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In what seems to be a fairly common theme, I was also confused by some of the jargon used in Eichengreen and Mody's article. However, through my experience with the loanable funds market in Professor Goldsmith's Macroeconomics class, I believe that I was able to understand the article's core arguments. Like some of my other classmates, I was surprised to find that a substantial amount of research has determined that interest rates in highly-developed countries do not necessarily affect the capital flows in under-developed nations. After all, reverting back to what I learned in macroeconomics, it almost seems obvious that lower interest rates in highly-developed countries like the United States encourage a flow of capital to emerging markets with higher yields. Using a simple model of the loanable funds market, the supply of loanable funds will decrease in influential markets where interest rates have fallen, effectively encouraging lending in other markets. By looking at both the supply and demand sides of the model, Eichengreen and Mody attempt to prove a significant correlation between interest rates in developed markets and inflows of capital to emerging markets. In my opinion, they are successful in proving this relationship. By accounting for the behavior of the borrowers', particularly in countries with fixed-rate securities (such as those in East Asia), the authors are able to uncover at least one reason that past studies have not found a conclusive relationship between interest rates and lending in established and emerging markets, respectively. In these countries with fixed-rate securities, during times of increased interest rates in the United States or other major markets, the supply of bonds is decreased in response to a decreasing demand. In other words, in response to rising interest rates in global money centers, several countries with emerging markets have effectively decreased the supply of bonds, thus increasing the price and limiting the rise in spreads. In short, I am relieved to discover that the principles I learned in macroeconomics are not necessarily based on faulty logic and evidence.
As most of the other posts have stated, I found Professor Casey's article extremely interesting because it fits perfectly into the conversation the class had last week about Human Capital. I will not simply rehash what all of the others have said, but will focus on one aspect that I found fascinating: the question of how much "weight" farmers give to the implementation of agroforestry. The paper suggests that this notion of "weight" plays into the adoption or implementation of other innovative methods or practices as well. While human capital is, undoubtedly, a factor, I wonder if there are other factors that are just as important in deciding whether or not to invest. I am very curious about the other industries or practices, besides agroforestry, that might be inhibited by the same lack in human capital. In an earlier post, Wilson mentioned that the decision to invest in higher education might be affected by the "weight" an individual gives to education. I agree with this assessment. I wonder if the decision on whether or not to take out loans for small businesses are also influenced by individual levels of human capital. After all, while some small businesses are successful, others fail and the owners are left in debt. These failures might discourage those with less human capital from even trying.
Toggle Commented Nov 6, 2014 on Econ 280 for Thursday at Jolly Green General
Like Ferrell, I was also interested in the importance that both papers place on improvements in human capital. As Schulz and Lewis argue, "population quality and knowledge matter." The speech claims that in order to increase quality (human capital), there will be an economic cost. In other words, significant investment is necessary to increase the quality and baseline knowledge of each individual. However, as argued, investment in human capital will pay off in the end. Throughout this argument, I was reminded of Kremer's O-Ring theory and the "brain drain" that sometimes occurs. By increasing the overall quality of workers (and matching these workers with appropriate co-workers and firms) not only will production (and ultimately development) increase, but high-skilled workers might be less likely to move on to more developed nations. While Schulz and Lewis illustrate the importance of building human capital, Sachs and Malaney express how devastating the loss of or stagnation in human capital can be. Whether through less investment in human capital (because of higher infant mortality rates and, thus, higher fertility rates, more children and less money to spend per child) or biological responses to malaria itself (impediment to cognitive ability and even fetal development), it is clear that the disease has a devastating and sometimes lasting impact on the accumulation of human capital. Truly, while I was aware of the shocking infection and death rates of malaria, I was not aware of many indirect effects listed in the article. The data suggests that malaria negatively affects not only human capital, but leads to less acquisition of physical capital, less movement of people (e.g. individuals not moving to areas with higher demand for labor because of higher risk of infection), decreased trade and foreign investment, and even an increased possibility of attracting other diseases (e.g. anaemia and lymphoma). Besides the implications for human capital that I previously discussed, the most salient point that I took away from this article is that--despite all of these adverse effects of the disease and the relative success of anti-malaria programs--levels of international spending to combat malaria are "dismal." Perhaps increased spending to combat the disease is the key to development in regions strongly affected by it.
Toggle Commented Oct 29, 2014 on Econ 280 for Thursday at Jolly Green General
I always enjoy reading Paul Krugman articles for class. Furthermore, the fact that he argues for the necessity of using economic models in the paper made me think: at some point Professor Goldsmith read this piece and was undoubtedly thrilled. But I digress. The notion that models do not have to be extremely complex or entirely comprised of mathematical operations to be helpful and/or significant is an important one. Without the emergence of this thought, development economic methods and theory would perhaps have stalled. Another interesting conclusion in the paper, which ties into the notion of modeling but can be expanded to include other areas of practice, is the idea that increases or changes in technology can lead to higher levels of ignorance or even the abandonment of previously gathered/determined data. The apparent obsession of some to create extremely complex and perfect models can minimize the importance or impact of data derived from some other means. As many of my classmates have already discussed, Krugman's example of Africa is fascinating. It made me wonder: what else has fallen victim to the persistent need from some to perfect the mathematical modeling process?
I agree with Zach--this paper helps to identify how the evolution of thought in the field of economic development works at the ground level. Generally, I think Rodrik's appeal to the importance of local policy strategies makes a lot of sense. As he illustrates through case studies like China and other East-Asian nations, simply following the "big rules" or Washington Consensus does not always yield the most successful economic outcomes. Furthermore, his acknowledgement that successful policies are often "two-pronged" hits home. Too often developing nations (or those helping developing nations) are too focused on the short-term economic effects, forgetting that the attainment of prolonged prosperity does not necessarily go hand-in-hand with short-term success. As a politics major, I was very interested in Rodrik's discussion on the necessity of a non-corrupt government in addressing market failures. While this seems to be a no brainer, I do not believe that the issue gets enough attention. The unfortunate reality is that many developing countries that struggle economically also suffer from self-serving, corrupt leaders. It is possible that these countries must work on fixing governmental corruption before they are able to enact any long-lasting, powerful policies to address economic insecurity.
Toggle Commented Oct 1, 2014 on ECON 280 Paper at Jolly Green General
The examination of Nicaragua's RPS program is both promising and concerning at the same time. RPS explicitly grants payments to the female head of families while requiring school attendance and regular health visits for children. On one hand, the overall conclusion that RPS surely elicit optimism. The study concludes that the program leads to increases in school attendance, food expenditures and other key categories. Furthermore, the "empirical results suggest that targeting transfers to women has been effective at increasing key welfare outcomes for all house-holds, even those with greater male power." Perhaps my major concern with the findings is that educational attainment--for both the father and mother--are very significant. While research suggests that the level of female educational attainment might reach a point at which the effects will stop or even decline, I am more worried about those in households with less educated adults. Clearly RPS is designed to combat intergenerational lack of education, but does it do enough to overcome a family's initial deficit? I am interested to learn and discuss if other nations have similar programs to RPS, but perhaps do not specify that the female head of household must be allocated the money. If so, perhaps another study could be conducted.
Toggle Commented Sep 23, 2014 on ECON 280 paper #1 at Jolly Green General
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