Development Economics

Which of the following is not a reason for the inverse farm size productivity relationship?

Agricultural technology with large fixed costs

Which of the following explains the limited liability problem that contributes to the inverse farm size productivity relationship?

Because owners cannot enforce that rents be paid in the eventuality of bad harvests, owners bear all the down-side risk with fixed rental contracts.

Why do we expect to see Giffen behavior for staple goods?

Because the income effect is the opposite sign of a normal good and larger in magnitude compared to the normal substitution effect.

In the late 90s, Malawi ran out of foreign exchange and could not import fertilizer. Model this as a decline in productivity in agriculture. Ignore the fact that farmers also supply labor to the labor market. What will happen to the labor market equilibrium when fertilizers become inaccessible to Malawian farmers?

Employment will decline and wages will fall assuming upward sloping labor supply functions, Labor supply is how much labor is supplied at a given wage. It is not the outcome of the labor market equilibrium. Employment is.

Externalities create market failures for vaccines so that pull mechanisms cannot be relied upon to generate socially optimal supply of vaccines for tropical diseases.

Externalities do create market failures (as social return exceeds private return), but pull mechanisms could price in the social value of the vaccine (for example, in a purchase commitment).

Suppose a new high yield seed variety increases farm productivity. Model this as increasing output at all levels of labor, but the increase in output is higher at low levels of labor compared to high levels of labor. In a high wage country, the impact of this new high yield seed variety on farm output will be smaller compared to a low wage country.

False

Time stamps were found to be associated with sustained increases in nursing attendance at sub-centers.

False

There were approximately 40 million cases of Malaria in Africa in the most recently available data

False - 174 million is the most recent estimate

An externality is when the benefit of a program is larger for individuals who are not direct participants in the program.

False - an externality is a cost or benefit which results from an activity or a transition that is incurred by an individual who is not a direct decision-maker in the activity or transaction.

Zambia has failed to combat malaria despite a large-scale campaign, because of weaknesses in its infrastructure.

False - infrastructure problems delayed Zambia's campaign, but it has taken off in recent years.

Suppose wages are set internationally so that changes in a village or economy have no effect on local wages. In a separable model, an increase in farm productivity will raise household labor supply.

False - it will increase labor on the farm and increase non-labor income to the household. If leisure is a normal good, the additional non-labor income will reduce household labor supply given that wages are not changing.

The effects of in utero traumas persist because of the rapid growth of higher cognitive functions in utero.

False - most higher cognitive function development occurs post-natal. We think in utero exposure persists through physical development.

Most deaths from Malaria are among the elderly

False - pregnant women and children under 5 (if you survive to be old, you've survived malaria)

If the government raises formal sector, binding minimum wages in urban areas, we do not expect rural wages to rise because of the existence of urban unemployment (or informal sector activity).

False - the qq' locus in the class notes implies that we should see them increase.

Consider the Harris - Todaro model. Suppose that individuals who fail to acquire formal sector jobs work in the informal sector. In this situation, informal sector wages must be above agricultural wages.

False - they have to be below or the who population is urban

The observation that output declines less than a decrease in labor implies surplus labor.

False - this is just a consequence of diminishing marginal product

People are more likely to use insecticide treated bed nets that they have had to pay for

False - while take-up of ITNs depends on price, use did not increase with price in the Kenyan example we had.

Thailand currently has in place a large rice subsidy program that reduces the cost of rice compared to other goods. It is considering eliminating the rice subsidy. What do you expect to be the impact of eliminating the rice subsidy? Pick the best answer.

If rice is a Giffen good, we expect to see an increase in rice consumption and a decline in meats, etc. It is difficult to say what will happen to total caloric intake, but it could increase if rice is caloric compared to its alternatives and the household exhibits Giffen behavior.

Which of the following is a reason labor markets might not clear (a "clearing" market implies supply equals demand)? Pick the best answer.

Individuals cannot credibly supply labor at a lower wage, because they will not be physically capable of providing the demanded amount of work at a lower wage.

