Econ 111 Finals- Topics Covered: CH 4, CH 12, TRADE, Health/Educ

topic 5:

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The Importance of Exports to Different Developing Nations

-Developing nations are generally more dependent on trade than developed countries (though there is great diversity) -Exports of developing countries are generally less diversified than those of developed countries (For 40 countries, the production of three of fewer commodities explains all export earnings) -Volatility affects commodity prices, and also other exports including tourism

result of assortative matching

Some firms and workers, and even an entire low-income economy, fall into a trap of low skill and low productivity Others escape into high productivity

Expanding Exports of manufactured goods

Success include South Korea, Singapore, Hong Kong, Taiwan and China In these countries, the production and composition of exports resulted from planned intervention by government with ample use of the profit motive Widespread protection against manufactures from the developing world E.g. Multifiber Arrangement (MFA) - in effect until 2005, estimated to have cost developing countries $24 billion a year in lost textile and clothing export earnings

Starting Economic Development: The Big Push

Sustaining growth seems to be much easier than getting the process kicked off Pecuniary externalities: positive or negative spillover effects on an agent's costs or revenues (e.g. the income effect of wages creating demand for other firms' products) Sometimes market failures lead to a need for a concerted, economy-wide, public policy intervention: A Big Push

two rules of the game

WTO MNCs; intellectual property

define Globalization

"A process by which the economies of the world are becoming more integrated" "The emergence of a global culture" "The increased openness of economies to international trade, financial flows, and foreign direct investment; the increased integration of national economies into expanding international markets"

what is the big push argument based on

"the argument is based on the fact that the development of any particular industry may only be privately profitable if an entire set of interlocking industries were emerging simultaneously". Sethi

examples of coordination failures:

1. 'Chicken or egg?' -Firms requiring specialized skills / -Workers Middlemen for specialized agricultural markets Simultaneity is required -> scope for coordination failure 2.'The more the merrier' -Investment (Big push model) -Education (O-ring model) 3.'Where-to-meet' dilemma -Agricultural specialization

International Trade: Some Key Issues (cont'd): Five Basic Questions about Trade and Development

1. How does international trade affect economic growth? (rate, structure and character) 2. How does trade alter the distribution of income? 3. How can trade promote development? 4. Can developing countries determine how much they trade or what to sell? 5. Is an outward-looking or an inward-looking trade policy best?

Trade Optimists and Trade Pessimists: Summarizing the Traditional Debate

1. Trade pessimist arguments -Limited growth of world demand for primary exports -Secular deterioration in terms of trade -Specializing in comparative advantage inhibits industrialization, skills accumulation, and entrepreneurship -Rise of "new protectionism"; WTO benefits limited in practice 2. Trade optimist arguments - trade liberalization: Trade optimist arguments - trade liberalization: - Promotes competition and efficiency - Generates pressure for product improvement - Accelerates overall growth - Attracts foreign capital and expertise, which are in scarce supply in most developing countries - Generates foreign exchange to use for food imports if agricultural sector lags behind or suffers natural catastrophes - Eliminates distortions caused by government interventions including corruption and rent-seeking activities - Promotes equal access to scarce resources, - Enables developing countries to take full advantage of reforms under the WTO

define Import substitution

=looking inward but still paying outward Tariffs, infant industries, and the theory of protection Infant industries Reduced dependence and increased self-reliance Building a domestic industrial base Tax revenue

define Export promotion

=looking outward and seeing trade barriers

Assortative matching: A Simple Illustration of the basic idea

An economy has 4 workers: 2 H-types and 2 L-types; In a simplified model, let Q = qiqj (assuming B=1) How to allocate? {HH, LL}; or {HL, LH}? We know that H2 + L2 > 2HL because: (H-L)2>0 So with strong complementarity it always pays to do assortative matching Firms with high q workers in the first n - 1 tasks place the highest value on having high skill workers in the nth task, so they bid the most for these workers In equilibrium, workers of the same skill are matched together in firms

The "O-Ring" Theory

Assumption: Quantity cannot be substituted for quality within a single production chain qH ≠ 2qL eg. quarterbacks also chefs, advertising copywriters

Assortative matching

Positive assortative matching in production -High skill workers have incentives to work with other high skill workers -5 star restaurant vs McDonalds

which countries have greatest risks for globalization?

least developed countries

Topic 5: Contemporary Models of Development and Underdevelopment starts here

part 1

Topic 5: Contemporary Models of Development and Underdevelopment

powerpoint 3

summary of costs and benefits of different types of industrial policies

see chart

Human Capital: Education and Health in Economic Development : part 1

starts here

part 2:

starts here

malnutrition and stunting:

the most effective way of preventing this was literally just sticking a poster in the houses of families that measured malnutrition

teacher attendance video

when teachers got paid based on proofing attendance they started coming way more

who created the big push model?

