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To me, the thing that is most unsettling about the externalities of climate change is that it will affect low income people the most when, in most cases, they contributed very little to human caused global climate change. In the past, natural disasters like hurricanes are costly and tragic, but at least there is no human cause of that tragedy. In my Water Resources course from last semester, we discussed just how much greater the risk of hurricanes is due to the warming waters of oceans. We also did a mock evacuation and realized that low-income people had far fewer resources that would allow them to evacuate and often work in places that are less flexible with workers taking time off to evacuate. They also have a difficult time with repairs of their homes as they do not have very much excess income or proper insurance to rebuild their homes. We also discussed the impact of global temperature increases on malaria. The World Bank article had a small graphic on health that says malaria incidence will increase as global temperatures increase. Referring back to our articles on malaria from earlier in the semester, malaria effects poorer people at higher rates as they often cannot afford to take preventative measures that allow them to avoid malaria. Some of the literature I read for my final paper also mentioned how in America poor farmers in the Midwest and poor laborers in the south and Gulf Coast will lose copious amounts of labor hours due to extreme heat and heat caused deaths will increase exponentially. Low income people are often more dependent on the wages from those labor hours, and they also are more exposed to heat as they have less resources that grant them access to cooling measures. I completely forgot to write a blog post last night. I apologize!!
Toggle Commented Dec 5, 2019 on Last Blog Post for the Year at Jolly Green General
The paper on aid’s impacts on poverty reduction reflects the thesis that we have been working with all semester: the question of effectiveness of policies for economic development are most often answered with “it depends.” As maddening as this can be for policymakers and researchers, I found this article to be extremely comforting. No, most aid programs are not resulting in skyrocketing income levels that politicians can build campaign rhetoric around. However, there are statistically significant increases in education, sanitation levels and many other aspects of the MPI with increased aid. As we discovered earlier in the semester, the extremely poor are not less happy on average than the non-poor, however they do face significantly higher stress and anxiety levels due to all the headaches thrown their way on a daily basis. If aid can alleviate this stress through allowing children to be healthier and have access to more calories and go to school longer then I would strongly disagree with anyone who argues against the effectiveness of aid, despite its inability to raise income levels. Another aspect of the paper that was interesting and confirmed many of our findings from the semester was the increased impact on growth from aid for countries with effective institutions already in place. We cannot expect huge increases in growth by just throwing money at developing countries and not working with them to build their human and physical capital levels. In conclusion, I do think this paper proves that aid is useful, and poor people are often extremely crafty in their use of additional income to better their lives.
Toggle Commented Nov 20, 2019 on Next Week at Jolly Green General
This paper was captivating to me because in Macroeconomic Theory with Professor Davies we are currently working through the Mundell-Fleming model, which is the open market model of the economy in which the equilibrium for exchange rate is determined by the supply and demand for foreign currency. We have been working up to this model all semester by using the IS and LM curves, which is the prerequisite for the Mundell-Fleming model. The IS-LM model uses combinations of interest rate and income that result in equilibrium in the goods market and the money market. The Mundell-Fleming model also defines the balance of payments between two countries which is that Balance of Payments (BOP) = current accounts (CA) + financial accounts (FA) where current accounts is defined as Exports – Imports and the financial accounts is capital inflows – capital outflows. The paper relates most closely to the Mundell-Fleming due to its discussion of financial accounts as capital inflows and outflows are affected greatly by the interest rates of developed countries, especially the US. In the model, if there is a shock that brings down the interest rate in an economy (usually comes about with an outward shift in the LM or inward shift of the IS), this leads to a decrease in capital inflows and an increase in capital outflows as investors have less of an incentive to put their money into the domestic economy with a relatively low ROI. The opposite is true if the interest rate rises. I would like to know if this model is applicable to the interest rate fluctuations in this paper, as I never knew domestic changes in the interest rate could have impacts on the interest rates in developing countries, and it makes the Mundell-Fleming model even more interesting to study.