Out of concern for the safety of its women living abroad, the government of Indonesia is restricting the out-migration of women. Model this policy as a decline in remittance income (non-labor) and an increase in the number of people in the economy (don't over think the problem - say there is just one type of worker and only model the restrictions as decreasing non-labor income and increasing the number of people). What will happen to the labor market equilibrium with this Indonesian government policy?

Labor supply will shift right as there are more people willing to work but labor demand will not change.

why is there so much self-employment and entrepreneurship in low income countries?

Limited capital requirements make entry very easy. limited technology use makes moral hazard problems with hired in labor more accurate. Excessive labor market regulation. Limited opportunities for trade and specialization surplus labor.

The prevalence of sugar treatments for ailments in developing countries reflects corrupt and dishonest medical practices in developing countries.

More likely it reflect a lack of health literacy on the part of patients, always demanding a shot or some type of treatment for ailments that are not locally treatable.

increased pay to bureaucrats reduces corruption

Not if there is no risk of losing one's job or being otherwise penalized

Land reforms usually are implemented by taking land from rural landholders rather than taxing income. Which of the following is not an argument for taking land from rural rich?

Tax incidence will be more equitably distributed with land reform, reducing political conflict compared to income taxation.

Consider the tenancy reform Operation Barga in West Bengal. We observed increased rice yields associated with the tenancy reform. Which of the following cannot play a role in explaining the increased yields?

Tenancy reforms provide the tenant with improved access to credit through the ability to use the land as collateral

We spoke about how limited liability leaves landowners with all the downside risk of fixed rent contracts, pushing them to prefer sharecropping. Consider a small, closed community where individuals do not move in or out. Such communities will be better at insuring individuals against idiosyncratic risks. Community members will have better information about the condition of the land, owner investments in land quality, and tenant quality. Collectively, these attributes are all aspects of social capital (look it up). Which of the following is not true?

The reduction in idiosyncratic risk decreases the likelihood of fixed rental contracts.

Migration prospect effects can raise education in sending countries even in the context of brain drain.

True

Purchasing power parity adjustments correct for the fact that the prices of services and non-traded goods vary across locations.

True

Roughly half of the world's population lives on less than $2 a day

True

The Kenyan deworming project benefitted both students who received the treatment and those who lived in the same locations but did not receive the treatments.

True - we say that being in the same classes and being a little baby both lead to reduced prevalence of worms and better outcomes.

In the late 90s, Malawi ran out of foreign exchange and could not import fertilizer. Model this as a decline in productivity in agriculture. Farmers also supply labor to the market. Assume farmers treat profits from their farm as non-labor income so that the decline in productivity also decreases non-labor income. What will happen to the labor market equilibrium when fertilizers become inaccessible to Malawian farmers?

Wages will fall but the effect on employment is ambiguous depending on the extent of the shifts in the labor supply and demand functions.

The steep slope at low levels of income in the Preston curve reflects that improvements in health and thus life expectancy come quickly once countries start using antibiotics and other basic medicines.

We think it reflects basic sanitation and clean water improvements

In the Sri Lanka example, we saw that cash transfers to female entrepreneurs were not associated with a positive return whereas men were achieving in the neighborhood of 60 percent returns per year. Which of these explanations appeared most important in explaining why female returns would be lower than male returns?

Women did not spend the money in the same way men did.

In rural western africa, it is common to see frequent land redistribution within a community or family line. Explain how this system of redistribution might influence agricultural productivity. If this arrangement lowers average income, why does it persist?

You'll take actions to preserve your land rights. For example, suppose redistribution is more likley when you leave a field follow. You'll be less likely to leave the field fallow if that means you'll loose the land. This lack of fallowing implies less productive land. the system may exist as a type of social insurance or it may overcome certain moral hazard issues (creates incentives for people to farm more intensively).