Rosenstein-Rodan, (1943) Murphy, Schleifer, Vishny (1989) Krugman (1995) (created the graph)

Foreign-exchange rates, exchange controls, and the devaluation decision:

- Developing country currencies have often been overvalued (excess of local demand over available exchange) -A developing country can devalue currency, or -Can run down reserves -Can curtail excess demand through taxes, tariffs, dual exchange rates - Can use exchange controls -Can switch to freely convertible foreign exchange

predictions of Trade with Variable Factor Proportions and Different Factor Endowments:

(refer to trade graph #2) Both countries gain Increase in world output No complete specialization Factor price equalization Improved domestic equality Economic growth

controlled rates of foreign exchange

- Effect of currency speculation - Managed float - Chronic payments deficits can be ameliorated by a currency devaluation -Difference between depreciation and devaluation -Higher import prices result in an inflationary wage-price spiral -Distributional effects -Undervalued exchange rates are export promoting

12.6 The Industrialization Strategy Approach to Export Policy

- Focus on government interventions to encourage exports, especially those with higher skill and technology content (industrial policy) - Government not trying to manage industry, but to understand their constraints and relax them - Problem: without proper attention to incentives, industrial policies may be counterproductive too - WTO rules and industrial policies - gray areas remain - Problem: level of competence and political authority of governments to carry out policies effectively

The Traditional Theory of International Trade: what is the conclusion of the neoclassical model?

- Main conclusion of the neoclassical model is that all countries gain from trade World output increases with trade -Factor price equalization: Int'l wage rates and capital costs will gradually tend toward equalization -Returns to owners of abundant resources will rise relatively, promoting more equality in developing country domestic income distributions -Trade will stimulate economic growth

what is porter's competivite advantage theory?

- Traditional trade theory applies only to basic factors (unskilled labor, physical resources) - But creation of advanced factors (knowledge resources, specialized infrastructure) is the first priority - Central task to "escape from the straightjacket of factor-driven national advantage"

Industrial policy may help to identify true direct and indirect domestic costs of potential products in which to specialize by:

-Encouraging exploration in the first stage -Encouraging movement out of inefficient sectors and into more efficient sectors in the second stage

Tariff Structure and Effective Protection

-Nominal rate of protection -Effective rate of protection The nominal tariff rate, t, is: t= (p'-p)/p p′ is the tariff-inclusive price p is the free trade price

The import substitution (IS) industrialization strategy and results

-Protected industries remain inefficient and costly -Foreign firms often benefit more -Subsidization of imports of capital goods tilts pattern of industrialization and contributes to balance of payments (BOP) problems -Overvalued exchange rates hurt exports, notably agricultural products -Does not stimulate self-reliant integrated industrialization, increases the costs of production for forward-linked industries and decreases demand for backward-linked industries

Standard argument for tariff protection

-Sources of revenue -Response to chronic BOP problems -Help foster industrial self-reliance (general IS) -Greater control over economic destinies -Must be applied selectively and wisely Infant industry protection argument: Many examples of perceived failures, but some success in East Asia

Health Systems Policy: WHO study: 5 criteria to rank countries

1) Overall level of health of the population 2) Health inequalities within the population 3) Health system responsiveness Patient satisfaction System performance 4) Distribution of responsiveness within the population 5) distribution, or fairness, of the health system's financial burden within the population

The Critique of Traditional Free-Trade Theory, in the Context of Developing-Country Experience: which assumptions of the basic neoclassical model have been scrutinized?

1. Fixed resources, full employment, international factor immobility 2. Fixed / freely available technology and consumer sovereignty vs. product cycle, ongoing development of synthetic substitutes for developing countries exports, and opportunities for dynamic gains in leading sectors 3. Internal factor mobility and perfect competition vs. different types of structural rigidities and pervasive market power 4. Governmental non-interference in trade vs. active trade policies 5. Balanced trade and international price adjustments vs. instability 6. Trade gains accruing to nationals vs. export enclaves with foreign ownership; distinction between GDP and GNI becomes important 7. Fixed Resources, Full Employment, and the International Immobility of Capital and Skilled Labor vs. Challenged by North-South trade models -Relative factor endowments and comparative costs are not fixed but are in a state of constant change -'Static efficiency can become dynamic inefficiency'

The Traditional Theory of International Trade

1. Gains from trade, specialization and comparative advantage - Ricardo and Mill (static model) 2. Relative factor endowments and international specialization: the Neoclassical model Heckscher and Ohlin (factor endowment theory) - Different products require productive factors in different ratios -Countries have different endowments of factors of production

what is the globaliztion trilema?

