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

Info icon This preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon
Section 4 Midterm 1 answer key Poverty traps: Sachs Ch. 3 10/29/2009
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
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
Image of page 2
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”?
Image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
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)
Image of page 4
Consistent with a Poverty Trap?
Image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 6
Image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 8
Image of page 9
This is the end of the preview. Sign up to access the rest of the document.

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...
View Full Document

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern