Economics of Development Chapter 3
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Questions and Answers

What is a consequence of horizontal inequality in a country?

  • Increased economic growth
  • Decreased competition in markets
  • Enhanced governance
  • Major cause of conflict (correct)

    • What does the poverty-weighted growth rate aim to measure?

  • The benefits of growth for the wealthiest individuals
  • Total national income regardless of distribution
  • The average income growth across all social classes
  • The welfare impact of growth on the poor more heavily (correct)

    • Which of the following stages of development is characterized by the transition to manufacturing?

  • Transitional stage (correct)
  • Traditional stage
  • Maturity stage
  • High mass-consumption stage

    • According to the Fisher-Clark thesis, what happens as countries develop?

    <p>They decrease their reliance on agriculture</p> Signup and view all the answers

    What is commonly associated with high inequality in a country?

    <p>Lack of equal opportunities</p> Signup and view all the answers

    What is a major reason entrepreneurs might refrain from investing in a country?

    <p>Lack of rule of law and property rights</p> Signup and view all the answers

    What effect can weak institutions and poor governance have on a nation?

    <p>Lead to civil war and failed states</p> Signup and view all the answers

    What factor significantly contributes to unemployment in urban areas of developing countries?

    <p>Rural-urban migration</p> Signup and view all the answers

    What does the Gini ratio measure?

    <p>Vertical inequality of income and wealth distribution</p> Signup and view all the answers

    Which type of inequality increases initially with development before decreasing, according to the Kuznets curve?

    <p>Vertical inequality</p> Signup and view all the answers

    What is disguised unemployment primarily associated with in rural areas?

    <p>Low number of hours worked</p> Signup and view all the answers

    What commonly characterizes horizontal inequality?

    <p>Differential treatment based on identity factors</p> Signup and view all the answers

    What is a significant challenge for developing countries regarding their labor force?

    <p>Providing jobs for a growing labor force</p> Signup and view all the answers

    What must the growth rate exceed for per capita income (PCY) to rise?

    <p>2%</p> Signup and view all the answers

    What is the primary characteristic of employment in developing countries?

    <p>Over half of the population works in the agricultural sector.</p> Signup and view all the answers

    What is the general savings-investment ratio in most poor countries?

    <p>10%</p> Signup and view all the answers

    What effect does Engel's Law have on agricultural goods demand?

    <p>Demand is income inelastic.</p> Signup and view all the answers

    Which of the following is a problem associated with rapid population growth in poor countries?

    <p>Reduced income per head</p> Signup and view all the answers

    Why do countries dependent on primary products tend to grow slower?

    <p>Balance of payments problems</p> Signup and view all the answers

    Which region has the highest percentage of employment in agriculture among low-income countries?

    <p>Southern Asia</p> Signup and view all the answers

    What impact does over-reliance on primary commodities have on a country's exchange rate?

    <p>It leads to an over-valued exchange rate.</p> Signup and view all the answers

    What is a significant barrier to capital accumulation in developing economies?

    <p>Low levels of saving and investment.</p> Signup and view all the answers

    What is the required savings-investment ratio for sustained growth in per capita income according to Rostow's theory?

    <p>Over 10%</p> Signup and view all the answers

    Which factor is identified as a fundamental cause of underdevelopment?

    <p>Weak institutional structures</p> Signup and view all the answers

    What is a consequence of high population growth on government resources?

    <p>Strain on government resources</p> Signup and view all the answers

    What phenomenon is described as 'disguised unemployment' in agricultural sectors?

    <p>Excess labor input with minimal productivity increase.</p> Signup and view all the answers

    Which of the following characterizes industries compared to agriculture in developing economies?

    <p>Superior production and demand characteristics.</p> Signup and view all the answers

    What is the relationship between income elasticity of demand for primary commodities and manufactured imports?

    <p>Primaries have income elasticity less than 1, manufactured imports have greater than 1.</p> Signup and view all the answers

    Which of the following is NOT a factor contributing to underdevelopment?

    <p>A high level of capital accumulation.</p> Signup and view all the answers

    In Kaldor’s growth laws, which aspect is emphasized as crucial for economic development?

    <p>Rapid industrialization speeds.</p> Signup and view all the answers

    What is the effect of rapid population growth on developing economies?

    <p>It exacerbates resource scarcity and poverty.</p> Signup and view all the answers

    What is Kaldor’s first law regarding manufacturing output and GDP growth?

