Lect_1_yr13 - Brief Overview of Development Growth and Trade AP 8701 T.Roe September 5 2013 Contents 1 Micro-economics focus 2 2 Foreign trade open

Lect_1_yr13 - Brief Overview of Development Growth and...

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Brief Overview of Development Growth and Trade AP: 8701 T.Roe September 5, 2013 Contents 1 Micro-economics focus 2 2 Foreign trade - open economies (static) 3 3 Economic growth/development literature, a brief historical sketch 3 4 Very brief history of growth 5 4.1 E/ects of globalization (?) . . . . . . . . . . . . . . . . . . . . 10 5 "Schools" of perspectives on growth 12 5.1 The so called trade and development school. . . . . . . . . . 12 5.2 The political economy - institution school. . . . . . . . . . . 13 5.3 Views on fundamental "sources" of growth . . . . . . . . . . . 15 6 Brief economic history of agricultural distortions 16 7 Why "general equilibrium" in development economics? 18 7.1 Stylization & macroeconomic models . . . . . . . . . . . . . . 19 7.2 Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 7.3 Use of models . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 7.4 The "technology" of applied general equilibrium-growth models 23 1
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1 Micro-economics focus Only cover to the extent we model the behavior of optimizing agents in general equilibrium. A partial list of microeconomic interests in development includes: 1. Analysis of the household (Becker°s household model extended): see ±le HHD-BCKG.pdf for analytical model (a) Links between consumption and production; when markets are complete get separability between pro±t and utility maximization; when markets are not complete, get utility parameters a/ecting resource allocation (b) Fertility; number and "quality" of children, (c) Intra-household allocation of resources (nutrition, gender biases) (d) Dynamics (What is/are the state variable(s)? human capital?) 2. Firms (typically agricultural): (a) Are large farms more e¢ cient than small farms? (b) Adoption of high yielding varieties (c) Firm level sources of factor productivity growth, allocative e¢ - ciency (d) Credit constraints (e) Household/±rm risk and uncertainty, value of information (Antonovitz, Tomasi & Roe) 3. Education/schools/learning (P. Glewwe, M. Rosenzwig, M. Pitt, K. Wolpin) 4. Remittances, migration 5. Firm level foreign aid, technical assistance Each of the above have economy-wide implications, the analysis of which typically require general equilibrium methodology, and preferably, dynamic (agents optimizing over time) 2
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2 Foreign trade - open economies (static) Examples 1. Partial equilibrium (Krueger, Schi/ and Valdes, 1980s; Kym Anderson 2012) (a) Interventions (direct and indirect) that distort agricultural incen- tives (more below) (b) Environmental deprivation (c) Closely linked to this: political economy of (typically) agricultural policy (d) Food security (handout if requested) 2. General equilibrium (a) Static general equilibrium (focus on households vs consumer & producer; where we start) (b) Major contributors to theory: Woodland, Bhagwati, Srinivasan, Panagariya, Chipman among others (c) Selected issues: i. Comparative advantage, linkages between commodity trade, factor prices and endowments ii. Trade distortions iii. Trade blocks, regional trade agreements iv. Political economy (DUP: directly unproductive pro±t seeking activities) v. Many others ....
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