sharply in conjunction with higher incomes g. Countries with higher life expectancy have lower rates of poverty

6. *In some detail, discuss the first of the three different views regarding the effect of foreign aid on economic growth, i.e. the view that "on average, aid has a positive impact on development". In your answer, be sure to discuss the concept of poverty trap, any empirical evidence in support of this view, and the ways in which aid can have positive impact on other development objectives that, in turn, may affect economic growth indirectly or over a long period of time. [pages 520- 526]

a. Without foreign aid, poor countries are stuck in a poverty trap (income is too low to generate the savings necessary to initiate the process of sustained growth) i. Several studies find a positive relationship between aid and growth, after controlling for the impact of other factors on growth b. Aid has a positive impact on health, education, and the environment, all of which may affect economic growth indirectly or over a long period of time c. Emergency assistance prevents output from collapsing further d. Aid may be a response to low growth; this should not be seen as a failure of aid to promote growth