Study Guide 1

Slowerthanifthecountrybeganatahighrateofsavings 2

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Unformatted text preview: ings 3. Export Focused Economies 4. Development driven by FDI instead of domestic savings makes countries prone to “Hard Landings” e. Income and Investment Interact i. If investment is endogenous and constantly increasing with income in the Solow model, convergence to the steady state will be 1. Slower than if the country began at a high rate of savings 2. Faster than if the country remained at the low rate of savings ii. If investment is endogenous and increases after a country reaches a particular income level, a “poverty trap” results f. External Debt i. Large increases of debt in developing countries in 1970s and 1980s ii. IMF Loans made with strict conditions: free market “shock therapy” 1. This led to increases in short‐term FDI, causing inflation, and increased interest rates, sometimes leading to bankruptcy 2. Examples of East Asian and Argentinean Economic Crises iii. Debt Forgiveness (HIPC) 1. Moral Hazard g. An Alternative: Microfinance i. Seeks to increase capit...
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