Global Economic Development Class

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Global Economic DevelopmentClass 2

• Objectives
• Show that most measures of well-being are
  positively correlated with GDP per capita
• Show development as a multi-dimensional process,
  a system
• Question Which elements a good benchmark model
  of development should have?

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Correlation 1 Per capita income Life Expectancy
3
Correlation 2 Per capita income Adult Literacy
4
Correlation 3 Per capita income Infant
Mortality Rate
5
Correlation 4 Per capita income Percentage of
Labor Force in Agriculture
6
Correlation 5 Per capita income Happiness
7
Correlation 6 Per capita income Capital per
worker
8
Correlation 7 Per capita income Population
growth
9
Correlation 8 Per capita income Total
fertility rate
10
Correlation 9 Per capita income Daily per
capita Supply of calories
11
Correlation 10 Per capita income Average years
of schooling
12
Correlation 11 Factor accumulation Rule of law
13
Correlation 12 Per capita income Degree of
corruption
14
Correlation 13 Per capita income Inequality
15
Correlation 14 Per capita income Value of work
16
Correlation 15 Per capita income Social
capability index
17
Correlation 16 Per capita income Ethnic
fractionalization
18
Correlation 17 Per capita income Latitude
19
Correlation 18 Per capita income Natural
capital per capita
20
Correlation 19 Per capita income Carbon
dioxide emissions
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• 2. Show development as a multi-dimensional
  process, a system.
• It is a system because demographics, health,
  education, values, geography, law, conflict and
  economics interact.
• Question Which of all these are essential to
  account for the data and which we can set aside?

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Inequality
Rule of law Degree of corruption
Land per capita (Natural resources)
Learning by doing
Research Development
Income per capita
Labor force in agriculture
Adult literacy Schooling
Urbanization
Physical capital per worker
Mortality
Fertility
Latitude
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• First take in what is important Sala i Martin et
  al Regressions
• Some variables are robust in explaining growth
  rates.

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(No Transcript)
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• 3. Question Which elements a good model of
  development should have? (Main source Lucas
  2002)
• Should be useful to describe all economies, less
  developed and more developed. This is because we
  want to understand the process from one situation
  to the other one. (Until the 70s, development
  theory only applied to poor countries and growth
  theory only applied to advanced countries).
• Should we include increasing returns? Lucas Yes
  Parente and Prescott No.
• Should we include external effects? Lucas Yes
  PP No.
• It seems trade should be included, but not usual
  theory!

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• Diffusion of productivity gains promotes
  convergence
• But diffusion depends on trade and nature of
  goods traded
• Learning by doing or formal learning?
• Fertility?
• Nature of stock of knowledge increased return of
  human capital for average family from growth in
  stock of useful knowledge.
• Nature of society possibility of social mobility
  (or, better, possibility of profiting from
  increased returns)

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• Some trends that should be accounted by a
  development model (based mainly on Ray)
• Population growth rate diminishes
  (cross-sectionally and in time) with higher
  income
• Labor force in agriculture diminishes with higher
  income
• Urbanization increases with higher income
  (agglomeration)
• Exports change from primary products to
  manufactured products with higher income

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• Readings for Tuesday 1/24
• (R) Robert Hall and Charles Jones Why do some
  countries produce so much more output per worker
  than others?
• Readings for Thursday 1/26
• (S) Parente and Prescott A unified theory of the
  evolution of international income levels
• (S) Lucas Making a miracle
• (S) Chari, Kehoe and McGrattan The poverty of
  nations a quantitative investigation
• (R) Required
• (S) Suggested