Economics%20116%20-%20Lecture%205%20-%20Initial

Economics%20116%20-%20Lecture%205%20-%20Initial - Economics...

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Economics 116: Economic Development UC San Diego, Spring 2009 Prof. Karthik Muralidharan Department of Economics Lecture 5
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Administrative Stuff Midterm: Bring your calculators – you’ll need them! No cell phone calculators allowed; any visible communication device will be treated as academic dishonesty 75 minute exam Short answers: 35-40 minutes; Problems: 35-40 minutes A very clear grading rubric will be provided for each question; partial credit will be given so attempt everything; but points will only be given for clear demonstration of understanding of concepts – imprecise/vague statements won’t help you much Test may seem hard/tight on time – but graded on a curve No lunch this week – but extra office hours: 3-5pm on Wednesday; 12:30 – 1:30pm on Thursday TA office hours as usual (all will have materials from section this week)
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Lecture Outline (4/14/09) MSV Model, Coordination, and the Big Push Factor Endowments, Income Distribution, Convergence or Divergence? Review of Concepts for Midterm
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Recall Main Insights of MSV Model Rapid economic growth typically involves adoption of new technologies that improve productivity (by reducing per unit MC) But adopting new technologies requires upfront investments have fixed costs The ability to recover the fixed costs (with the savings on per unit production) depends on the market size, which in turn will determine whether the investment is profitable You should know the math for this The main insight from last lecture was that income distribution can matter for development and that the size of the middle class matters (because it affects market size for new technologies) Two extensions today: Coordination and Big Push (More MSV)
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A historical puzzle We now believe (especially after the collapse of the Soviet Union) that market-based economies are more likely to experience rapid growth But, why did so many newly independent countries after World War II follow a state-led development trajectory? India, China, most of Africa, Latin America Because, that is where the intellectual state of development economics was! Idea of coordination failures was a key driver of this thinking
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Coordination Failures Remember that the MSV model says that adoption of a new technology will not take place unless there is an adequate market for the product? Consider an agrarian economy with subsistence-level wages An entrepreneur wants to invest in a shoe factory Expects to produce a lot of shoes But who will buy the shoes? The workers in the shoe factory will have a higher wages and
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Economics%20116%20-%20Lecture%205%20-%20Initial - Economics...

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