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Peter Partee Econ 280 – Development Economics Professor Casey “Are There Lessons for Africa from China’s Success against Poverty?” The quotation below is an excerpt from the article that I will explicate: “There is a possible greater risk [of transplanting institutional practices] from the East. It would be naïve to assume that all Africa needs to do is copy China’s specific policies to achieve China’s success. The period since 1980 has seen a sequence of (often radical economic reforms in China, which moved the economy from being highly controlled to more market-oriented. Those reforms naturally reflected (relatively unusual) circumstances in China, and may make little or no sense as a blueprint for policy making anywhere else.” While the authors state that Chinese policies may not be applicable in Africa for reasons such as that African countries have higher inequality, higher dependency rates, and lower population density, another central aspect is that Modern Day China’s socialist economy comes from a long lineage of state-planned economies that have dominated the nation. In Politics 105 I learned that in 1912, Chinese revolutionaries who were dissatisfied with the imperial economy overthrew the Qing Dynasty, who had ruled for over two hundred years. Over the course of the next decade, while the Republic of China was officially the state government, communism fought for ultimate support, which it garnered in 1920 when the Chinese Communist Party was founded. Mao Zedong led communist China through a period of what Karl Marx called “permanent revolution” by implementing radical programs such as “The Great Leap Forward” and “The Cultural Revolution.” Throughout Mao’s rule, he fought the growth of bureaucracy, attempted rapid industrialization, and expanded the Chinese population twofold, only to witness millions die from famine. Under these dire political and economic pretenses, Deng Xiaoping emerged as the leader of China. Deng correctly diagnosed the economic shortcomings of Maoian thought: extensive state intervention and centralization of power strangle economic growth, rapid industrialization is unrealistic, and suppression of the people’s rights leads to inefficiency. Deng Xiaoping endorsed the previously constructed program “The Four Modernizations”, which advocated the development of agriculture, industry, science and technology, and national defense. The success of this overhaul program was largely based on Deng’s willingness to “adopt policies of nonintervention” by allowing “economic developments to unfold without constant interference from the Party or government.” The results of the Deng Xiaoping’s political economy are history, and China’s successfulness during this period is unquestionable. The terrible results from many of these decades of socialist rule resulted in a quazi-liberalizing of the economy that was ultimately unbelievable lucrative. These circumstances are not necessarily directly applicable to Africa. Social, cultural, and historical contexts are vastly different.
Toggle Commented Dec 5, 2013 on China and Africa (Econ 280) at Jolly Green General
Peter Partee Econ 280 – Development Econ. Professor Casey “Agroforestry adoption in Mexico: using Keynes to better understand farmer decision-making” Professor Casey’s research question addresses an aspect of farmer behavior that does not, at first glance, seem rational. Empirical evidence suggests that agroforestry, or the practice of “planting trees on farms,” is both financially beneficial to farmers and environmentally favorable. However, existing data also points towards farmers overwhelming decision to not engage in agroforestry. Why do Mexican farmers in the early 1990’s not pursue agroforestry opportunities? Investor confidence is low regarding such practices. Even if information is readily available and logically sound, the receiving party must have faith that it is so. The irony is that a decision to begin agroforestry diversifies outputs, which reduces uncertainty about draughts. A particularly revealing citation in the piece is from an economist named Ellis who states: “skepticism about innovation is through to be largely related to imperfect knowledge about innovations and agronomic practices appropriate to them.” In particular, this quotation rang true to human decision making to me. When someone is inundated with new or different information, despite the greater community’s certainty about it validity, one might decline to pursue its merits based on its foreign nature. We discussed this phenomenon during class concerning immigration. Prof. Casey stipulates that increases to the human capital of decision-makers will increase their propensity to engage in agroforestry practices. According to Schultz (1964), farmers with higher levels of human capital are able to better utilize new technology. Human capital is being used as a proxy for uncertainty. In other words, acceptance of factual information pertaining to agroforestry can be measured by how educated someone that farmer is. The results yield all the expected variables expect the one pertaining to income. This variable’s sign can be interpreted the following way: that farmers interested in agroforestry have lower incomes. I found this to be puzzling as I am sure the author did. Finally, results supported the initial hypothesis of the research, namely that increases to human capital increase decision makers propensity to engage in agroforestry.
