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Jacqueline Carson
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Barry Eichengreen and Ashoka Mody's paper "Interest Rates in the North adn Capital Flows to the South: Is there a Missing Link" attacked the discrepancy that existed in finance economics for many years. Qualitatively, evidence has shown that international interest rates and capital flows of investment have a negative relationship. However, empirical regression analysis has not shown the relationship as such. Many ideas have been tossed around for what affects capital flow of investments to developing countries, not the least of which is the internal stability and political structure of the country receiving the flow. What past empirical experiments have left out of their regression analysis is examining both the supply and the demand of the capital flow. By just looking at supply of the capital flow they are eliminating a very important aspect - the actual market demand for bearing the debt that the receiving country bears. The authors argue that by leaving out this large detail, past experimenters yield inaccurate results. By including the demand, the researchers have decreased the disparity between the qualitative and quantitative research. They concluded by stating that international interests and capital flows do have a negative relationship. This article reminded me a lot of the article that we read about FDIs when Professor Siwal was guest lecturing. That paper also discussed how hard it is to identify what causes FDI. It is interesting because it seems that there are many lay perceptions about FDI (that it is always helpful, the more the better, its causes etc.) but when it is studied empirically, the perceptions do not always hold true. However, what this paper teaches us is that we must always question the status quo and constantly look for new explanations that could shed light on the given issues. What I keep gathering from most of the papers that we read regarding development is that there is never one exact answer to solve the problem. This is why the study of economic development is frustrating but also why it is so important.
Toggle Commented Nov 18, 2015 on ECON 280 for Thursday at Jolly Green General
This article gave a very good comprehensive look at evidence for climate change, the negative effects that we're already seeing, and the predicted effects if we continue on the same path that we are currently as a planet. The evidence is staggering and extremely alarming. The negative effects reach almost all spans of the environment and daily lives, whether its raising sea levels to reduced soil capacity to increased incidence of diseases (something that I had never thought of before as a result of climate change, but makes a whole lot of sense not that I have). As Rachel mentioned in her post, it is extremely concerning how many people still don't believe in climate change. Of particular concern, at least to me, is that the two Republicans that are leading in the polls, Donald Trump and Dr. Ben Carson, have neither said climate change is real nor have they called for any degree of action to mitigate it. The article clearly emphasizes that it is necessary for countries to come together to "turn down the heat." As the United States is the leading world power, we should be taking large steps to push the international community towards working together to combat climate change. I worry that if either of those candidates do assume the presidency, they will not be willing to cooperate with the international community to help slow the rate of climate change and leave our future generations with an Earth that is not as productive and causes major strains on daily life.
Toggle Commented Nov 11, 2015 on ECON 280 for next Thursday at Jolly Green General
As someone interested in health, economics, and poverty, I found the Sachs and Malaney article on malaria and poverty to be particularly compelling. It reminded me a lot of our discussion in class today regarding why fertility/death rates may be so high in underdeveloped nations - when the probability of death is so high in a region due to a disease, it makes complete sense why families may have more children. Traditionally these high rates may eventually lead to development but that assumes that the health technology from human capital will be produced in order to cause the population shift. However, if people keep dying because of a persistent disease, the economic theory may not hold and development may not occur. The article simply reaffirmed a concept that we already know - poverty cannot be boiled down to one cause. All of the issues surrounding poverty - health, education, agriculture, etc. are so intertwined with each other. I may be biased by my propensity for health issues, but I can't help but think that tackling the health problem of malaria should be the first course of action. Without proper health, it is impossible to fulfill the other human capabilities of life. Without fulfilling the other human capabilities of life, development will never occur. It's clear that this article is trying to motivate investors to give more money to help eradicate malaria. Jeffrey Sachs has a huge reputation for being a proponent of foreign aid. Sachs continually argues that a "big push" of aid will help the problem. However, his critics say that there has been so much aid being given already and the problem is still astounding, so what is the point? With such astounding numbers of people, children in particular (1-3 million per year) dying, it is depressing that more isn't being done, especially when there is so much empirical economic, medical, and psychological evidence that there are simple ways to decrease the rates and that the disease has numerous and comprehensive negative externalities. I'm very curious to hear the economic argument against sending aid for malaria that some of Sachs' critics would offer.
Toggle Commented Nov 4, 2015 on econ 280 for Thursday at Jolly Green General
As most of my fellow classmates have mentioned, Rodrik's article really emphasized that there is no quick fix for development which is something that we have talked about in class quite a bit. When I was reading this article, I started to think about how much politics, in multiple senses, can get in the way of fixing a development problem. Most policy makers are not economists (I looked up the statistic, only 8.4% of congressmen have degrees in economics) and though they may have economics advisors, their decisions will more than likely not be as well informed as they could be regarding development economics. It is so easy to make an assumption about a particular model that is not true, implement the policy, and have it be a failure. It is also easy, when policy makers do have a success, for them to think of it as the only way to do things correctly and then try to promote it globally. This nationalist success policy, as Rodrik pointed out over and over again, more than likely will not transfer over well to other countries/regions of the world. Yet policy makers continue to push these strategies and gain a superiority complex which thus can impede further growth for the nation particularly when it comes to sustaining it. As the author says, “hard work needs to be done at home,” not "done at a country located halfway around the world."
A lot of my fellow classmates have been posting about their perceptions of what the poor spend their money on in their comments, particularly how entertainment purchases are unexpectedly high. As Rachana says, it doesn't seem rational at first to us because we place such an emphasis on meeting the basic needs of food, water, shelter, and health (in general). Entertainment is a seriously under-appreciated basic function of life and doesn't seem to get full credit for the important role that it plays in human life. Anyone who has a taken a poverty class here at Washington and Lee has read the noteworthy works of Martha Nussbaum . Her works are inspired by Sen and his capability approach as we discussed in class yesterday. Nussbaum takes Sen's approach and outlines the 10 core human capabilities. Of course there are the ones that one would probably expect to be on there - life, bodily health, integrity. But the ninth, and in my opinion, the most underrated is "play - being able to laugh, to play, to enjoy recreational activities". Play is essential to human life, just not necessarily essential to what we think of as survival on a daily basis; it helps foster relationships, create a high self worth, and relieves stress, among many other things. Without play, humans cannot be as productive or efficient as they could be. Thus, it does not surprise me that the poor are spending a larger proportion of their income on festivals and other forms of entertainment. Play has a lot of positive externalities which often go unnoticed when trying to measure development and understanding the poors's choices.
The history of economics is a subject that I have never given much thought to, but this article certainly made me want to think about it more in depth in relation to other fields and not just development economics now. I never realized that the process of synthesizing a new field in a subject could be so difficult. Upon reading this article, I couldn't help but think of how conformity truly rules our society and impedes innovation. It seems that Krugman is frustrated with the conformity within economics making the field closed minded to tools other than models. He advocates for the "folk wisdom on clouds" in the concluding section and laments the "what could have been" of development economics. Because of this, like Kasey, I questioned whether or not there were any other alternatives to economics other than using formal models but then Krugman immediately followed up to my thought with "there is no alternatives to models." It seems to me that Krugman is falling into his own trap of being too close minded. Although he acknowledges the use of more fluid contraptions to explain development economics (and economics in general), he never seems optimistic about the prospects of letting go of the model as the core norm. I would argue that if he took a more optimistic approach to a paradigm shift for economics, innovation and understanding of the field could potentially grow dramatically. With the continued mindset of solely model usage in economics, nothing will change and the future "development economics" will continue to die out unless they conform.
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Sep 16, 2015