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Rachana Ghimire
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This paper hoped to bridge the gap between previous studies in linking spreads of U.S. treasure yields to flows into developing countries because previous studies did not look at both the supply and the demand of capital inflows. They argue by leaving out the demand of capital inflows, previous studies’ findings are inaccurate, and they hope to shed more light on the relationship between capital inflow and developing countries. While their main finding was that there is a negative impact of higher U.S. rates on the demand by international investors – especially for fixed-rate issues by Latin American borrowers, they can state it with more confidence by taking both the supply and demand into account. The paper goes more in depth into this, but what I found fascinating was footnote 8, where authors give a specific example of how institutions can affect a country’s economy. They talk about how in Colombia - “exchange controls were abolished; imports were liberalized; labor legislation was reformed; controls over direct foreign investment were relaxed; the financial sector was deregulated; legislation governing ports and operations was modified; the insurance industry was liberalized; and the tax system was modernized.” Other countries followed suit as well including Peru, Venezuela, and Bolivia. Jaqueline pointed out how hard it is to identify what causes foreign direct investment, and whether it actually helps. While the paper also reminded of professor Silwal’s talk, I also thought about the class “institutions and economic performance” that professor Grazjl teaches. In the class, we went into depth about how institutions are the key role to economic growth. While I agree that liberal trade policies, financial development (negative effect), labor Force, infrastructure, rule of Law (transparency) are all things that could influence foreign direct investment, I think they all can fall into some institution. Developing countries often lack these institutions, and while it is harder to change institutions in a country rather than investing more – I think it’s more of a long-term solution rather than a short-term fix.
Toggle Commented Nov 18, 2015 on ECON 280 for Thursday at Jolly Green General
This executive summary felt very familiar while I was reading over it. I’m not sure if it was in environmental economics that we read it or in my global climate change course, but their estimates were not as surprising to me the second time around. I want to discuss Rachel’s first sentence that “Too many people still don't believe global warming is a major concern in the United States.” I took a global climate change course my freshman year, and Professor Greer had us take surveys of ten people to see their perceptions on global climate change. Surprisingly, I got a lot of respondents who expressed that they did not even believe in the global phenomenon. That was a bit discouraging to hear, but doing more research into this, I found a paper titled "Now What Do People Know About Global Climate Change?” This paper indicated that most people in 2009 were generally more aware of global climate change and the contributing factors than in 1992. This was reassuring to read as it suggests that the trend is more positive. There is a lot of misinformation out there, and I clearly saw that during my short interviews with people. I definitely think that small steps should be taken knowledge in order to have a greater public understanding of global climate change for policy to combat the issue. Instead of thinking “Well, global warming can't be occurring because it snowed the other day!" (a theme that I saw reoccur throughout my interviews), people will hopefully learn that climate is different from weather. Knowledge and education is the key when it comes to this issue. In order to have policy to ensure that we don’t see some of the drastic effects discussed in the summary, we need people to be on the same page and working together.
Toggle Commented Nov 11, 2015 on ECON 280 for next Thursday at Jolly Green General
As Ali previously mentioned, the most important piece that I took out of the Nobel Prize lecture was that “poor people are no less concerned about improving their lot and that of their children than rich people are.” Many economists fail to realize this, and they assume that the standard economic theory is inadequate for understanding low income countries. Most economists may presume that we need a separate economic theory. However, what they fail to realize is that early economists already dealt with the conditions of low income countries. Classical economics was developed when most people in Western Europe were very poor, and also were subsistence farmers – similar to many low-income countries today. The historical significance was surprising to me as I had not previously thought about the conditions of higher income countries before they experienced economic growth. This confuses me a bit though. If economic theories were being formulated at a time when many people were low income, then why do economists today think that we need a separate economic theory for the poor? It seems contradictory. It may be that they are unaware of the history as I was, but the historical significance seems like a big thing to overlook. The “Economic and Social Burden of Malaria” hit on some key points that we discussed in class today. The most interesting points to me though were things that we had discussed in previous classes. For example, evidence has shown that areas with malaria epidemic experience less foreign direct investment. From Prof. Silwal’s talk, we discussed how important foreign direct investment is for developing countries. Because foreign investors might be scared to invest in the country as a result of malaria, the country may not be able to sustain long-term growth. Tourism also decreases when there is more malaria as people are afraid of contradicting the disease. All these are negative costs that the country bears as a result of the burden of the disease beyond just country borders. Furthermore, not only are there international costs to malaria, but there are many domestic costs as well ranging from loss to labor force, loss to human capital, potential loss in savings if people don't account for the future, etc. which all could have even more detrimental effects on the economy. This article highlighted the fact that malaria should not only be a health concern, but also an economic concern as well. The link between health and economic growth is clearly pronounced in this article, and it relates back to what we discussed in class today.
