(W) 9/11/2013 12:00:00 AM
No lecture on Monday because of Labor Day.
1. What was Hollis Chenery’s distinction between growth theory and
trade theory (?) How does it fit into development economics?
o Clue: What did he mean by no spillover benefits?
2. What were mandatory sectoral allocations and how did they fit
into ISI model?
3.What were guaranteed letters of credit and why were they
necessary in the ISI model?
4. How did public choice theory affect the way in which developing
governments taxed the agricultural sector?
ISI (Import-Substitution Industrialization)
3 ways that people sought to finance these policies
o 1. Local taxes
o 2. Foreign Aid – for infrastructure (railroad, road, sewage
o 3. Foreign Direct Investment – Failed because of the
underestimation of those investors seeking other means to
make money in the same area.
Began taxing agricultural sector (exports) because of
this failing since it was the most stable and profitable.
o According to public choice theory taxing food producers would
be much too complicated.
o Taxing the agricultural sector causes rural resistance to
taxation. Ex. Argentina
o The more visible the taxes the more the rural class realized
that they were the economic losers.
o Political resistance caused other changes in the way you went
about extracting that capital from the agricultural sector
o Most of the world today is on a floating-exchange rate
Until the 1970s, most countries were on the fixed-rate
exchange system and gold standard. Meant that countries had the ability to change the
exchange rate independent on market forces.
Overvaluation of an exchange rate – too few units
of local currency per dollar as measured against
some shadow equilibrium.
If currency is undervalued – too many units of
local currency per dollar.
Taxes on Agriculture
1. Explicit Duties
o A. Export Duties
o B. Local (country) Taxes.
o C. “Development” Taxes. – Ex. 10% surcharge on exports
o D. Marketing and Processing Charges.
2. Implicit Taxes –Exchange rate is an implicit tax that is an ideal