1. Hyperglobalization: A world in which there are virtually no political or cultural barriers to the location of goods and investment. 2. Democracy within nation states: This means that the government respects both individual liberty and political equality. 3. National sovereignty: Each national government can pursue policies that it chooses without any significant limits imposed on it by other nations or by global institutions.

Two implications of average rate of effective protection being high in developing countries:

1. In developing countries -high rates of effective protection of final good industries and less effective protection for intermediate goods -> attracts scare resources away from intermediate goods to the inefficient production of final goods -> backward linkages do not develop -> intermediate good import costs rise -> indigenous capital-goods industry is impeded 2. In developed countries, duty-free imports of raw materials and apparently low tariffs on processed products can mean very high rates of effective protection: Copra: Duty-free. Coconut oil: 10% tariff. If the value added in making oil from copra is 5%, the process is being protected at 200% -> This greatly inhibits the development of food and other raw-materials-processing industries in developing countries -> and cuts back on their potential earnings of foreign exchange

Traditional Trade Strategies and Policy Mechanisms for Development: Export Promotion versus Import Substitution

1. Outward looking development policies - Free trade, free movement of capital, workers, enterprises and students - Export promotion (EP) 2. Inward-looking development policies - Economic self-reliance, domestic development of technology, barriers to imports, discouragement of private foreign investment - Import substitution (IS) 3. Distinction actually less clear - Most successful East Asian export promoters also pursued IS strategies in certain industries, and cannot be called free traders, although they are outward oriented

Some Conclusions on Trade Theory and Economic Development Strategy

1. Trade can lead to rapid economic growth under some circumstances 2. Trade seems to reinforce existing income inequalities 3. Trade can benefit developing countries if they can extract trade concessions from developed countries 4. Developing countries generally must trade 5. Regional cooperation may help developing countries

economic development as self discovery: what are the 3 building blocks of the theory

1. Uncertainty about what products can be produced efficiently - Evidence: India's success in information technology was unexpected; reasons for Bangladesh's efficiency in hats vs Pakistan's in bedsheets is not clear 2. Need for local adaptation of foreign technology -Evidence: seen in cases such as shipbuilding in South Korea 3. Imitation can be rapid e.g. the spread of cut flower exporting in Colombia

Implications of assortative matching:

1. Wage and productivity differentials between rich and poor countries are enormous 2. Poor countries have higher shares of primary production in GNP: -> Problems with agricultural output, e.g. declining terms of trade, volatile prices 3. Rich countries specialize in complicated products: Increasing n means switching to different production techniques or products in which there are more potential areas for mistakes that affect the value of the product as a whole. -> High value products will be concentrated in countries with high-value skills 4. Firms are larger in rich countries: Assuming a positive correlation between the number of tasks and the number of workers 5. Bottlenecks: O-ring effects magnify the impact of local production bottlenecks because such bottlenecks have a multiplicative effect on other production Bottlenecks also reduce the incentive for workers to invest in skills by lowering the expected return to skills 6. 6. Workers performing the same task earn higher wages in a high-skill country than a low-skill one 7. Workers incentive to invest in more skill depends on the skill level of those around them

the 6 assumptions of big push

1. factors: one factor of production- labor 2. there are N types of products and consumers spend an equal amount on each good 3. closed economny 4. factor payments w=1, w>1 5. technology: constant returns to scale, increasing returns to scale 6. market structure: perfect competition, limit-pricing monopolosts for each product

primary- commodity export expansion

1. limited demand -Low income elasticities -Low population growth rates in developed economies -Decline in prices and low price elasticities of demand imply low revenue (some periods of price spikes, incl. recent years, but very l/r trend has been downward) - Lack of success with international commodity agreements -Development of synthetic substitutes -Agricultural protection in the developed countries 2. supply rigidities -Structural rigidities of rural production systems -Uneven distribution of growth in export earnings -Agricultural marketing boards

Underdevelopment as a Coordination Failure

A newer school of thought on problems of economic development Complementarities - actions taken by one agent reinforce incentives for others to take similar actions (e.g. investments) Complementarities not common in standard economic analysis. Contrast congestion

The "O-Ring" Theory

A production process is broken down into n tasks. The various ways of carrying out these tasks are ordered by skill level q, where 0≤q≤1

final critiques:

Balanced Trade and International Price Adjustments -Unrealistic (example: impact of oil price hikes of the 1970s) Trade gains accruing to nationals -Enclave economies are promoted by trade -Difference between GDP and GNI becomes important

what are coordination failures?

