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International Development Studies
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(W) 9/11/2013 12:00:00 AM No lecture on Monday because of Labor Day. Study Questions:  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 disposal, etc.) 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  Implicit Taxes o Most of the world today is on a floating-exchange rate system.  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 inst
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