Tag: Development

The Household Demand Model

Posted on by Rhys Williams
We may be interested in understanding fertility decisions, because it is generally believed that population growth is detrimental to economic development (c.f. the Solow growth model and lessons from the British Industrial Revolution) and so we would advise policymakers to try and reduce population growth. The death rate has been falling across the globe since the 1960s (by 50% according to Schultz) as a result in medical advancements and the cheapening of drugs (as well as globalisation which meant this knowledge could diffuse across the world more easily), yet many LDCs have not followed the same transition path with respect to birth rates as developed countries did. By understanding why a couple decide to have a child (at the margin) we may be able to reduce these incentives, so as to limit population growth.

Wage compression and the decline in inequality in Latin America

Posted on by Rhys Williams

This blog posts explores some questions behind an article written by Levy Yeyati and Pienknagura – Wage compression and the decline in inequality in Latin America: Good or bad?“. We summarise the authors claims behind the decline in Latin American income inequality, and explain whether the decline is good or bad for Latin America.

The authors claim that there are 3 possible factors behind the decline in Latin American income inequality: increasing access to education, a decline in the demand for skill-intensive industries or a worsening of the educational system. Before we analyse these effects, it is important to note that the compression of the educational premium only accounts for half of the decline in inequality, so other factors must also be involved. [...]

Social Interactions and Fertility Behaviour

Posted on by Rhys Williams
The most important macro externality that high fertility can have is its effect on economic development. If high fertility leads to more rapid economic growth and development then we may consider the externality positive, if not we would say it is negative. This works if we consider the mortality rate to be below high fertility, such that high fertility means high population growth.

The Colonial Origins of Comparative Development: A Summary

Posted on by Rhys Williams

Acemoglu, Johnson and Robinson (AJR) attempt to measure the effects of institutions on income differences by introducing an exogenous source of variation in institutions to measure their differing outcomes. They begin by pointing out that the history of colonisation resulted in different institutions being formed: some countries received extractive institutions (whereby the coloniser would simply extract all resources but would not build proper institutions to promote growth and sustainable living) whilst others received inclusive institutions. This depended upon the ability for colonisers to settle, if a country was full of disease then the coloniser would not wish to live in this colony, but simply take as many resources as possible and then leave. [...]

International Trade and Economic Growth

Posted on by Rhys Williams

Does international trade increase economic growth? In this context, what are the trade policies that have been followed by developing countries?

Standard textbook economic theory tells us that international trade benefits both parties in the trade, based on the gains from comparative advantage as laid out by David Ricardo. However, recent research into New Trade Theory suggests that trade may not always be beneficial, and there are examples when it could inhibit growth. This essay will examine when this could be the case and then relate this to the example of developing countries.

The Ricardian story goes that countries have comparative advantages in producing certain goods. [...]

What is economic development?

Posted on by Rhys Williams

‘What is economic development and how would you measure it? Does an increase in per capita national income always constitute an increase in the standard of living?’

Economic development is hard to define, but is an improvement in the living conditions of the population as a whole. Whilst closely linked with economic growth – high growth could result in high development – they are not the same thing and economic growth, as we shall discover, does not necessarily equate to economic development. It can be measured in a variety of different ways and Streeten believes it is necessary for its own sake, to improve the condition of people, because it results in higher productivity and lower fertility (which is generally seen as a good thing), can lead to a better environment and a healthier civil society, democracy and social stability. [...]

The Lewis Model

Posted on by Rhys Williams

Describe carefully the Lewis dualistic labour surplus model. Does the Lewis model describe accurately the process of economic development in poor countries?

The Model

The Lewis model proposes a dualistic economy consisting of a formal, industrial and urban sector, and an informal, agricultural and rural sector. The formal sector is characterised as capital intensive and being run by profit-maximising capitalists who hire labour until the wage rate equals the marginal product of labour. This is because it makes economic sense for a firm to continue to hire labour until the costs (wage) equal the benefits (the marginal product of the additional unit of labour). [...]