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Ali Coy
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In the paper Interest Rates in the North and Capital Flows to the South: Is There a Missing Link?, Eichengreen and Mody focus on how the state of international credit, specifically interest rates, can potentially impact capital flow to emerging markets. Unlike past analysises, this paper focused on the market for international bonds and how global credit can influence developing-country debt. Therefore, this paper concluded how “there is a negative impact of higher U.S. rates on the demand by international investors for fixed-rate issues by Latin American borrowers.” (Eichengreen and Mody). Higher interest rates affect borrower’s decision-making process to issue, as the opportunity cost is much greater. Most of the times, we, as humans, instintively think in our own self-interest and only consider how an increase or decrease in interest rates will affect our ability to spend and save. However, it is much greater than that for changes in interest rates can dramatically benefit or hurt developing countries where strong finanicial institutions do not even exist. Therefore, it is important, to understand how the Federal Reserve’s modification of interest rates can not only greatly affect our economy, but also those developing-countries who lack access to capital.
Toggle Commented Nov 18, 2015 on ECON 280 for Thursday at Jolly Green General
The Executive Summary Turn Down the Heat: Why a 4°C Warmer World Must Be Avoided illustrates the major impacts that global warming and climate change can potentially have on our society and world. This paper highlights how all of society will experience these potential effects from climate change, although “the distribution of impacts is likely to be inherently unequal and tilted against many of the world’s poorest regions, which have the least economic, institutional, scientific, and technical capacity to cope and adapt” (The World Bank). This reminded me about the discussion we had Tuesday on how the poor contribute very little to global warming and climate change; however, the poor are the individuals who are the most affected. Because even the rich will have to adapt to climate change, the difficulty for the poor to adapt will be even greater due to their limited income and limited environmental resources. Heat waves, droughts, and floods will all hurt the livelihood of the poor because they do not have adequate resources to mitigate the effects from any disastrous events. For example, any weather-related event could dramatically decrease economic growth in poor countries, such as a flood or drought inhibiting agricultural output. Because “it is likely that the poor will suffer most and the global community could become more fractured, and unequal than today,” the need to alleviate this potential growth in inequality is crucial (The World Bank). Therefore, what are the appropriate policies to implement to help those who are more susceptible to climate change?
Toggle Commented Nov 11, 2015 on ECON 280 for next Thursday at Jolly Green General
In Theodore Schultz’s Nobel Prize Lecture, it is easy for society to critique the decision-making of the poor, for most of their choices do not reflect an internal need nor determination to improve their impoverished state and standard of living. Theodore Schultz reiterates this notion by saying, “What many economists fail to understand is that poor people are no less concerned about improving their lot and that of their children than rich people are. (Schultz). Many of us will continue to ask the question, why? Why do the poor choose to misallocate their resources, instead of making choices that will enhance their well-being? It is difficult for an outsider to not judge or ridicule irrational behavior. However, similar to our class discussion about the “The Economic Lives of the Poor,” it is important to remember that society, including you and I, makes choices that might not be deemed as rational or reasonable. It is important to remember how external pressures can influence or jeopardize cognitive abilities, which will lead to choices that might not enhance one’s standard of living. Therefore, investments in human capital can be very powerful, as this can create a population of quality. In Tuesday’s class, we talked about how it can be more beneficial to have a population of quality, rather than quantity. Investments in health and education will enhance the productivity of society, which will lead to greater economic returns, for “The value of additional human capital depends on the additional wellbeing that human beings derive from it” (Schultz). Therefore, productive investments in human capital will positively influence the lives of the poor, an important step to create economic prosperity and reduce poverty.
Toggle Commented Nov 4, 2015 on econ 280 for Thursday at Jolly Green General
Dani Rodrik’s “Growth Strategies” addresses the importance in the “context-specificity of growth-strategies” and how there is no widespread formula or method that guarantees growth in both the short-term and long-term (Rodrik, 16). As a result, it is crucial to understand how policies will differ between countries, based on the implementation of both orthodox and unorthodox institutional practices. However, it is important to differentiate how policy and institutional reforms can alter between “stimulating growth” and “sustaining growth” (Rodrik, 19). After reading this paper, I realized how, in most cases, countries have a greater ease in “stimulating growth,” but find difficulty in maintaining it (Rodrik, 19). For example, like Rodrik explained, China experienced tremendous growth, but this development is indefinite for “without stronger institutions in areas ranging from financial markets to political governance, the Chinese economy may well find itself having outgrown its institutional underpinnings” (Rodrik, 19). It is necessary that countries continually develop “its institutional underpinnings” and place a greater focus on long-term economic growth for an unforeseen economic event could disrupt this growth (Rodrik, 19). When economies only experience temporary growth, countries cannot increase levels of income or improve standards of living compared to more developed, high-income economies.
Like we discussed in class on Tuesday, this paper clearly illustrated the effects of low income and how there is great diversity and variation from country to country. While reading this paper, I thought about the three core values of development, specifically self-esteem. As many others have already mentioned, I, too, was initially surprised that the poor were willing to spend their money on a television rather than other basic necessities, such as food. However, then I thought about how the act of buying a television, which is a common commodity to most of us, most likely provides the poor with feelings of self-worth and pride. The ownership of a television boosts their self-esteem by improving their standard of living with a form of joy and amusement. Banerjee and Duflo mentioned that the poor spend their money on entertainment “to keep up with their neighbors” (Banerjee and Duflo, 21). I believe this to be true because when the poor see others owning a television and they do not, they feel worthless and inadequate. Since most of the time the poor feel like an outcast to society, owning a television helps the poor escape for a moment in time, forget about their troubles, and feel like a part of society. This boost in self-esteem could be even more beneficial to the lives of the poor than eating a few more meals that would not greatly improve their health.
Like most people have already noted, while reading “The Fall and Rise of Development Economics,” the power of models, due to their ability to demonstrate economic concepts, was very apparent. I was surprised to read how the high development theory was disregarded from the late 1950’s to the 1970’s because of the inability to appropriately create a model for this theory. However, my surprise was how this period of time was when economists were focusing on “tightly specified models” instead of “controlled, silly models that illustrate key concepts.” The word “silly” stuck out to me as I read this word a few times throughout the paper and therefore, became intrigued by the author’s word choice. At the end of the paper, the author states that Murphy and al were successful in creating an economic model to convey the high development theory “by daring to be silly.” I think this last statement is important to remember as in some circumstances, it can be necessary to take a minute to stand back, revert, and be “silly.” By doing so, it can sometimes answer our questions and lead us to something even greater. Also, I think this idea is very relevant in our lives because many of us can overthink due to external stress and sometimes simplifying and thinking foolishly can be the best remedy.
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Sep 16, 2015