Complementarities can lead to coordination failures, which occur when agents' inability to coordinate their actions leads to an outcome that makes all agents worse off.

what are the risks with globalization?

Concerns with globalization center around the unevenness of the process, and risks

Multiple Equilibria: A Diagrammatic Approach

Coordination issues can, under some circumstances, lead to multiple equilibria Often, these models can be diagrammed by graphing an S-shaped function and the 45º line Equilibria are -Stable: function crosses the 45º line from above -Unstable: function Role for government: deep intervention - a government policy that can move an economy to a preferred equilibrium. This will then be self-sustaining.

Educational demand

Derived demand for high-wage employment opportunities in the modern sector Faster rate of individuals entering the labor market than growth in modern-sector jobs Employers hire those with the highest qualifications, although not need for the job Governments bind wages to actual rather than required education levels School fees decline at the university level due to government subsidies

Educational supply

Determined by political processes Often unrelated to economic criteria > Great demand for higher levels of education and political pressure to supply this, although increasing / improving basic education would have far greater social benefits

Contemporary Models: Conclusion

Doing inefficient things can be rational! The impact of the interactions of many small distortions can justify a greater role for government - deep interventions Better understanding of the causes and effects of poverty traps

tarriff example:

Example: Automobiles World price: $10,000 Value added in final assembly: $2,000 Value of remaining inputs: $8,000 Nominal 10% tariff -> new domestic price $11,000 Price of importable intermediate inputs: no change Domestic automobile production can now spend $3000 on labor inputs for assembly =50% effective tariff on the assembly process

bottlenecks example:

Example: If the skill level of two workers was halved in all firms, output would fall by 75% The marginal product of quality also falls by 75% for the remaining n-2 tasks, and thus so does the incentive to invest in increasing skill This results in low-skill equilibria, and may justify industrial policy to encourage quality upgrading And also shows why trade makes such a big difference

The Critique of Traditional Free-Trade Theory, in the Context of Developing-Country Experience (cont'd):

Fixed, Freely Available Technology and Consumer Sovereignty - Challenged by the Product Cycle theory -The progressive replacement of more developed countries by less developed countries in the production of manufactures of increasing complexity - Development of synthetic substitutes for developing country exports

Private versus Social Benefits and Costs of Education:

Focus on higher education and large subsidies Which benefits only the already-haves -> Education acts to perpetuate and re-inforce inequalities in wealth and income

malaria: two market failures

Incentive for governments to wait for other countries to spend the required resources Pharma companies fear that they will be forced to push prices down to production costs and wont be able to recoup the R+D cost Solution: a legally binding commitment -Independent adjudication committee -200 million doses at $15 -14 from donors and $1 from recipient country -Doses beyond 200 million at $1 (production cost) -About $3 billion revenue - similar to other drugs

Education and Health as Joint Investments for Development

Greater health capital may improve the returns to investments in education - Health is a factor in school attendance - Healthier students learn more effectively - A longer life raises the rate of return to education - Healthier people have lower depreciation of education capital Greater education capital may improve the returns to investments in health - Public health programs need knowledge learned in school - Basic hygiene and sanitation may be taught in school - Education needed in training of health personnel

Economic Development as Self-Discovery

Hausmann and Rodrik: A Problem of Information. Need for greater diversification of production But what to produce? Not enough to say developing countries should produce "labor intensive products," because there are thousands of them Information externality: innovators don't reap the full returns of their search for profitable activities

human capital: health and education conclusion:

Health and education - key inputs to production and key outcomes Many health and education problems, but substantial improvements in some areas Will not automatically improve with higher incomes and prone to various market failures Bad policy has sometimes exacerbated inequalities Government plays an essential role in health and education and considerable policy improvements are needed

Health Measurement and Disease Burden

In developing countries, the poor tend to be significantly less healthy than the rich Health inputs also tend to be distributed very unequally

Increasing Incomes Is Not Sufficient

Increases in income often do not lead to substantial increases in investment in children's education and health But better educated mothers tend to have healthier children at any income level Significant market failures in education and health require policy action

