Chapter 20, Economic Growth in Developing Economies Video Solutions, Principles of Macroeconomics, Global Edition

Problem 1

A paper released by the World Bank in 2014 states that while economic growth is essential for reducing poverty rates, growth by itself is not enough, and efforts to reduce poverty must be complemented with programs that devote more resources to the extreme poor. According to the paper, as extreme poverty declines, growth by itself tends to be less successful at lifting additional people out of poverty because at this point, many still suffering from extreme poverty find it very diff icult to improve their lives. Do you agree with this assessment? Why or why not? What fundamental economic concept seems to be at play here?

Check back soon!

Problem 1

As the text states, investment in human capital is an important ingredient for a nation's economic growth. The data in the following table shows the net enrollment rates in primary school as a percentage of the relevant group for 10 developing countries in 1999 and 2016. Go to http://data.worldbank.org and look up per capita GDP for these 10 countries for 1999 and 2016. (Search for GDP per capita [current $$\$ $$ US] data.) Calculate the percent changes in per capita GDP from 1999 to 2016 for these 10 countries. Do the changes in per capita GDP seem to correlate with the changes in enrollment rates? What besides increased enrollment may be responsible for the changes in per capita GDP?
$$
\begin{array}{lccc}
\text { Country } & \mathbf{1 9 9 9} & \mathbf{2 0 1 6} & \text { Percent change } \\
\hline \text { Burkina Faso } & 36 & 76 & 111 \\
\text { Cote d'Ivoire } & 57 & 88 & 54 \\
\text { Djibouti } & 27 & 52 & 93 \\
\text { The Gambia } & 75 & 76 & 1 \\
\text { Ghana } & 62 & 87 & 40 \\
\text { Lesotho } & 59 & 81 & 37 \\
\text { Mali } & 44 & 62 & 41 \\
\text { Niger } & 26 & 64 & 146 \\
\text { Senegal } & 55 & 72 & 31 \\
\text { Togo } & 89 & 87 & -2 \\
\hline
\end{array}
$$

Check back soon!

00:52

Problem 1

For a developing country to grow, it needs capital. The major source of capital in most countries is domestic saving, but the goal of stimulating domestic saving usually is in conflict with government policies aimed at reducing inequality in the distribution of income. Comment on this trade-off between equity and growth. How would you go about resolving the issue if you were the president of a small, poor country?

Riham Bassal

Numerade Educator

02:09

Problem 2

The small West African nation of Equatorial Guinea is designated as an upper middle-income country by the World Bank, with a GNI per capita of more than $$\$ 7,000$$ when measured in U.S. dollars. Equatorial Guinea also has a poverty rate of more than 76 percent, one of the highest rates in the world. Life expectancy at birth is only 64 years, and the infant mortality rate is almost 7 percent. Do some research on Equatorial Guinea and try to explain the apparent discrepancies listed above for this high-income country.

Oluwadamilola Ameobi

Numerade Educator

Problem 2

The text mentions that in the developing world, teacher absenteeism is a serious problem, averaging 19 percent across six poor countries. An article in the Journal of Economic Perspectives states that absenteeism of health care workers in five of those countries where data was available averages 35 percent, or almost double the rate of teacher absence. Suggest some ways that developing countries might try to successfully reduce the high absentee rates of health care workers, and any possible problems they may encounter in implementing your suggestions.

Check back soon!

03:38

Problem 2

The GDP of any country can be divided into two kinds of goods: capital goods and consumption goods. The proportion of national output devoted to capital goods determines, to some extent, the nation's growth rate.
a. Explain how capital accumulation leads to economic growth.
b. Briefly describe how a market economy determines how much investment will be undertaken each period.
c. Consumption versus investment is a more painful conflict to resolve for developing countries. Comment on that statement.
d. If you were the benevolent dictator of a developing country, what plans would you implement to increase percapita GDP?

Jennifer Stoner

Numerade Educator

Problem 3

Poor countries are trapped in a vicious circle of poverty. For output to grow, they must accumulate capital. To accumulate capital, they must save (consume less than they produce). They are poor, so they have little or no extra output available for savings - it must all go to feed and clothe the present generation. Thus they are doomed to stay poor forever. Comment on each step in that argument.

Check back soon!

Problem 4

In China, rural property is owned collectively by the village while being managed under long-term contracts by individual farmers. Why might this be a problem in terms of optimal land management, use, and allocation?

Check back soon!

View

Problem 5

An offshoot of microfinance that has grown significantly over the past several years is an idea known as crowdfunding. With crowdfunding, individuals, businesses, and communities seek monetary support for ideas or projects from other individuals, primarily over the Internet. Three of the largest and most successful crowdfunding Internet sites are GoFundMe, Kickstarter, and Indiegogo, and while the use of the term "crowdfunding" is relatively new and associated with online sites such as these, the concept has been around for many years, with projects such as the pedestal on which the Statue of Liberty resides being constructed using this style of funding. Do some research on crowdfunding and explain whether you believe crowdfunding is a viable alternative to microf inance in poor countries such as Bangladesh. Which source of peer lending, microfinance or crowdfunding, do you believe would be the most successful at reducing the problem of adverse selection? Why?

Rashmi Sinha

Numerade Educator

02:47

Problem 6

Find another example of the use of cell phones as a way to improve market functioning in a developing economy.

Carina Carlos

Numerade Educator

Problem 7

Corruption in a government is often accompanied by inefficiency in the economy. Why should this be true?

Check back soon!

01:58

Problem 8

The distribution of income in a capitalist economy is likely to be more unequal than it is in a socialist economy. Why is this so? Is there a tension between the goal of limiting inequality and the goal of motivating risk taking and hard work? Explain your answer in detail.

Banhishikha Sinha

Numerade Educator

00:59

Problem 9

Although brain drain is generally associated with developing countries, the recent debt crisis in Greece has generated an exodus of highly educated human capital from this country. In Greece, college education is paid for by the government, and it is estimated that roughly 10 percent of the country's college-educated workforce have left the country, a majority of which are less than 40 years of age. What implications does this flight of human capital have on growth prospects for the Greek economy? How does the fact that the government pays for college exacerbate this problem? Do some research to find out what has happened to Greek GDP in recent years and what the forecast is for GDP in the near future, and see if this supports your answer.

Erwin Antoni

Numerade Educator

02:20

Problem 10

In addition to fewer marriages within extended families, explain what other positive effects are likely to occur in the rural, flood-prone areas of Bangladesh because of increased government spending on infrastructure projects like the building of river embankments and the resulting increase in wealth of the affected rural population.

Danielle Ashley

Numerade Educator

Problem 11

Explain how each of the following can limit the economic growth of developing nations.
a. A lack of savings and investment
b. Unskilled labor
c. A lack of social overhead capital

Check back soon!

00:30

Problem 12

You have been hired as an economic consultant for the nation of Ishtar. Ishtar is a developing nation that has recently emerged from a 10-year civil war; as a result, it has experienced appreciable political instability. Ishtar has a serious lack of capital formation, and capital flight has been a problem since before the civil war began. As an economic consultant, what policy recommendations would you make for the economic development of Ishtar?

Jennifer Stoner

Numerade Educator