Development Economics and Institutions Quiz

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Questions and Answers

What is a significant impact of human capital on development?

It increases the effectiveness of military forces.

It influences income and human development. (correct)

It solely determines the level of foreign aid received.

It completely eliminates the need for institutions.

Which postcolonial institutional quality is crucial for better public goods?

Unregulated market practices

Weak rule of law

Corruption

Democratic governance (correct)

What legacy did extractive colonial institutions leave in some cases according to the content?

Effective democratic governance

Strong educational systems

Poor health and education (correct)

Widespread industrial development

How does education affect government effectiveness?

It improves citizens’ understanding of poor government performance. Signup and view all the answers

Which factor can limit access for the population and hinder economic development?

Forces protecting narrow elites Signup and view all the answers

What will long-term democratic governance likely promote?

Genuine development Signup and view all the answers

Which of the following is not a major obstacle to successful economic development?

Broad access to economic opportunities Signup and view all the answers

What is currently uncertain according to recent research on economic institutions?

Which economic institutions most facilitate development. Signup and view all the answers

What was the common slogan associated with economic development during the 1970s?

Redistribution from growth Signup and view all the answers

According to the New Economic View of Development, which of the following is NOT considered a key aspect of development?

Increase of unemployment Signup and view all the answers

What does Amartya Sen's Capability Approach focus on?

The capability to function Signup and view all the answers

In the Capability Approach, how is poverty primarily understood?

Inability to achieve well-being Signup and view all the answers

Which of the following factors does NOT influence a person's functioning according to Sen?

Global economic trends Signup and view all the answers

What is an unsuitable measure of poverty according to Amartya Sen?

Material wealth accumulation Signup and view all the answers

What does 'functioning' refer to in Sen's Capability Approach?

The activities one engages in Signup and view all the answers

How does the New Economic View of Development redefine development?

As a multidimensional process Signup and view all the answers

What does the term 'functioning' refer to in the context of capabilities?

A valued state of being or doing Signup and view all the answers

Which of the following best describes the role of personal freedom in well-being?

It enhances an individual's opportunity to choose Signup and view all the answers

How does happiness correlate with economic factors according to recent studies?

Average national happiness increases with average income Signup and view all the answers

Which of the following factors does NOT affect average national happiness as discussed by Richard Layard?

Climate change Signup and view all the answers

What is implied by the statement that a person's capabilities are their 'real freedoms'?

Capabilities provide opportunities for achieving valued functionings Signup and view all the answers

In the context of individual well-being, why is having more choices important?

It enhances opportunities for personal growth Signup and view all the answers

What does Amartya Sen argue about measuring well-being?

Capability must be considered alongside functioning Signup and view all the answers

Which of the following is NOT considered a 'doing'?

Being happy Signup and view all the answers

What is the phenomenon where lower-income countries are expected to grow faster than higher-income countries called?

Conditional convergence Signup and view all the answers

Which factor contributes to lower-income countries being able to 'leapfrog' their technological development?

Learning from past mistakes Signup and view all the answers

What effect does the law of diminishing returns have on developing and developed countries?

Developing countries experience larger marginal benefits from capital. Signup and view all the answers

What is a significant historical factor that has influenced economic development disparities?

Colonialism Signup and view all the answers

Which region is noted for having had larger growth rates than OECD countries during 1990-2003?

China and South Asia Signup and view all the answers

Why is evidence for unconditional convergence hard to find?

Growth patterns are inconsistent. Signup and view all the answers

What does the term 'per capita income convergence' refer to?

Changes in per capita income weighted by population size. Signup and view all the answers

What aspect of economic development can be negatively affected by the rules established during colonialism?

Economic policy flexibility Signup and view all the answers

What impact does colonization have on postcolonial institutional quality?

It creates or enforces inequality. Signup and view all the answers

How does human capital relate to income and human development?

It directly impacts income and development. Signup and view all the answers

Which factor is identified as a major obstacle to successful economic development?

Narrow elite protections limiting broader opportunities. Signup and view all the answers

What role do democratic governance and rule of law play in economic development?

