115b_section4

115b_section4 - Why does this happen in the developing...

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Section 4 Midterm 1 answer key Poverty traps: Sachs Ch. 3 10/29/2009
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Announcements Midterm 1 exams not graded yet Homework #2 coming soon Today, begin poverty traps (Sachs Ch. 3) Then, go over answer key to exam
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Poverty trap What is a poverty trap? Poverty begets more poverty One way to see it is as multiple equilibria One is a “good” equilibrium where development and growth continue and reinforces itself Other is “bad” equilibrium where underdevelopment leads to more underdevelopment How does this relate to “Great Divergence”?
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How does a poverty trap occur? Sachs has 6 mechanisms: Lack of Savings-> low investment Absence of trade-> no markets Technological reversal (think Moriori) Natural resource decline->(desertification, Indonesia+oil, etc.) Adverse productivity shock (tsunami, malaria, etc.) Population growth (much of Africa, esp. Kenya)
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Consistent with a Poverty Trap?
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Unformatted text preview: Why does this happen in the developing world? Physical geography (USA vs. Burkina Faso) Also diseases like malaria in tropical areas Fiscal trap Governments can't pay for roads, schools, basic health care, other public goods Governance failures Corruption, wars, expropriations, bad legal system,etc. i Why? continued Cultural barriers Lack of meritocracy, exclusion of women or minority groups Geopolitics Access to Western markets, foreign intervention, etc. Lack of innovation Lack of patent protection, small markets, no incentives for technology transfer, etc. Why? (3) Demographic trap High population growth means more slices for economic pie Growth in GDP must be faster than growth in population for per capita GDP to increase Canoe example Midterm 1 Answer Key Review Answer Key...
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115b_section4 - Why does this happen in the developing...

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