Poverty fallen dramatically in vietnam over the last decade. How and why might declining poverty and the associated economic growth affect the schooling of children.

declining poverty might increase schooling by lowering the marginal utility of income. This could make schooling costs more affordable are lower the perceived returns on child labor income. Declining poverty might schooling by increasing returns to education. higher incomes more school spending. higher incomes better nutrition better performance in school. Economic growth might increase returns to schooling. Economic growth might reduce schooling if its associated with increased child labor.

why are repayment rates so high in grameen style- micro credit programs

dynamic incentives, joint monitoring, group selection( assertive matching, payment to women

A majority of the world's population living on less than $1/day are in Sub-Saharan Africa.

false

In India, wealthier households are more likely to use traditional healers compared to other economic groups.

false

Malnutrition is the leading cause of death in developing countries.

false

Migration is more prevalent among the less educated.

false

Military assistance constitutes a majority of U.S. Development Assistance

false

Poverty head count ratios satisfy Dalton's Principle of Transfers.

false

We refer to a child whose height for age z-score is below -2 as "wasted".

false

assume parents care only about maximizing their children's wealth. if parents can freely save and borrow at the market rate of interest, higher income families will invest more in education than lower income families

false

children are paid less than adults, because they are more easily exploited and manipulated

false

consider a farm household in a competitive economy with one child. the household's problem is to allocate child labor between the family farm and the market. there is amrket for child labor with a given wage, and the child's total labor supply is completely inelastic (though the allocation of that labor between the family farm and market is not.) Initially, the family chooses to keep the child on the farm, and the family does not send the child to work off farm in the formal labor market. Now, a well intention government bans child labor in the formal labor market. The ban is effective and there are no longer employment opportunities for the child in the formal labor market. The ban does not extend to work in the family farm. Hence, the child can only work on the family farm. this child labor prohibition reduces the value of child time.

false

diarrhea and related complications are the leading cause of death in low income countries

false

most children work in manufacturing

false

roughly 100 million children are economically active in the world today

false

the IMF provides devleopment assistance to low income countries

false

the observation that many families with businesses or farms simultaneously hire in labor and sell their own labor in the formal labor market implies that there are imperfections in the formal labor market that prevent market clearing

false

the observation that most labor in rural areas of low income countries works on the family farm implies that the value of labor's marginal product on the family farm is greater than that of the market wage

false

the world bank is the largest source of official development assistance in the world

false

varying default rates can explain why the borrowing rate and the lending rate are not the same and also the fact that the lending rate varies so much

false

improved access to credit eliminates nutrition based poverty traps

false, when one can only borrow what one is able to repay. in the nutrition poverty trap model, there is no expectation that individuals could repay their debts. (they are using all income for work capacity).

Randomized control trials are always a better source of evidence than econometric studies.

false- Randomized control trials have just as many opportunities to biased or misleading as observational studies.

Agriculture is more productive than other sectors, because the share of agriculture in GDP is greater than the share of agricultural labor in employment in most countries.

false-Agr not more productive and share of GDP is less than share in employment

International trade worsen famines as rich countries expropriate scarce foods from poor countries.

false-Shortages lead to price increases. Hence, trade should draw more product into shortage areas unless non-market factors get in the way.

In the Burkina Faso example, giving women secure title to their land would solve the issues that cause their plots to be less productive than their husband's.

false-The problem we saw in the Burkina example emphasized the importance of the woman's inability to engage in market transactions like buying fertilizer or hiring in labor. The security of title problems were more obvious in the Eastern Ghana example. It's not really important to know the difference between the two examples (would never test on Ghana v Burkina), but the key take-away is that security of title is not the only issue.