They encourage better quality public goods. Signup and view all the answers

What is the effect of education depth and breadth on government efficiency?

It enhances government effectiveness as a force for development. Signup and view all the answers

How do institutions influence civil society's ability to organize?

Institutions enhance civil society’s ability to act independently. Signup and view all the answers

What conclusion can be drawn about backwardness in poor countries?

Legacies of colonialism and dictatorships contribute to challenges. Signup and view all the answers

What is the significance of participatory and decentralized political systems?

They serve as meta-institutions for improving governance. Signup and view all the answers

What is a coordination failure?

A situation where agents' inability to coordinate leads to a suboptimal outcome. Signup and view all the answers

What is meant by complementarities in the context of economic development?

Circumstances where one agent's action enhances the incentives for others to act similarly. Signup and view all the answers

What characterizes a 'big push' in economic development?

A widespread, coordinated initiative often involving public policy. Signup and view all the answers

How do network effects relate to economic investments?

Returns that are enhanced when others make similar investments. Signup and view all the answers

Which model illustrates strong complementarities among production inputs?

O-ring model. Signup and view all the answers

What common issue can arise during coordination failures among agents?

Individuals may wait for others to initiate action. Signup and view all the answers

What is a primary implication of coordination failures for economic agents?

It can result in worse outcomes for all involved. Signup and view all the answers

How can agents achieve a better coordination outcome?

By aligning their expectations and actions. Signup and view all the answers

Study Notes

Economic Development

Economic development is a multifaceted process involving social, economic, and institutional change, aiming for a "better," more human life.
Traditionally, development was primarily viewed as an economic phenomenon, focused on achieving sustained per capita income growth.
This narrow definition, while important, overlooked crucial aspects such as poverty, inequality, and discrimination.

Traditional Economic Measures

Development was historically seen as boosting per capita income.
Traditional measurements focused on rapid industrialization and citizen access to more goods and services for both consumption and investment.
This approach often overlooked essential aspects like widespread improvements in living standards, poverty, and income distribution.

Limitations of Traditional Measures

The period of the 1950s to the early 1970s revealed shortcomings in the narrow approach to economic development.
Many developing countries achieved economic growth targets but saw little improvement in the overall living standards of their populace.
Issues like poverty, discrimination, unemployment, and uneven income distribution could not be tackled with that narrow approach.

The New Economic View of Development

Starting in the 1970s, a new perspective emerged.
Economic development was redefined in terms of reducing and eliminating poverty, inequality, and unemployment in the context of a growing economy.
"Redistribution from growth" became a prominent slogan.

Amartya Sen's Capability Approach

Amartya Sen, a Nobel laureate in economics, argued that "capability to function" is essential for assessing poverty.
Sen emphasized that measuring well-being is more than just evaluating income and consumption; it includes a person's potential capabilities.
The capability approach shifts focus from possessions to what people can achieve and do.

Functioning and Capability

Functioning is what people actually do or can do with the resources they possess.
Capability refers to the freedoms or opportunities individuals have to achieve functionings.
Sen's approach emphasizes that these capabilities depend on social conventions, a person's societal position, and the existence of opportunities.

Development and Happiness

Happiness is intrinsic to well-being, and greater happiness can expand a person's capabilities.
Studies indicate that happiness or well-being is correlated with per-capita income levels.

Core Values of Development

Core values underpin development. These include:
- Sustenance for Meeting Basic Needs (ensuring food, shelter, health, and protection)
- Self-esteem (a sense of worth and self-respect).
- Freedom from Service (emancipation from societal constraints).

The Millennium Development Goals (MDGs)

Eight international development goals, adopted by the UN in 2000, with targets set for 2015.
Key Goals included:
- Eradicating extreme poverty and hunger
- Achieving universal primary education
- Promoting gender equality and empowering women
- Reducing child mortality
- Improving maternal health
- Combating HIV/AIDS, malaria, and other diseases
- Ensuring environmental sustainability
- Developing a global partnership for development

Criticisms of the MDGs

Some critics believed the MDG targets were not ambitious enough.
Insufficient prioritization of goals.
The focus on income increase alone fails to address the multifaceted nature of poverty.

