PS 241 Terms (2nd half)

Proximate v. Fundamental Causes of Economic Growth

The immediate factors that directly affect output, such as capital, labor, and technology

Solow Growth Model

A model of economic growth developed by Rober Solow that explains long-run growth

Y = f(A, K, L)

Y = total output, A = technology K = capital, L = labor

Theory

A systematic explanation of how and why something occurs

Theory of Convergence

The idea that poorer countries should grow faster than richer countries

Conditional Convergence

Countries converge toward similar income levels only if they have similar characteristics

Luck, Culture, Geography, Institutions

Luck - random historical events shape outcomes

Culture - Social norms and values affect economic behavior

Geography - Climate, resources, disease environment, and location

Institutions - Rules and incentives that govern economic and political activity

Institutions and Incentives

Institutions are the formal and informal rules governing society

Incentives - influence decisions about Investment, Innovation, Education, Entrepreneurship

Property Rights and Bankruptcy Law as Good Institutions

Property Rights - Protect ownership of assets, encouraging investment and innovation

Bankruptcy Law - Allows businesses to fail without permanently ruining entrepreneurs, encouraging risk-taking and entrepreneurship

Exogenous and Endogenous Variables

Exogenous - Determined outside the model and treated as given

Endogenous - Determined within the model

Settler Mortality and Institutions

Places where European settlers faced high mortality rates tended to receive extractive institutions

Institutions Rule!

Differences in economic prosperity are primarily caused by differences in institutions

North and South Korea as a Natural Experiment about Institutions

After WWII, Koreas were divided:

North Korea - Central planning, state ownership, weak economic incentives

South Korea - Markets, private property, stronger economic incentives

Reversal of Fortune

Regions that were rich around 1500 are no longer rich

Economic Resource Curse

The paradox that countries rich in natural resources often experience slower economic growth, weaker industrialization, and poorer development outcomes than countries with fewer resources

Political Resource Curse

The tendency for resource wealth to weaken political institutions by:

Reducing government accountability

Encouraging corruption

Strengthening authoritarian rule

Increasing conflict over resource revenues

Dutch Disease

An economic phenomenon in which a natural resource boom causes:

Increased foreign currency inflows

Appreciation of the domestic currency

Reduced competitiveness of manufacturing and other export sectors

Currency Appreciation

An increase in the value of a country’s currency relative to other currencies

The 2000s Commodity Boom and Canadian Exports

During the 2000s, rising global demand, especially from China, increased prices for Canadian oil, gas, and minerals

Enclave Economies

Economic sectors, usually resource industries, that operate largely isolated from the rest of the domestic economy

Spillovers

Benefits from one sector that spread to other parts of the economy

Deteriorating Terms of Trade

A situation where the prices of a country’s exports fall relative to the prices of its imports

Import-Substitution Industrialization

A development strategy aimed at reducing dependence on foreign goods by promoting domestic production

Price Volatility

Frequent and unpredictable changes in commodity prices

Boom and Bust Cycles

Economic fluctuations caused by sharp increases and decreases in commodity prices

Solutions to the Economic Resource Curse

Sterilizing Currency, subsidies, and savings

Political Myopia

The tendency of politicians to focus on short-term political gains rather than long-term national interests

Nationalization

The transfer of private assets or industries into government ownership

Fiscal Contract

The relationship between taxation and accountability

Alaska Permanent Fund

A sovereign wealth fund established in Alaska in 1976

Rentier State

A state that receives a large portion of its income from external rents, especially natural resource revenues

Accountability

Citizens are more likely to hold governments accountable when they clearly perceive government revenues as belonging to the public

Feelings of Government Budget Ownership

Citizens view public revenues and government spending as “their money”

Corruption

The abuse of entrusted public or private power for personal gain

Principal-Agent Relationship between Truster and Trustee/Fiduciary

A relationship in which a principal (truster) delegates authority or resources to an agent (trustee/fiduciary)

Grand v. Petty Corruption

Grand Corruption: High-level corruption involving senior politicians or officials, often affecting major policies, contracts, or large sums of money

Petty Corruption: Small-scale corruption involving lower-level bureaucrats, such as bribes for routine government services

Rents and Rent-Seeking

Rents: Economic returns above what would be earned in a competitive market

Rent-Seeking: Efforts to obtain those excess returns through political influence or manipulation of regulations rather than productive activity

Expert, Firm, and Household Surveys

Expert: Ask specialists to rate corruption levels

Firm: Ask businesses about bribery

Household: Ask citizens about direct experiences

Transparency International’s Corruption Perceptions Index

Brazilian Municipal Government Audits

Corruption and the Solow Growth Model

Corruption as “Greasing the Wheels” / “Speed Money”

Information Hypothesis v. Trade-off Hypothesis

Research Design for Ferraz and Finan (2008)

Income Level, Business regulation, and Media freedom and corruption

Research Design for Boas, Hidalgo, and Melo

Competing Results in Boas, Hidalgo, and Melo and the Work of Weitz-Shaprio and Winters

Ethnic Fractionalization

Public Goods

Primordialism v. Constructed Identities

Chewas and Tumbukas in Malawi and Zambia

Behavioral Games

The Dictator Game

Different Preferences, Taste for Discrimination, Efficacy, Findability, and Strategy Selection in Habyarimana et al.

Punishment and Cooperation

Print Technology, Cash Crops, and Identity