Toggle Commented Nov 13, 2019 on For Thursday's Discussion at Jolly Green General
Both of these readings immediately made me think of the Bill & Melinda Gates Foundation. Much of the mission of their charity is eradication of malaria and treatment of HIV and AIDS among other important tasks like empowering women’s education. I noticed the article on malaria was written in 2002, and I was relieved to read on the Gates Foundation website that deaths from malaria have been reduced by half since 2000 so I hope the appalling data presented in that article looks better today. The malaria article also made me think of the case study we discussed earlier in the course for the incredibly high rates of return to education if intestinal worms was also treated in the child. The fact that malaria is preventable and treatable, like intestinal worms, elicits an emotional response that we have a responsibility to help these people because it is so low cost to help. Moreover, it demonstrates the trend we have observed throughout the semester that ROI on various endeavors in low-income countries can be incredibly high because easily fixable things are hampering development. The malaria article also elicited an emotional response when it discussed the expansion of the malaria problem as the climate changes. I have often heard people proclaiming that climate change impacts individuals in low-income countries at a higher rate than those in higher-income countries, but I had never heard concrete examples. The fact that malaria will worsen in poor countries where it is already rampant as the earth warms is very sad and further demonstrates the dire need to do something to slow and stop climate change. Both articles illuminated our flu shot example of the incredibly high marginal societal benefit of preventing and treating diseases like malaria and HIV/AIDS. When people are treated for malaria and HIV, this lessens the probability that they will spread the disease to others. As a side note, it was interesting and sad that the spread of these diseases actually often occurred together as malaria requires blood transfusions that sometimes inadvertently infect the recipient with HIV. The prevention and treatment of these diseases has huge positive implications for economic development as caretakers are freed to enter the labor market, workers become more effective as their mental health improves due to less worry of being infected with disease, and outside industries have the confidence that they can invest in an area without their people becoming sick. In sum, I had no idea that disease such a role in the poverty trap that occurs in some developing countries. Raising life expectancy and lowering the rate of disease in these countries with widespread disease is necessary to improve human capital investment and grow economically.
Toggle Commented Nov 6, 2019 on 3 readings for next week at Jolly Green General
I found “The Economics of Being Poor” to be relieving and clarifying because up until now, I thought the readings were a bit too assumptive about people in the agricultural sector. For example, the Lewis two-sector growth model just assumes that several people on the farm have a marginal product of zero, and without any investing in human or physical capital, these people can move to the manufacturing sector without any hinderance on the agricultural sector. I know I do not live in anything close to a developing country, but my friends from home who live on farms have extremely high marginal products and it is an “all hands-on deck” mentality to complete all the tasks on the farm. Therefore, I found Schulz’s point that investment in the agricultural sector has high returns on average, in India it was even 40%, to be interesting. This is a highly important finding when considering Shultz’s point that most of the world is poor and earn their living from agriculture. To me, this signals the opportunity of agricultural investment, and once this investment is completed and human/physical capital becomes more effective on farms, maybe then the Lewis two-sector model and others like it can begin to take effect. It also signals to me the problem of the urban bias mentioned in the article, because if most of the poor people are farmers, there certainly needs to be policy that invests in the agricultural sector just as much as the urban sector. I also enjoyed how much this article related to the other discussions in the course so far, especially the ones from last week. One of the positives that comes out of Shultz’s proposition to invest more in “population quality” is the improvements in life expectancy. As soon as I read that, I thought of our discussion about how women have shorter life expectancy in developing countries and thus receive less investment in their human capital because it has less returns due to not being in the labor force for as much time and less pay for the same occupations. Sure enough, Schultz immediately discussed the improved investment in human capital as life expectancy increased, which creates a positive feedback loop between life expectancy and human capital, which will most definitely increase people’s capabilities in developing countries. There were several other points in the article that related to last weeks discussion of gender as increased investment in human capital also lowered the birth rate as the “quality” of each child became more important than the quantity of children. It sounds harsh to say, but this relates to our discussion that as children become more of a liability than an asset from an economic perspective, the birth rate decreases, which has many positive effects on the outcome of women and helps with the population problem that Shultz alludes to.