Sustainable Development Goals (SDGs)

SDGs are a successor to MDGs, aimed at development globally.
SDGs emphasize five transformative shifts:
- Ending extreme poverty
- Promoting sustainable development
- Building peaceful and effective institutions

Comparative Economic Development

European colonization profoundly impacted wealth distribution among countries.
Countries that were relatively wealthy in 1500 are now, in relative terms, middle- or low-income countries.

Characteristics of Developing Countries

Major common aspects of developing countries:

Lower living standards and productivity
Weaker human capital (education, skills, health)
Higher inequality and poverty
Higher rates of population growth
Greater social fractionalization
Higher proportion of rural population but rapid rural-urban migration
Lower levels of industrialization
Adverse geography
Underdeveloped financial and other markets
Colonial legacy, including unfavorable institutions and external dependence

Defining the Developing World

A common method is using per capita income.
The World Bank categorizes countries broadly as low-income, lower-middle-income, and upper-middle-income.
Other classifications exist, based on human development indices.

Basic Indicators of Development

Real income per capita
Health measures (life expectancy, undernourishment, child mortality)
Educational attainments (literacy, schooling)

Gross National Income (GNI) and Gross Domestic Product (GDP)

Gross national income (GNI) reflects the total output of a country's residents, domestically or abroad.
Gross domestic product (GDP) measures output generated within a country's borders.

Purchasing Power Parity (PPP)

Accounts for international price differences of goods and services.
PPP gives a more accurate comparison of living standards.

Key Measures of Wellbeing: Indicators of Health and Education

Life expectancy
Undernourishment (hunger)
High fertility
Literacy levels
Educational attainment in children

Holistic Measures of Living Levels and Capabilities

The Human Development Index (HDI) is a comprehensive index that incorporates health, education, and income to rank countries.
The New HDI reflects improvements in how these three dimensions are assessed and combined
The UNDP continually adjusts its HDI methodology to reflect growing evidence and insights on better ways to measure development

Characteristics of the Developing World

Development varies greatly between developing countries; commonalities and diversity exist
Different development strategies are needed due to differing development circumstances

Colonialism and Development

Colonial policies resulted in unfavorable institutions, which have affected development in many parts of the world, particularly in Africa and South America.
These institutions tend to favor extraction over production..
The legacy of colonialism continues to have lasting effects decades after independence.

Economic Institutions

Economic institutions play critical roles in economic development outcomes, including formal rules as well as informal norms and practices
Efficient institutions promote investment, reduce uncertainty and facilitate economic growth
Ineffective institutions often stifle investment, increase uncertainty, and hinder development.

Inequalities

Initial inequalities in resource allocation persist in many post-colonial societies which often results in uneven development outcomes
Inequalities persist in issues like access to land, education, finance, legal protections, and political representation

Human Capital

Human capital, including skills, education, health, and access to resources is vital for economic development
Differences in human capital significantly contribute to varying levels of economic development across countries
Institutional quality plays a critical role in influencing the investments in areas like education and health.

Postcolonial Institutions

Postcolonial institutional quality profoundly affects the effectiveness of private, public, and civil society sectors
Democratic governance, rule of law, and constraints on elites strongly influence the quality of public goods and private investments

Suggestions for Development

The best approaches to development policy must respond the specific institutional and political peculiarities of each country
Development policies need to address the particular difficulties of each country's circumstances
Coordination of various stakeholders and efforts needed at the local as well as the global scale

Case Studies: Pakistan and Bangladesh

Comparing cases shows divergence in development outcomes among countries with similar initial conditions.
Even with similar initial conditions and factors like population and religious identity, development outcomes can be vastly different due to a multitude of reasons like governance, economic policies and institutions, etc

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Description

This quiz explores key concepts in development economics, focusing on the impact of human capital, institutional quality, and colonial legacies. Additionally, it discusses the importance of education and governance in economic development. Test your understanding of these critical topics in contemporary economic theories.