12.6 Export-Oriented Industrialization Strategy: Some arguments in the literature on why, in principle, it could be effective

Infant industry support: Empirically: " periods of significant export expansion are almost always preceded by periods of strong import substitution" Zedillo commission, 2001: "However misguided the old model of blanket protection intended to nurture import substitute industries, it would be a mistake to go to the other extreme and deny developing countries the opportunity of actively nurturing the development of an industrial sector" -Hausmann, Hwang, and Rodrik: exporting a mix of goods more typical for higher-income countries predicts higher growth: "You become what you export" -Thus, export oriented industrial policy may help overcome market failures in the process of technological progress

The Human Capital Approach

Initial investments in health or education lead to a stream of higher future income The present discounted value of this stream of future income is compared to the costs of the investment Private returns to education are high, and may be higher than social returns, especially at higher educational levels

Educational Systems and Development

Interaction between economically motivated demand and politically motivated supply in determining -How many quality school places are provided -Who gets access to them -The kind of instruction they receive

another one:

Internal Factor Mobility, Perfect Competition, and Uncertainty - Structural realities in developing countries -Increasing returns and exercise of monopolistic control over world markets - Risk and uncertainty inherent in international trading arrangements

Assumptions of the Child Labor Multiple Equilibria Model

Luxury Axiom: A household with sufficiently high income would not send its children to work Substitution Axiom: Adult and child labor are substitutes, in which the quantity of output by a child is a given fraction of that of an adult: QC = γQA, 0 < γ < 1.

Health Systems Policy

Many countries falling short of their performance potential -Impact falling disproportionately on the poor -Great variability in the performance of health systems at each country's average income level

Michael Kremer's O-Ring Theory of Economic Development

Modern production is modeled with strong complementarities among inputs -Many tasks must be done well together -Challenger 1986 Implications of strong complementarities for economic development, low-level equilibrium traps and the distribution of income across countries

The Big Push: graph analyzation

Multiple equilibria - a modern sector wage like W2 can mean a big push is required for industrialization to occur at all Very small individual distortions -Each firm's failure to account for it's impact on other firms' profits Result in a very large distortion -Failure to industrialize at all Important potential role for government E.g. Taiwan and South Korea

health policy systems: allocation of resources

Often favors expensive curative measures for older, richer patients E.g. radiography machines And neglects cost-effective, preventative health campaigns as well as basic health care

Demand Elasticities and Export Earning Instability

Often low price elasticity of demand for agricultural commodities but supply shocks Often low price elasticity of supply for basic commodities but demand shocks Result can be export earnings instability; risks to income Also, low income elasticity of demand for primary products -> tendency for the relative price of primary products to decline over time...

Export-Oriented Industrialization Strategy: Some arguments in the literature on why, in principle, it could be effective

Outward oriented and optimistic about export-led development, Active role for government in influencing the type and sequencing of exports (progressively more advanced products) Theory focuses on market failures - There are market failures in transfer of innovations - Coordination failures may make industrialization problematic - Exporting allows access to a much larger market - Export expansion may facilitate technology transfer through contacts with foreign firms, industry spillovers, scale economies - There may be learning by doing (or "watching") effects in manufacturing sectors - Performance is rigorously tested when firms attempt to export - Export targets more visible; focus on manageable problems

South-South Trade and Economic Integration

Regional trading blocs and the globalization of trade NAFTA MERCOSUR SADC ASEAN Local conditions matter Still not fully answered: Do blocs promote growth or retard the progress of globalization

The Hausmann-Rodrik-Velasco Growth Diagnostics Framework

Response to massive conditionality lists of SAPs Focus on a country's most binding constraints on economic growth No "one size fits all" in development policy Requires careful research to determine the most likely binding constraint

Trade Policies of Developed Countries: The Need for Reform and Resistance to New Protectionist Pressures

Rich-nation economic and commercial policies matter for developing countries -Tariff and non-tariff barriers to developing country exports - Adjustment assistance for displaced workers - General impact of economic policy Double standards: "You liberalize, we subsidize" 2010: OECD estimates that its members agricultural subsidies totaled $227 billion (though this was 10% less than the previous three years). - By contrast, aid was $130 billion. World Trade Organization Despite 8 liberalization rounds over 50 years, trade barriers remain in place in agriculture; and, through various mechanisms, to a degree in other sectors Doha Development Round begun 2001 tilted the nominal focus to needs of developing world; but talks remained stalled through the end of 2010, a self-imposed deadline, and were still deadlocked in 2014. The latest talks in Nairobi in 2015 led to ambiguous outcomes.

