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Wilson Hallett
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In reading Eichengreen and Mody’s article surrounding the flow of capital between the North and the South, I was surprised to read that many of the econometric regression analysis does not support the widely-acclaimed theory that capital inflows to developing countries are largely contingent on interest rates in major financial hubs such as the U.S. As mentioned, the article seeks to illustrate this relationship and uses regression analysis and historical context to do it. The story makes sense over the 20th century. When interest rates were low in the U.S., investors sought higher yielding returns in developing nations. I understand that there are many developing nations in various regions across the globe that have independent governments, financial structures and varying monetary policies that make each one unique and different. The individual state of affairs of each nation would appear to make a difference when deciding where to invest in debt if interest rates were low in the U.S. However, many financial instruments, whether they be in equities or debt, are bundled together in various indexes nowadays (probably more so now, than 16 years ago when this article was written). There is a concept of having diversified investments for individuals and corporations. However, this diversification sometimes only extends to an “emerging markets” level. For example, an individual investor may seek to have bond exposure in his portfolio, but he does not want 100% U.S. treasury bills because rates are so low. He wants to diversify his bond exposure to “emerging markets.” So, he simply buys a mutual fund of bonds of emerging markets. He may not be entirely sure where the actual bonds are located, but he has “diversified” his holdings because he is invested in emerging markets. This simple anecdote follows the story of the article, I think. Investors seek higher yields in developing nations that are willing to offer debt, but may not always distinguish between country and region.
The article carefully identifies the literature that agroforestry farming is beneficial for a number of reasons and should be preferred to traditional methods of farming, but adoption rates still remain low in rural regions. This may be because of the uncertainty of the farmer to effectively utilize human capital to implement agroforestry. Casey argues, through the use of Keynes, that one must have knowledge and information to have enough confidence to weigh an investment into agroforestry. The framework that is used is very compelling. It seems reasonable to assume that rational players in any market will want to gather as much information about a particular endeavor before making a decision to invest money. Casey looks at the particular instance of agroforestry. College education could be another topic that is explored in this manner... just a thought. But any investment shouldn’t be made with asymmetric information or else it is a gamble that is risky, especially when your livelihood is on the line. Hence why poor farmers would stick to traditional methods of cultivating crops, because it gets the job done and the farmers know that. What was the most surprising from the analysis was the negative correlation with income and agroforestry for this one study. We expected income to increase with agroforestry implemented on farms, however this was not found to be the case. Every other variable with human welfare that was expected, was correct. Is this worrisome when presenting information to farmers to help them understand the benefits of agroforestry?
Toggle Commented Nov 5, 2014 on Econ 280 for Thursday at Jolly Green General
The Nobel Prize Lecture by Shultz and Lewis is insightful even though most of what is articulated seems to be common sense once put on paper. That may be the hallmark of a good speech, research topic, paper, or Nobel Prize; insights that haven’t really been analyzed or identified but that make entirely too much sense once acknowledged. The crux of the paper suggests that poor people who work in agriculture are economic agents that do respond to stimulus and incentives and that poor people actually do want to improve their lives, their lot, and their children’s lives, hence why quality is more important than much of the previous developmental economic work that focused on quantity. If poor, agrarian workers are economic agents, which Shultz argues they are, then they respond positively to improved qualities of healthcare, education, etc. This is an idea that wasn’t widely believed for much of the poor. Just like rational actors, poor farmers respond to incentives, Shultz argues. This, we may remember, is true in the case of Chinese farmers upon the slight liberalization of markets that gave the workers the ability to share whatever wasn’t destined for the quota. Productivity increased rapidly. Farmers saw an ability to improve their lives and reacted on incentives. This makes sense. Urban bias also makes sense. Government favor the urban sector, which they believe is synonymous with development. Distortionary measures are placed on the food markets to keep product prices low, which hurts the farmers. This makes sense. When people live longer, they will invest in more education because they will receive benefits over a longer time frame. This improves the lives of the poor. This makes sense. There were a number of other points made in the article that just make sense when we read them. Shultz and Lewis appear to shake off preconceived norms of poor farmers and present a nuanced view that is brilliant in its simplicity and understandability.