Urban titling programs that succeed in providing titles to the urban poor have been found to have no substantive well-being on beneficiaries.

false-they do not seem to promote credit access, but the changes in time allocation and investments in housing stock improve well-being.

what effect does brain have on the education level of the population in the country from which the brains are drained

loss of educated, increase skill prices, migration prospect effect

what might explain the inverse farm size productivity relation ship. List the 3 main possible explanations, and explain which is most consistent with the data and why

moral hazard issues with labor, unobserved land quality differences, differences in farmer ability. if compare different plots operated by the same farmer with different ownership and tenancy arrangements. we rule out 2 by directly measuring land quality.

in a country with an inverse farm size, productivity relationship, redistributing land from the landed to the landless will improve aggregate output

not if the inverse farm size productivity relationship reflects an efficient allocation of land

enforced prohibitions on child labor improve the welfare of working children and their families

not if they do nothing to eliminate why the children work

providing secure, transferable titles for informal property will enable the urban poor to access formal credit markets

not if transaction costs of loans are too high

why would price subsidy on fertilizer increase its use? there are two answers. List the two answers.

price subsidy makes use profitable other wouldn't be. Implies that there are ne losses on the subsidy and that project is not sustainable. Other answer: fertilizer is profitable absent the subsidy. Farmers are liquidity constrained so that they can't make this profitable investment. Subsidy can be sustainable of govt can recoup its expenditure by output or profit taxes, etc. Another possible answer- a lack of insurance discouraged risk averse farmer from taking profitable investment by investment. By increasing returns, the subsidy induces adoption and its sustainable for same reasons as previous.

why do we make purchasing power parity adjustments and what does the upward revision in the estimates of the number of people living in extreme poverty in China tell us about the nature of our error in purchasing power parity adjustments in China

purchasing power parity adjustments are designed to correct for differences in the price of nontradables. we appear to have been understating the price of goods consumed by the poor

Explain why this program might exist in poor areas but not in rich communities. Seperately, explain why this program might lead to higher levels of school attendance than would otherwise exist.

suppose poor communities have a lower willingness to pay for schooling are far more in the way of free-rider problems, then the school needs other sources of revenue, such as the labor output of its students. Alternatively, the school might not operate or would have to charge user fees. Either might decrease school attendance.

why would we study indian villages to understand the costs and benefits of female leadership

the randomization of female reservations in India is novel, and allows us to infer the causal effect effect of female leadership in wages that are not possible with the usual election process

A majority of the population living on less than $1 a day work in agriculture

true

Assume parents care about maximizing their children's wealth and (separately) their child's education. that is education is a normal good. if parents can freely save and borrow at the market rate of interest, higher income families will invest more in education than lower income families

true

Differences between husbands and wives in security of title of agricultural land cause families to forego income in ways that would not be necessary if husbands and wives pooled all their incomes and protected each other's rights.

true

Food expenditures appear to be more income elastic than calories in general

true

Giffen behavior is inconsistent with a nutrition based poverty trap.

true

Height for age measures long-term, cumulative nutritional status.

true

If it were possible to write fixed rental contracts that were enforceable, it is possible that there would be no inverse farm size productivity relationship.

true

In a non-separable model, consumption decisions depend on production decisions.

true

Large transaction costs can keep individuals from being able to leverage collateral from urban titling programs.

true

Nearly all of the decline in mortality from the late 18th century to late 19th century can be explained by increases in adult height.

true

Nutrition based capacity constraints can be overcome in a world where slavery is legal.

true

Suppose there is no binding, downward constraint on wages in either urban or rural wages. In that case, expected (real) wages must equalize between urban and rural areas when migration is free.

true

The United States provides more official development assistance as bilateral ODA than does the World Bank (which is definitely multilateral)

true

Weight for height reflects recent nutritional and health histories.

true

approximately 40 million people are HIV+ in the world today

true

lower investment in poor countries cannot be explained by a lack of access to the technology availble in rich countries

true

the US spends less than .25% of its gross national income on official development assistance

true

the united states provides more official develoment assistance than any other single country in the world

true

if interest rates are lowered because of growth then there will be increased investment in both boys and girls

true, but gender gap increases unless boys and girls have same returns to education or theres satiation in returns

In a separable model, consumption decisions depend on production decisions.

true-it's production decisions that are independent of consumption decisions in a separable model.

gender differences in the education of boys and girls increase as family incomes rise

with complete credit markets, if education is only an investment, then families invest optimally regardless of their income. also false if returns are the same.