Toggle Commented Oct 30, 2019 on Blog Post for Next Thursday at Jolly Green General
“Women Empowerment and Economic Development” by Esther Duflo is written in a way that really inspires the reader to advocate for positive change for women’s empowerment. It made me want to charge into developing countries and tell them exactly what they need to do in order to take advantage of the developmental benefits of increased women’s economic and political autonomy. After thinking about all the policy recommendations that are available to better the lives of women and girls, I began to think about the early readings and discussions of the course in which we learned how important cultural factors are in determining the effectiveness of policy in various countries. I also finished the reading with Duflo’s concluding thought that in order to bring about gender parity, we must take policy actions that favor women at the expense of men (1053). When considering this and how male dominated the political and family systems of many developing countries are, the task of creating more gender equality seems daunting. Duflo even states that when one cultural burden is lifted off of women which will allow them more freedom, there are often many others standing in the way to drag women right back down. For this reason, I can see why female political representation quotas might be necessary in countries. Women just have so much to overcome, in many cases centuries of oppression, that Duflo’s point about policy that favors women even if it is at the cost of men sometimes is valid. However, these policy measures are unlikely to be enacted with governments that are run by a high percentage of men. Before reading this article, I would have never favored political quotas because I thought this would discourage the best talent from reaching its potential. However, if more women have to be elected, they will make decisions for women that men most likely will not support because it is not on their radar as much. The women in developing countries that spent more money on the access to clean drinking water and roads over other concerns of men illustrate the different perspectives of women needed to have an effective representative democracy. The other really interesting thing I found in this article was that a lot of times impoverished families do not go out of their way to discriminate against their daughters, they are just the first to have their health and nutritional resources cut when emergencies like droughts occur. To me, this suggests a role for the government to provide the extremely poor with enough of a security blanket so that women do not have to suffer when the family has to make tragic choices about resource allocation. Again: Thank you for the extension to 10 PM!!
I found this piece to be refreshing in the sense that Rodrik admits that development economists do not have all the answers, and in the past when they thought they did, they’ve often been proven wrong. This has been evident in our class discussion of the history of development economics as it seems like every time there is a decade where we think we figure things out, the next decade proves that hypothesis wrong (Harrod-Domar growth model limitations in 1940’s among others). I brought up the topic of education last week in class, and it seemed to me that this article proved its importance further. Institutions (to use Rodrik’s language) that promote the education of development economics in low GDP per capita countries is imperative to successful future growth models. The principles of the Washington Consensus were developed by economists that had a “western” perspective, with emphases on subjects like land privatization, price liberalization, corporatization, etc. These factors are characteristic of the American economic model, and some of them are in line with the cultural concepts present in our constitution. The Washington Consensus ideals certainly haven’t been perfect for American development as our economy still faces high inequality and other difficulties, but it has worked well to grow American GDP because it fits inside most of our cultural identity. Those same ideals have not translated to most foreign countries because the cultural identity of other countries is different in most cases and extremely intricate. That is why institutions in developing countries that teach development economics to their citizens is so important as they will understand the intricate cultural identity of their home country. Again, this takes me back to my ECON 280 Lakota class. Very little of the economic and political reform put in place by the American government has worked on the Pine Ridge Reservation and many of the Lakota’s blamed discrepancies in American and Lakota cultural ideals (among other things) for the horrible economic state on the Pine Ridge Reservation. If the Lakota’s and any other members of developing countries could create their own economic reform with their knowledge of the culture they come from, I think the rate of success on economic reform could be higher. However, it is difficult to start these learning institutions as they require experts to teach the material and hope that reform can create lasting change in the economic environment. The lack of these things can lead to a coordination failure as it is hard for individuals living in countries with very low education rates to acquire the education needed to be an expert in development economics. Moreover, as is the case on the Pine Ridge Reservation, legacy of failed government leads to low hope in the reality of pushing forward meaningful growth legislation. With that said, I know Rodrik would agree that working with locals to understand their beliefs and customs and using possibly unconventional economic growth styles that align with their culture is a better idea than generalizing from success in other countries and implanting a process that is not in alignment with what is on the ground in the country in question.