Toggle Commented Nov 3, 2015 on econ 280 for Thursday at Jolly Green General
I have learned throughout my economics classes that it is not so simple to come up with policies for tackling issues. While we would like to make things more simple and less complicated, our models rely on assumptions that may or may not hold true. In Tuesday’s class, we discussed this more in depth in regards to assumptions of the agricultural and urban sector. While the assumptions may hold true in some places, it may not necessarily hold true in others. This paper illustrates why there can’t just be one universal policy to remedy a problem – such as trying to get more economic growth. Each country has their set of unique values and institutions that will determine whether a policy will work or not and whether the assumptions behind the economic models are met. This paper gives examples of specific countries and the different policy reforms that worked. It points out the stark differences in China’s policy for economic growth and how the United States would have never recommended the policy reforms that they underwent. However, they had tremendous economic growth from unorthodox institutional practices. Moreover, even countries that seem similar on the surface may need quite different policy measures in order to get the desired effect. For example, Taiwan and South Korea both subsidized non-traditional industrial activities. They had the same end-goal, but the process that they went through to get there were different. While Taiwan did it through tax incentives, South Korea did it through directed credit. Each country has a different recipe for success depending on many factors, and economic models should not necessarily directly translate into policy recommendations as there are many other factors to consider. This quote summarized what I got out of the paper quite nicely: “Economics is full of big ideas on the importance of incentives, markets, budget constraints, and property rights. It offers powerful ways of analyzing the allocative and distributional consequences of proposed policy changes. The key is to realize that these principles do not translate directly into specific policy recommendations. That translation requires the analyst to supply many additional ingredients that are contingent on the economic and political context, and cannot be done a priori.” While economics provides a good lens to look at the problem, additional information is needed in order to ensure success of a policy measure.
The most fascinating part of “The Economics Lives of the Poor” by Abhijit V. Banerjee and Esther Duflo was when they discussed how the poor spend their money. I feel like people often believe that the extremely poor would be spending their last penny on food, but Banerjee and Duflo allude to the idea that this is not always the case. People in poverty often spend some portion on their money on “non-necessities.” I thought it was really interesting when they talked about how the spending on festivals is an important part of the budget for the many extremely poor households. Specifically in Udaipur, they give you the facts that more than 99% of the extremely poor households spent money on some type of festival. One may wonder why such a staggering number of extremely poor people are spending money on festivals instead of food. This does not seem “rational” to us. However, thinking more deeply about this, festival could provide a way of relief. In Nepal, festivals are a big part of life, and it is a time for people to come together and celebrate. I would argue that even the extremely poor are making a “rational” decision. While the extra cents could provide more food, maybe they get something more substantive for their soul and not just their bellies. In this way, they may be getting a higher utility by using the money on festivals rather than on food because it may provide them with more happiness. The main take-away that I took from this article can be summed in this quote: “the poor do see themselves as having a significant amount of choice.” What economics comes down to is decision-making, and this article shows that even the extremely poor are making choices, that they also have to face trade-offs, and that they also have different preferences that yield different utilities.
This article really highlighted some of the thoughts that I have grappled with throughout my economics classes. As Kasey pointed out, we make a lot of assumptions in our classes to make things simple, but then as we progress into other classes, we make assumptions that seem to contradict the assumptions we made originally, or we learn that the assumptions are simply are not true. As the author put it, “You make a set of clearly untrue simplifications to get the system down to something you can handle.” Though the real world is much more complicated than what our model entails, the thought is that the model can at least tell us something about the bigger picture. It’s reassuring the article points out that economics is not the only subject that does this, though economics gets the most critique. The example of the dish-pan in the natural sciences was an interesting one, and something that I had not really considered before. The author makes a valid point when stating that simple assumptions in physical sciences do not get as much resistance as I feel the social sciences get. However, Sara makes a valid point when stating that people and society are always changing – so maybe it is justified that we are more hesitant about accepting simplified models. I personally have had the thought “but this isn’t actually what happens” many times when looking at simplified models, but which is worse – having no model to explain something or having a simplified model that could have some wrong assumptions but still paints a general picture of what could be happening? I would argue that having a simplified model that has some wrong assumptions at least gets us started to have a discussion or a debate in order to move in the right direction and create a model that is more accurate.
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Sep 16, 2015