Seminar questions ECON1910
Halvor Mehlum, April 2006
Use the most recent World Development Report to find out which countries are the richest and poorest in the world. What measure of ”rich” should you use, and does this choice affect your answer? Use the most recent Human Development
Report to find out which countries are the most developed and least developed according to the Human Development Index. Discuss to what extent this is a measure of whether the countries in question are developed. Try to find examples of countries that are rich, but has a low HDI. What characterize these countries?
Try also to find poor countries with high HDI. What characterize these countries?
In addition answer question 4 in chap 1 and 2 and 5 in chap 3 in TS 9.ed
Consider the case where GDP Y is determined entirely by the capital stock K
Y = K/k
Let the change in K from one year to the next be denoted ∆ K . Let the growth in K be determined by savings out of Y
∆ K = sY
Derive the change in Y from one year to the next ( ∆ Y ). Also derive the expression for ∆ Y /Y . Say in words what the fraction ∆ Y /Y measures.
Assume that K starts out at the value 100 and that k = 3.
Draw a figure showing how K and Y develops over the first ten years when s = 0 .
15 and when s = 0 .
05 . How many years does it take before Y is doubled in each case? Is it reasonable to assume that the size of s is independent of the size of Y ?
Question taken from T.S: The word trap suggests that there is a way to escape. Do you think developing countries can escape all of the traps described in this chapter (and the lecture)? Which ones would be most difficult to escape? How could the developed world be of assistance in these cases? Could developed countries do more?
Question taken from T.S 9.ed page 248: answer question 3, 7, and 12.
Consider the production and income distribution in Figure 1. Here x is marginal
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Figure 1: Income distribution
10 value
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L product, w = 3 is the wage, ¯ = 6 is the total labor force, L
B
= 4 is employment.
The area between x and the w -line is profits accruing to one capitalist. Draw a
Lorenz curve and compute the Gini-index for the economy consisting of the six workers and the one capitalist. Draw a Lorenz curve and compute the Gini-index for the same economy in the case where the wage is exactly so low that all the six workers are employed.
Final small question (added 12-Feb at 13.45): What is total production in the two cases above?
a) Questions taken from T.S 9. ed page 354: answer question 2 and 3. (In order to have a comon framwork for the discussion use the figure and the notation from the course handout http://folk.uio.no/hmehlum/1910v06/econ191006ho1.pdf
b) The abstract of ”Worms: Identifying impacts on education and health in the presence of treatment externalities” by Edward Miguel and Michael Kremer 1 reads as follows:
Intestinal helminths—including hookworm, roundworm, whipworm,
1 The complete article and the exact reference can be found at a link on the course plan: http://folk.uio.no/hmehlum/1910v06/Tplan1910.html
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and schistosomiasis— infect more than one-quarter of the world’s population. Studies in which medical treatment is randomized at the individual level potentially doubly underestimate the benefits of treatment, missing externality benefits to the comparison group from reduced disease transmission, and therefore also underestimating benefits for the treatment group. We evaluate a Kenyan project in which schoolbased mass treatment with deworming drugs was randomly phased into schools, rather than to individuals, allowing estimation of overall program effects. The program reduced school absenteeism in treatment schools by one-quarter, and was far cheaper than alternative ways of boosting school participation. Deworming substantially improved health and school participation among untreated children in both treatment schools and neighboring schools, and these externalities are large enough to justify fully subsidizing treatment. Yet we do not find evidence that deworming improved academic test scores.
In light of this discuss the difference between social returns(costs) and private returns(costs).
Use the textbook in combination with the updated handout: http://folk.uio.no/hmehlum/1910v06/econ191006ho1.pdf
1. What is ‘comparative advantage’ ? How can even the least efficient economy in the world have a comparative advantage?
2. Make precise the following three statements by the lecturer and discuss them critically:
(a) For each country there are potential gains from international trade due to comparative advantages.
(b) There is no guarantee that the majority of citizens in a country benefit from the gains from trade – even though each country does.
(c) Free trade receives too much of the praise when things go well and too much of the blame when things go bad.
3. What is special about globalization beyond free trade and factor mobility?
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Sustainable development is ”development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”
(The World Commission on Environment and Development.) Use the lecture
(some of the arguments are spelled out in the paper ”Cursed by resources or institutions?” that can be downloaded from the course plan) and the handout
( http://folk.uio.no/hmehlum/1910v06/econ191006ho1.pdf
) in combination with the book to answer the following:
1. Try to distinguish the social from environmental dimensions of the concept of sustainable development. Is there a conflict of interests between the present poor in developing countries and the future world population in general?
How would you outline a list of relevant arguments in this case?
2. Developing countries that extract natural resources such as oil and minerals often have a worse growth performance than others. What can the explanation for this resource curse be? Do all resource rich countries experience it? What does the norm of sustainability imply for investment in physical and human capital in countries that deplete their non-renewable resources?
Is the norm adhered to?
3. Common ownership to some resources my imply a tragic development in poor countries (the tragedy of the commons). How would you explain that this is sometimes, but not always, the case.
4. Consider a region where people live on land that is commonly owned.
(a) How would you describe the migration equilibrium between separate districts of this region?
(b) Partial privatization: What would be the consequences of privatizing the ownership of the land in some districts (with fertile land), but not in others (with less fertile land)? Who would benefit and who would loose from this privatization?
(c) What would be the consequences, before and after partial privatization, if international aid organizations channel assistance to the worst off
(poorest) districts? Is an aid policy of this sort in conflict with the requirements of a sustainable development?
(d) Complete privatization: What would be the consequences of privatizing the ownership of the land in all districts? Discuss how the division between losers and winners depends on the allocation of ownership rights among people within the region.
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