Toggle Commented Oct 3, 2019 on Rodrik article for Thursday at Jolly Green General
I found the simple model that the author put together at the end to be the most interesting part of the article. Krugman’s evaluation of our history of overlooking intuitive facts as we move to focusing on empirical data was striking, and the simplicity of the model he built illustrates conclusion. The findings from his model present, in my opinion, an opportunity for developing countries to “industrialize.” As we have learned, access to financial institutions is one of the main issues for the poor in developing countries as there are few in the first place and collateral is often hard to come by. It takes a lot of money to obtain the funds to pay for the upfront fixed costs in acquiring a factory or any other means of “modern” production. We have also learned that the poorest of the poor in developing countries are often in rural areas that rely on agriculture for their income. This is a problem that is difficult to fix and could take decades to rectify, but government investment in the capital and technology to build these factories is something this model could be used to advocate for. The article said that even if the economy can produce on a modern level, it must still be profitable for the individual entrepreneur to invest in this production when considering the cost of wages as well. This seems to be a lot to ask of an entrepreneur in a developing country with little access to capital. For this reason, once again I think the government could step in and pay these wages that could take people away from low-income agricultural jobs to modern jobs that will contribute more to the economy. We have seen some of the success publicly owned industry’s in booming places like South Korea, and they could work in places that have been stagnant in their income per capita numbers. My question is does the world bank lend to developing countries to invest in capital and hire workers, and how accessible are those loans? The Solow model has illuminated the positive relationship between saving, and thus capital investment and income per capita, and Krugman further demonstrated this in his simple model at the end of this article. The difficulty is in taking the next step as a developing country to acquiring the savings to invest, and I think the World Bank can help with this issue (Thank you for the extension to 10 PM!)
Toggle Commented Sep 26, 2019 on Reading for next Thursday at Jolly Green General
I found “Institutional Barriers & World Income Disparities” to be quite interesting and illustrative of the power of global trade on development while also showing the hindrances of unnecessary institutional barriers. One of the aspects of the paper that I would like to explore in more detail is the effect of imperialism on some of the African countries who were labeled as lagging behind countries with strong economic growth. All 5 of the “developmental laggards” from Africa were under some form of European rule until at least the late 1950’s. Ghana achieved political independence in 1957, Cote d’Ivoire was a French colony until 1960, Kenya became independent in 1963, Uganda was a part of the UK until 1962 and Comoros did not declare independence until 1975. My question is: isn’t it clear that this would have a direct impact on a country’s economic development? I am no expert on this topic, but one characteristic of imperialism in many African countries was the export of raw materials and thus wealth from these materials going to the European powers that colonized Africa, not to the African countries themselves. I wonder if that wealth had stayed in African countries and allowed to disperse throughout their economies, if some African countries development would be a bit further along in their development? Many of these countries have become dependent on agriculture and often only a few cash crops to support most of their economies (Cote d’Ivoire with cocoa, Comoros with ylang-ylang, vanilla and coconut, etc.) My question again is: if imperialism never existed in these countries and more wealth was available at the top of these countries, could there be more access to financial institutions which might allow more loanable funds to exist in the economy and thus people could specialize and produce services within their country rather than so much of their GDP depending on the export of raw goods? I would like to talk a bit more in class about the effects of African colonization on present day economic development and was somewhat surprised to not see it addressed in the article.
What sparked my interest most in the reading was the inability of the poor and the extremely poor to leverage their current assets into loans that could provide upside to their small businesses. In a very different environment, but similar enough so that it is worth mentioning, the lack of land ownership on American Indian reservations has caused the same issue for tribal entrepreneurs. For ECON 286: Lakota Land, Culture, & Religion with Professor Guse and Markowitz, we went to the Pine Ridge Reservation in South Dakota. We learned that because reservation lands are held in trust by the United States government (trust land is in place to prevent tribal lands from being further confiscated from American Indian “ownership”), American Indians cannot use their land, which is often their only asset, to obtain a loan to pursue a business or any other type of asset they cannot pay for up front. When the article mentioned that often extremely poor people’s only asset is the land they live and even then, the title to the land is difficult to acquire, I immediately thought of the tribal members on the Pine Ridge reservation who cannot obtain loans because they have no collateral. As is stated in the article, many of the extremely poor people studied were entrepreneurs, but their businesses were run on such a small scale that they lacked efficiency. Moreover, the entrepreneurs possess very few usable assets that could be helpful in boosting the profitability their businesses. If a reliable banking system existed in many of the countries that the article studied, and people living in poverty were able to use their land as collateral to obtain a small loan to purchase materials to increase the efficiency of their small businesses, the increased success of their businesses would hopefully take steps to alleviate some of the extreme poverty these hard-working entrepreneurs face. Some tribal banks are stepping up to work with reservation business owners who need a loan to jump start their businesses, and I hope this can become possible in some of the developing countries studied in this paper.
Toggle Commented Sep 11, 2019 on Readings for next week at Jolly Green General
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Sep 11, 2019