    <p>There is a strong positive correlation between the growth of manufacturing output and GDP growth.</p> Signup and view all the answers

    What does Kaldor’s second law indicate about productivity in manufacturing?

    <p>The growth of manufacturing output is positively correlated with the growth of productivity in manufacturing.</p> Signup and view all the answers

    What are some common characteristics shared by poor countries?

    <p>Dominance of low productivity agriculture and rapid population growth.</p> Signup and view all the answers

    Which hypothesis proposes that resources shifting from agriculture to industry raise productivity in agriculture?

    <p>Fisher-Clark Thesis</p> Signup and view all the answers

    What role does the manufacturing sector play in economic development according to the principles outlined?

    <p>It functions as the primary engine of growth.</p> Signup and view all the answers

    What is a significant effect of industrialization on non-manufacturing productivity?

    <p>It raises productivity in non-manufacturing sectors.</p> Signup and view all the answers

    What policy issue arises in relation to the resource shift into the manufacturing industry?

    <p>How to accelerate the resource shift into manufacturing.</p> Signup and view all the answers

    Which of the following statements about income distribution in poor societies is correct?

    <p>Income distribution is characterized by significant inequalities.</p> Signup and view all the answers

    How does the concept of vertical inequality differ from horizontal inequality?

    <p>Vertical inequality is concerned with individual income differences, while horizontal inequality deals with disparities among different groups.</p> Signup and view all the answers

    What is the role of weak institutional structures in poor countries?

    <p>They contribute to high unemployment and underemployment.</p> Signup and view all the answers

    Study Notes

    Characteristics of Underdevelopment

    • Dominance of agriculture and petty services with over half of the population in rural sectors engaged as subsistence farmers, tenant farmers, or laborers.
    • Low capital accumulation limits economic growth; per capita income growth requires a savings-investment ratio exceeding 10%.
    • Rapid population growth in developing countries (>2% p.a.) leads to increased poverty and strains resources, despite a recent decline in birth rates.

    Agricultural Sector Challenges

    • Labour productivity in agriculture is low, averaging less than $500 per year or $1.90 a day.
    • Diminishing returns result in disguised unemployment, particularly in rural areas.
    • Demand for agricultural goods is income inelastic, while industrial products offer better growth prospects.

    Export and Natural Resource Issues

    • Economies dependent on primary commodities face long-term trade deterioration and balance of payment problems due to volatile prices and low income elasticity of demand.
    • "Curse of natural resources" leads to slower growth, overvalued exchange rates, and corruption linked to resource extraction.

    Institutional Weakness

    • Weak institutional frameworks hinder economic development by diminishing investment incentives due to lack of property rights and governance.
    • Historical factors, such as colonial extraction practices, have contributed to today's weak institutions, potentially leading to instability and civil conflict.

    Employment and Inequality

    • High unemployment and underemployment characterize poor countries, with significant hidden unemployment in both rural and urban areas.
    • Income distribution is highly unequal, with both vertical (income inequality measured by Gini ratio) and horizontal (inequality based on demographics) disparities damaging development efforts.

    Growth Dynamics and Distribution

    • Inequality negatively impacts growth due to restricted opportunities and poor governance; welfare can be better measured through poverty-weighted growth metrics.
    • Most countries undergo developmental stages outlined by Rostow, transitioning from agriculture to manufacturing, and eventually to service sectors.

    Industrialisation and Economic Growth

    • Strong relation found between manufacturing growth and GDP growth; this is supported by Kaldor's growth laws, indicating that manufacturing acts as a critical engine of growth.
    • The shift of resources from low-productivity sectors (like agriculture) to higher productivity manufacturing raises overall productivity across the economy.

    Kaldor’s Growth Laws Overview

    • 1st Law: Positive correlation between growth in manufacturing output and GDP growth.
    • 2nd Law: Manufacturing growth correlates positively with productivity growth in both manufacturing and non-manufacturing sectors.
    • 3rd Law: Productivity in agriculture improves as resources shift to industry.

    Overall Summary

    • Common characteristics of poor countries include reliance on low productivity agriculture, low capital accumulation, and rapid population growth.
    • Economic trajectories involve significant structural changes, moving through defined stages of development, emphasizing the importance of manufacturing as a growth driver.
    • Institutional quality and equitable resource distribution are vital for sustainable development in less developed nations.

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    Description

    Explore the characteristics of underdevelopment and structural change in this quiz. Delve into topics such as the dominance of agriculture, low capital accumulation, and various inequalities that contribute to the development gap. Test your knowledge on the impact of natural resources and institutional structures on economic growth.

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