Development Economics Topics 2 and 3

Flashcards created for reviewing key concepts from the lecture on development economics focusing on growth theory, institutions, and their impact on economic development.

What was the main idea behind the Marshall Plan after WWII?

The reconstruction of Europe focused on adding capital to stimulate development.

What are Rostow's stages of growth?

A historical description categorizing countries based on their development stages without suggesting specific policy measures.

What is a criticism of Rostow's model?

It is based primarily on the historical experiences of Western Europe and does not account for potential setbacks in development.

What does the Harrod-Domar model emphasize as essential for growth?

It emphasizes the need to increase savings rates to boost economic growth.

What is the capital output ratio in the Harrod-Domar model?

It is assumed constant and relates changes in capital to changes in income.

What problem do low-income countries face in relation to the savings rate?

The savings might be too low to support desired investment levels.

What does diminishing marginal returns refer to in economic models?

The concept that adding more capital yields progressively smaller increases in output.

What is the Solo growth model known for?

It introduces constant returns to scale and diminishing returns to factors of production.

In the Solo model, what is a steady state?

A condition where the change in capital equals zero, leading to no further economic growth.

What is one way to shift the steady state in the Solo model?

Increasing the savings rate.

What do institutions in development refer to?

Formal and informal rules structuring political, economic, and social interactions!

Why are strong institutions important for development?

They provide incentives for investment, protect property rights, and ensure the rule of law.

What are some examples of weak institutions in a country?

Lack of property rights, ineffective rule of law, and high levels of corruption.

What role does government play in economic development?

Setting rules, enforcing laws, intervening in inefficient markets, and reducing inequality.

What is self-preservation in the context of government actions?

Governments may act against public interest to maintain power and avoid losing control.

How does corruption impact economic and social development?

It obstructs efficient resource allocation and hinders investment, leading to economic decline.

What is a kleptocracy?

A government where those in power exploit national resources for personal gain.