AMERICAN UNIVERSITY
Department of Economics
Comprehensive Examination- Development Economics
January 2013
Directions
•
Answer two (2) questions from each of the two parts—development microeconomics
and development macroeconomics—for a total of four (4) questions.
•
Be sure to pace your answers within the given time constraint.
•
Read the questions carefully and make sure to answer what is asked.
•
Answers are judged on clarity of exposition, command of the relevant literature,
and accuracy and depth of technical detail.
•
Use diagrams and equations if helpful but be sure to label them.
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PART 1. Development Microeconomics
Answer two of the four questions from this part.
1. Intrahousehold allocation
a) In much of the development microeconomics literature a unitary household model is used
to understand household behavior. Explain the underlying assumptions of this model and
the implications of the model for intrahousehold allocation, specifically addressing the
implication of the model for the division of labor and allocation of goods within a
household. Assuming the unitary model is correct, what are some of the policy
implications of the model?
b) Concerns over the assumptions of the unitary model of the household have led to the
development of alternative models of intrahousehold allocation such as Pareto-efficient
and non-Pareto efficient collective models. Provide some studies and evidence that
challenge the unitary model assumptions. Explain how Pareto-efficient collective models
differ from the unitary model. Describe how empirical tests have been conducted to test
the validity of the unitary model and to test whether household allocation is Pareto
efficient. In general, what conclusions and policy implications can be drawn from these
tests?
2. Risk and insurance
a) Describe the risks faced by poor agricultural households in developing countries.
Assuming these households are risk averse, discuss the ex-ante and ex-post actions
households might take when faced with these risks, noting the reasons for employing
certain strategies. How should the fact that risk influences household behavior be
incorporated into policymaking? Give an example to illustrate your point.
b) Although markets for credit and insurance are imperfect, rural households in developing
countries employ a variety of ex-post mechanisms to cope with risk and smooth
consumption. Describe these mechanisms. Explain how you might test whether these
mechanisms bring about a Pareto-efficient allocation of consumption risk at the community
level (where community can be defined as a village, ethnic group, network, etc.). In
general, what does the empirical evidence suggest about the ability of households within a
community to smooth consumption? What are some of the reasons why these results might
emerge?
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3. Education
a) Suppose you want to empirically investigate the impact of school characteristics on student
achievement. From a conceptual perspective, discuss the factors that are likely to influence
student achievement in school and how school characteristics fit into this overall
conceptual framework. Describe the empirical issues in conducting an analysis of the
impact of school characteristics on student achievement and how you would go about
addressing these issues.
b) Countries often attempt to improve education outcomes by investing in a substantial school
expansion in a relative short period of time. Suppose a country underwent a substantial
expansion in secondary schools two decades ago and you would like to determine the longterm effects of this expansion on education outcomes, the probability of being employed,
and income earnings. Assuming you have detailed household- and individual-level cross
sectional data from a recent year, discuss step-by-step how you would go about testing
whether the previous investment in secondary school had an impact on the chosen
indicators. In answering, be sure to discuss what additional information you would need to
collect and how you would conduct the analysis.
4. Labor
a) In nearly all countries, there exists a wage gap between male and female workers with
wages generally higher for male workers. Discuss the varied reasons as to why wages
might differ by gender and discuss how you would go about empirically testing which of
these differences is the primary determinant of the wage gap. If the male-female wage gap
is zero, does it necessarily mean that there is no discrimination? Explain your answer.
b) Child labor has been a controversial policy area within developing countries with some
arguing that the practice should be banned while others stating that such bans are
unenforceable and do not get to the root of the problem; namely that it is a product of
poverty. Discuss the competing views on child labor and poverty. How would you go
about empirically testing the relationship between child labor and poverty? What does the
evidence suggest about the link between child labor and poverty and what are the
implications of this evidence for policy?
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PART 2. Development Macroeconomics
Answer two of the four questions from this part.
5. Development goals
a) List and briefly describe the eight Millennium Development Goals (MDGs). With respect
to a particular country or a particular region (e.g., South Asia, sub-Saharan Africa, East
Africa, Central America) of your choice, which do you consider to be the three most
important MDGs? Explain your reasons why you consider these to be the most important
MDGs for your chosen country/regions region and what tools would you use for
monitoring.
b) With respect to the three MDGs you have selected in part a), describe the historical trends
in progress and prospects of achieving the goals in a timely manner in either the selected
country/region or on a worldwide basis.
c) With respect to the three MDGs and country/region you have selected in part a), describe
the steps/policies you would recommend to accelerate progress, and explain how and why
your recommended steps/policies would accelerate progress on achieving these MDGs.
6. Growth models
a) The standard Solow growth model frames growth of output in terms of stocks of productive
inputs and productivity growth. Explain the model’s basic assumptions and key behavioral
questions, write the expression for output per capita in the steady-state, and explain its
intuition. Explain how endogenous growth models differ from the Solow-type growth
models in how they represent the causes of growth.
b) Using growth rate diagrams, contrast the impact of a permanent increase in the savings rate
on growth and income over time in the standard Solow model and in an endogenous growth
model.[Be sure to label your graph.] Relate these savings impacts to predictions of each of
these models regarding convergence among nations.
c) Use the growth rate diagram to distinguish between absolute and conditional convergence.
Briefly summarize the empirical evidence on absolute and conditional convergence across
nations, states and regions. Is it possible for endogenous growth models to be associated
with convergence? Justify your answer.
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7. Growth, inequality, and poverty
a) Recent years have seen numerous efforts to understand ‘poverty’ more deeply as well as to
analyze the relationships between growth, inequality, and poverty. What are the
methodological issues in measuring poverty? How is the Multidimensional Poverty Index
different from past measures? What are its strengths and weaknesses?
b) Explain the classical as well as recent views on the nature of the relationship between
income inequality and growth. Recently, authors such as Dollar, Forbes, Milanovic, and
Bourgignon have reexamined this relationship. Discuss the major findings. According to
these authors, will income inequality help or hurt economic growth?
c) What is the role of institutions in promoting economic growth in developing countries?
How does the experience of China conform to the theoretical expectations? Justify your
answer.
8. Trade and growth
a) Developing countries are often urged to further open their economies to greater
international trade. What are the factors that determine whether trade liberalization raises
or reduces economic growth? If trade liberalization raises economic growth, would all
sectors of the economy or segments of the population benefit? Why or why not? Provide
examples to illustrate your point.
b) Outline the empirical evidence regarding openness to trade and growth. Why is it difficult
to determine whether trade causes growth, or vice versa?
c) Answer one (1) of the following questions:
(i)
Discuss the instruments and estimation methods economists have used to provide
further evidence on the direction of causality between trade and growth.
OR
(ii)
For a country or region of your choice, describe the steps/policies that have made
it possible for it to benefit from trade liberalization. Are there likely to be ‘losers’
alongside the ‘winners’?
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