Toggle Commented Oct 29, 2014 on Econ 280 for Thursday at Jolly Green General
Thanks Zach, for your repetitive insight into the article. I did enjoy how Krugman sets himself up for this essay about the fall and rise of high development. He begins the article claiming not to be qualified to write such a paper on the topic. A nice literary technique as he then articulates an argument for the next seven thousand words. But I did find his narrative compelling. His Norwegian meteorology folklore, maps of Africa, and dishpan analogies are all creative but still just analogies, literary techniques to drive an argument, and are not the focus of the paper. The focus is that the leader of high development theory, Hirschman, led his followers astray and into the darkness when he alienated his economic thoughts from mainstream economic by not conforming to the traditional model-deriving approach the social science. Here, in the darkness, the ideas fell apart and lost the zeal to inspire others. These ideas were not "teachable," as Krugman writes. According to Krugman, the drive to isolation is all due to one key facet, that economies of scale (crucial to high development theory) were difficult to include in formal, economic models. That simple, according to Krugman. Whether or not that is the only reason, I have no idea. Krugman does an expert's job at outlining the factors that caused high development economic thought to evolve. It's fall was due to the mainstream economists attempting to derive complex models, which were apparently beyond the scope of high development economists at the time. Krugman goes on to argue that the break-through was the "silly" model constructed by Murphy and that if Hirschman and others had just been willing to construct simple models of their ideas, then the ideas wouldn't have stagnated for a generation. They didn't create simple models because it wasn't in fashion, economically speaking. It was more than out of fashion, according to Krugman, simple models were beaten down from the likes of economic intellectuals. But isn't the crux of economics built on simple models, supply and demand, that are obviously imperfect, but highlight very broad strokes of the economic discipline? From these foundations, the social science can grow into more developed and mature models. Surely Hirschman and others knew this... But I think it's wrong to argue that simplified models were ripped apart for their inadequacies.
Rodrik’s piece is interesting in the form of academic literature. Most literature I have experienced that is related to economics usually caters to a uniform economic theory without regard for specific economies. Most recently was piece regarding a “how-to guide” on how to get out of a deflationary or liquidity trap economic environment. The conclusion was a three-pronged approach to be applied to any situation in a country experiencing the negative symptoms of said issues. Rodrik, however, understands and articulates in her essay that many times, unorthodox measures are necessary and that a cookie-cutter economic reform agenda isn’t required for economic growth. The analogy of a western economist visiting China and recommending reforms based on western beliefs may not have worked as well to promote growth as the slight institutions that the Chinese government did end up enacting. Even though Rodrik does recommend a two-pronged approach to growth, the plan is very basic and open to methods of choice to different economies. The approach revolves around short-term plans to ignite growth followed by long-term plans to sustain growth.
Toggle Commented Oct 2, 2014 on ECON 280 Paper at Jolly Green General
The way that the paper is structured is intriguing as it represents the two basic arguments surrounding development and gender inequality. However, it becomes fairly certain early that neither version in its absolute form may be as effective as a hybrid approach of both. Instead of pushing strictly development or strictly gender equality, putting emphasis on both sides will inevitably raise development and lower inequality, as Duflo concludes at the end of her paper. A few points that resonated or struck me, personally surrounded the regressive tendencies of certain societies, specifically India, where the advancement of health technologies leads to an increase in sexual discrimination against girls. Being able to identify the sex of a child before birth has led to sex selection practices by families in India. Advertisements for said sex selection practices are crude and appalling, as described in the article. Beyond the disgust of the advertisements, the illumination of some technological practices (as a result of advances in development) increasing gender inequality was a surprise to me, but makes complete sense. This point flows into the rest of Duflo’s article about strictly improving equality for women over advances in development. Mentioned briefly by Brian above, the part of the article that I could relate to the most was about the issue of time in the lives of women. While my concept of structuring the time in my day for my necessary actions is in no way comparable to the decisions of women in poverty, the underlying principle is the same: if I have more free time in a day outside of what is necessitated by class and other obligations, I can do what I want. Now, while what I want may be for personal enjoyment or relaxation, if women in impoverished circumstances had more time on their hands, it leads to improved lifestyles for the women and families. The way that women can gain more time is laid out in a few studies by Duflo in the article, but this is an area that I would be interested in learning more about. The final point I want to make is based on my brief studies in indigenous Latin American cultures. The Incans and preceding indigenous groups from the Peruvian area believed in systems of two, two gods, two agrarian systems, and two divides of responsibilities in the house. The balance is what was sought in their culture, and balance takes at least two. Women were often in charge of more responsibilities outside of the house, in the economy and trading than men. My long-winded point is that even though these individuals may technically have fallen below a poverty line had it been established then, that their gender equality was a part of their cultural beliefs, something that could be analyzed in more cultures in the modern world.
Toggle Commented Sep 24, 2014 on ECON 280 paper #2 at Jolly Green General
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