key issues of international trade:

Some East Asian countries have enjoyed huge success through trade - more on this later Many developing countries 1. rely heavily on exports of primary products with attendant risks and uncertainty 2. also rely heavily on imports (typically of machinery, capital goods, intermediate producer goods, and consumer products) 3. have chronic deficits on their current accounts which depletes their reserves, causes currency instability, and may slow economic growth 4. have recently sought to promote exports and accumulate large foreign exchange reserves to cushion against crises

Big Push Industralization Policy: Examples

Taiwan, Nineteen-Point Reform Program instituted in 1960 -a wide range of tax subsidies for investment and a major shift in government attitudes toward investment. South Korea, 5 year plans from early 1960s, -e.g. the third 5-year plan (1972 - 1976): Heavy Chemical Industrialization Plan The extension of credit to large business groups at negative real interest rates. Direct, hands-on role in organizing private entrepreneurs into investments that they may not have otherwise made. Important role for public enterprises in ensuring that key inputs were available locally for private producers downstream, thereby enhancing the profitability of private investment

another one:

The Absence of National Governments in Trading Relations - Definite role for State -Industrial policy is crafted by governments -Commercial policies instruments (tariffs, quotas) are state constructs -International policies can result in uneven distribution of gains from trade

Other approaches to child labor policy

The Chapter 8 Case Study: Get more children into school (as in Millennium Development Goals), e.g. new village schools; and enrollment incentives for parents such as in Progresa/ Oportunidades Consider child labor an expression of poverty, so emphasize ending poverty generally (a traditional World Bank approach, now modified) If child labor is inevitable in the short run, regulate it to prevent abuse and provide support services for working children (UNICEF approach) Ban child labor; or if impossible, ban child labor in its most abusive forms (ILO strategy; "Worst Forms of Child Labor Convention") Activist approach: trade sanctions. Concerns: could backfire when children shift to informal sector; and if modern sector growth slows

the effective tarriff rate:

The effective tariff rate, ρ, is: p= (v'-v)/v -v′ is the value added per unit of output, inclusive of the tariff -v is the value added per unit of output under free trade The effective rate is greater, the smaller the value added of the process: ρ = t/(1-α) where α is the proportionate value of importable inputs in a free market

Economic Integration: Theory and Practice

The growth of trade among developing countries (1981 - 2011: 8% to 26% of world merch. trade) Integration encourages rational division of labor among a group of countries and increases market size Provides opportunities for a coordinated industrial strategy to exploit economies of scale Trade creation Trade diversion

Child Labor

The problem may be modeled using the "multiple equilibria" approach Government intervention may be called for to move to a 'better' equilibrium Sometimes this shift can be self-enforcing, so active intervention is only needed at first

The Terms of Trade and the Prebisch-Singer Hypothesis:

Total export earnings depend upon: 1. Total volume of exports sold; and, 2. Price paid for exports main argument: Prebisch and Singer argued commodity export prices fall over time, so developing countries lose revenue unless they can continually increase export volumes conclusion: They concluded that developing countries need to avoid dependence on primary exports *Recently, prices of basic manufactured goods have also fallen relative to the advanced products exported by rich countries

The Critique of Traditional Free-Trade Theory, in the Context of Developing-Country Experience (cont'd) : refer to trade graph 3

Unemployment, Resource Underutilization and the Vent-for-Surplus Theory of International Trade -High unemployment and underemployment -Consumption shifts from V to C

The "O-Ring" Theory Math Part

With 2 workers*, output is given by BF(qiqj) -multiplying the q values of each of the n tasks together -therefore workers have incentives to work with more productive people -B is defined as output per worker with a single unit of capital if all tasks are performed perfectly, it is generally larger for a larger number of tasks *For simplicity assume one worker per task though conceptually, n represents tasks, not workers

8.4 The Gender Gap: Discrimination in Education and Health

Young females receive less education than young males in nearly every low and lower-middle income developing country Closing the educational gender gap is important because: - The social rate of return on women's education is higher than that of men in developing countries - Education for women increases productivity, lowers fertility - Educated mothers have a multiplied impact on future generations - Education can break the vicious cycle of poverty and inadequate schooling for women - Good news: Millennium Development Goals on parity being approached, progress in every developing region

what are benefits of globalization?

gains from trade, rapid innovation and technology transfer, or protection from war