Toggle Commented Nov 14, 2013 on ECON 280 Paper for Thursday at Jolly Green General
Peter Partee Econ 280 – Development Economics Professor Casey “Child Labor” Christopher Urdy Urdy initiates his piece on child labor by describing the trade-off occurring when a child enters into a labor market: the child’s future human capital is sacrificed for immediate financial benefit. In other words the opportunity cost of engaging in child labor is that child’s schooling and acquisition of important non-work related skills. What is most disturbing to me about this transaction is that, while it may occur out of dire necessity, the child’s freedom to pursue what might be best for himself/herself is restricted entirely; Amartya Sen’s “capabilities” and “functionings” are appropriate comparisons here. Section 2 contains dire statistics: “one in ten of the world’s children were working full-time.” Child labor affects Asia the most in aggregate terms, but Africa the most proportionally. Also, child labor is largely comprised of those in agricultural and rural areas. Later in Section 2 it is said that household incomes and child labor have a strong negative relationship, yet increases in wages don’t necessarily change households’ decisions to engage in child labor. If the child is getting paid more, then the parent’s opportunity cost of sending the child to school increases, this substitution effect works against efforts to decrease child labor. I found this point to also be particularly revealing: parents in poor households, more so than in other households, seem to be profit-maximizing unitary rational actors, rather than utility maximizing. Perhaps this is because poverty places families in such dire circumstances that utility is derived from any marginal increase in profit, which can significantly change standards of living. Urdy describes child labor as having a self-reinforcing effect. Children who are forced into child labor are significantly less likely to attend school, as they age - adults who are less educated will have lower incomes and will be less likely to provide opportunities for their children to go to school, and in turn are forced to make their children enter labor markets. Urdy discusses how the cycle can be broken if one generation of parents can increase their incomes to high enough levels to avoid the necessity of child labor, enabling the child to pursue investments in his or her human capital. Urdy also discusses the imperfect information involved in parents’ decisions to send their child into labor markets. If parents were fully aware that their children would receive a lesser wage, because of decreases in human capital investment due to engagement in child labor, then they would be able to more appropriately calculate the costs associated with doing so. However because the perceived present value of child labor is skewed, Urdy estimates that parents are more likely to send children into labor markets. Also needing to be incorporated in parents’ decision-making process with regard to child labor are the social benefits associated with investments in education for children. Educated childrens’ production possibilities frontiers socially and financially are much greater.
Toggle Commented Nov 6, 2013 on Corel Office Document at Jolly Green General
Peter Partee Econ 280 – Development Economics Professor Casey “The Economic & Social Burden of Malaria” Jeffrey Sachs and Pia Malaney are interested in an observable correlation between countries with high levels of malaria and low levels of development. On this this correlation: “The global distribution of per-capita gross domestic product in 1995, adjusted for purchasing power, shows a striking and unmistakable correlation between malaria and poverty.” The relationship remains significant when controlling for other contributors to development such levels of human capital, life expectancy, initial income, and macroeconomic policy. Of the nature of this correlation between malaria and weak growth, the authors indicate that causality might work in either direction or both. In terms of remedying the problem, the authors mention what we have alluded to in class: that development is necessary but not sufficient to solve the malaria problem. The authors begin their explication of malaria by speaking to the shear magnitude and scope of the disease across the world. For example, every 40 seconds a child dies of malaria, and 300 to 500 million cases of malaria are diagnosed every year. The authors indicate that while some successful attempts have been made at the country level to eliminate the disease, that migration, poor agricultural practices, and frail public healthcare systems have led to the disease’s longevity. In terms of the transmission of malaria, it involves a female Anopheles mosquito who encounters the malaria parasite by drawing blood from an infected animal. The disease thrives in tropical and subtropical environments; cold environments decrease the rate at which mosquitos can reproduce, thus slowing the transmission rate of the disease. The costs of malaria range from medical costs and forgone earning to broad social costs such as migration and savings. For example, one effect of malaria is that parents will often choose to have more children than they would in a malaria free environment. Parents might adopt this behavior in order to maintain a certain number of living children assuming that some will die; as we discussed in previous discussions, children are seen in developing countries are frequently seen as assets. Another negative effect of high fertility rates is that a decreased percentage of these children will experience schooling and healthcare.
