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ECN503 Midterm 1
Economic Development
| Term | Definition |
|---|---|
| Economic Development | Material well being. Higher income for an individual or a household leads to higher per capita income for a country. |
| Dimensions of development | Life expectancy, infant mortality, malnutrition, sanitation, health services, literacy, intellectual and cultural wellbeing, stability of family, freedom of choice, political rights, discrimination, law and order |
| Benefits of income approach to development | Increasing income is considered a good approach to address development issues because higher income positively affect other outcomes such as health, life expectancy, literacy. |
| Poverty | Extreme low levels of income |
| Examples of asymmetry of information | Job market: applicant knows her skills, employer does not know perfectly. Credit market: borrower knows how he will use a loan, lender does not know perfectly. |
| Benefits of asymmetrical information | Useful to understand several aspects of development such as role of risk for the poor, why credit markets do not always work well for the poor |
| Economic development in the past decade | Emphasis on small rather than big policy interventions, uses tools of field experiments and randomized controlled trials (RCT), evaluates context-specific strategies for alleviating persistent poverty. |
| RCT - randomized controlled trials | It's an old technique in medicine - used for clinical drug trails. In field experiment people are randomly assigned to treatment and control groups. RCT provides a clean way of finding the average impact of a policy intervention. |
| Field experiments of Banerjee and Duflo | They identified that the poor are not well-informed on aspects such as health, technology and politics. Being in a long term state of poverty may hinder decision making skills. |
| Result of Banerjee and Duflo field experiment | Established innovative options that will make it easy for the poor to make good decisions - savings accounts, simple chlorine dispensers, salt fortified with iron and iodine |
| Cost-effective programs from RCT findings of Banerjee and Duflo | 1. De-worming children in areas where intestinal worms are rampant. 2. Providing remedial education for poor children who fall behind in class |
| Karlan and Appel | They focused on small loans (microcredit) to the poor. Microcredit may not work in all situations but can be good sometimes. There are not many borrowers so impact is small. Micro-saving may be more beneficial than microcredit. |
| Limitation of RCT (1) | Randomization is key for RCT, but difficult to ensure true randomness in setting up treatment and control groups. |
| Limitation of RCT (2) | RCTs very context-specific; intervention examined in a very small selected population; cannot make general conclusions |
| Limitation of RCT (3) | RCT is not useful for many policy issues like should a dam or road be built in an area? Will foreign investments raise employment? Running experiments cannot answer these questions. |
| Limitation of RCT (4) | RCT shows only the average impact: a policy intervention may be good for some people and bad for others. RCT cannot answer the distributional question of who gains and who loses from a given policy. |
| Limitation of RCT (5) | Even if RCT shows that A causes B, we are not sure about the machoism through which it works. |
| Micro-level institutional factors affecting poverty | Relation between land tenure and productivity, interlinking of contracts in different markets can trap workers in poverty, security of property rights effects investment, role of credit arrangements in risk pooling, land inequality conflict resolution |
| Intrinsic significance of poverty | Removal of poverty a fundamental goal of economic development |
| Functional significance of poverty | Affects the way entire economies function |
| Poverty measurement | This looks at standard measures/indices, what these values capture and they fail to capture, simple examples to clarify implications of a specific index |
| Poverty and the household | This looks at when the effect of poverty not uniform among the member of a household. Situation of poverty may lead to unequal division of resources in a household. |
| Poverty line | A critical threshold of income or consumption below which an individual is declared to be poor. It represents minimum level of acceptable economic participation of an individual in a society. |
| Nutrition-based poverty lines | A common method that measures minimum consumption calories. It's used in the definitions of poverty lines in many countries. |
| Problem with income/expenditure poverty measurement | Nutrition level may not rise unambiguously with income. Income represents capacity to consume, not consumption itself. |
| Problem with actual consumption baskets poverty measurement | Data is difficult to obtain for a large population |
| Head Count (HC) | Gives the number of people in a population who are below poverty level. |
| Head Count Ratio (HCR) | Gives the fraction of people in a population who are below level p |
| Pros/Cons of head count measure | Easy to measure from available data, fails to capture the extent to which individual income falls below poverty line, head count measure is insensitive to people further down the poverty line who are more poor than people close to it |
| Poverty Gap Ratio (PGR) | Alternative measure that tries to offset bias of HC by taking into account the extent of poverty |
| Problem with PGR | In highly unequal but overall very wealthy societies, PGR will have a small value (since total income that appears in the denominator of PGR is very large) |
| Income Gap Ratio (IGR) | Gives poverty relative to the total income needed to make poverty go away |
| Unequal sharing of poverty in a household | This arises from the fact that certain minimum amount of resources have to be devoted to each person for that person to be productive. When there's extreme poverty, equal division of household resources might help no one so unequal division might be best |
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13rallie
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