Peter Partee Economics 280 – Development Economics Professor Casey Blog Post 10-24 “Interest Rates in the North & Capital Flows to the South: Is There a Missing Link?” Eichengreen and Mody begin by describing a debate amongst economists about how development is best facilitated by public policy. On one side, reside those who assert that increase privatization at the firm level and country-wide economic liberalization will lead to increased growth. Whereas on the other side of the argument, economists and policy makers contend that monetary policy, specifically manipulation of interest rates can attract investors searching for yield when countries like the United States have particularly low rates. The authors focus on the latter of these approaches by responding to previous econometric studies, in which regression analysis failed to appropriately explain the link between U.S. treasury rates and emerging market spreads. Ordinary least squares regression techniques are “misleading,” because United States treasury rates affect the nature and volume of international lending. In contrast to previous research, the authors find evidence to suggest that changes in Unites States interest rates significantly affect emerging market spreads. This is perhaps, the most important aspect of this paper to recognize: that it is a reconciliation of theory and previous research. A point of contention for the authors is that the developing country wishing to receive capital inflows needs to undergo economic reform in order to become a more attractive, safer, investment for international capital, as well as experience a decrease in interest rates in developed countries. Rather the decrease in interest rates in “industrial countries” is the most important factor in international inflows to developing countries.
Peter Partee Econ 280 – Prof. Casey Blog Post Week 3 “Women Empowerment and Economic Development” Development economics normally stipulates that strides toward equality can be made as a result of macroeconomic growth. However, Esther Dulfo observes whether this assertion might contain endogeneity, namely that greater equality for women can result in growth. Duflo first establishes the depth to which inequality is rampant in developing countries; citing World Bank statistics about women suffering significantly lower rates school enrollment, labor force participation, and life expectancy. When poverty stricken families make decisions at the margin they often neglect, or subordinate, the needs of female children. The traditional development economics story would indicate that reducing poverty reduces families’ needs to make those types of decisions. Duflo suggests that growth is not sufficient for economy-wide inequality, but that growth in conjunction with policy reform leads to empowerment. Expectations precede parents’ decisions about how to treat their sons and daughters and how to allocate their assets among them. If parents anticipate that their daughters will have fewer opportunities, Duflo suggests that they will often invest in their sons. While this is certainly an abhorrent practice, the objectification and utilization of children as productive assets is another issue that poverty stricken families confront. Duflo provides an example in India where the Business Process Outsourcing centers recruited from notably discriminatory areas in India. The result of the recruiting was that parents began to enroll their young girls in school at higher rates, affording them the opportunity to be recruited. Another method to implement policy to empower women in developing nations is to make them available to do more work. In many countries women do most of the household chores, Dulfo argues that is appliances are made more available to households then women be able to pursue better opportunities. This reminded me of the example we referenced in class about handing an agrarian family a tractor, which allows children to move to more lucrative areas of a country. China is utilized as an example of a country, which has experienced decades of double digit GDP growth, yet has not experienced equality in gender birth rates. Duflo argues that policies that explicitly favor women are justified and the “gender equality being desirable and worth the cost it implies” economically and socially speaking.
Krugman sees the Rosenstein-Roden, "big push" model as the height of the high development model, using it as an instance to demonstrate a situation in which theoretical economics can come short of pragmatic utility. The article then turns to an African map-making analogy, recounting the importance of endogenizing economies of scale. Up until this point, formal models for development economics tended to gravitate towards being more qualitative in nature, or more formulaic and less purely quantitative. In order to incorporate economies of scale, economists in the mid 20th Century had to violate perfect competition assumptions. Krugman circles back to discuss the necessity and difficulty in modeling the social sciences. Humans act irrationally. "It is easy to give facile advice. For those who are impatient with modeling and prefer to strike out on their own into the richness that an uninhibited use of metaphor seems to open up, the advice is to stop and think. Are you sure that you really have such deep insights that you are better off turning your back on the cumulative discourse among generally intelligent people that is modern economics? But of course you are. "And for those, like me, who basically try to understand the world through the metaphors provided by models, the advice is not to let important ideas slip by just because they haven't been formulated your way. Look for the folk wisdom on clouds -- ideas that come from people who do not write formal models but may have rich insights. There may be some very interesting things out there."
Something that I was considering while reading this research was that the profit-maximizing, efficient equilibrium is not necessarily, and seldom is, the socially optimal equilibrium as well. The negative externalities created by efficient markets can yield huge inequality that you don't even have to go far to observe. According to the CIA's GINI coefficients (see bottom for link), the United States has a more unequal income distribution than a couple of the countries that were sampled for this MIT research. So for as easy as it is to kind of disengage from this research and say, "well that's something that happens in impoverished countries etc." Inequality is really all around us; the only difference is that there is simply more capital in the United States. As far as the research itself goes, statistics that jumped off the page to me were that 60% of families have a member that migrates to work, as well as that on average only 2% of the budgets of those sampled went towards educational opportunities.
Toggle Commented Sep 12, 2013 on Economic Lives of the Poor at Jolly Green General
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