Midterm Study Guide

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International Development Studies
Ryan Isakson

P OLITICALE CONOMY OF INTERNATIONAL D EVELOPMENT Study Guide for Mid-semester Examination The mid-semester exam for IDSB01 will be held in class, from 3-5pm on October 31. The exam will likely consist of three types of questions: definitions, comparisons of concepts and ideas, and short responses. I will show-up to class at 3pm and distribute the exam to students who would like to begin before 3:10. The following is a list of topics to help guide your studies. Broad themes: Be able to explain what political economy is, how it differs from conventional economics, and why it is relevant to the study of international development - The study and use of how economic theory and methods influences political ideology. - Political economy is the interplay between economics, law and politics - how institutions develop in different social and economic systems, such as capitalism, socialism and communism. - analyzes how public policy is created and implemented. Be able to list internal and external barriers to development Internal: - inequalities in the existing distribution of land ownership (for most countries, wealth distribution is intimately related to the nature and power of class relations in society and control over economic resources and the political sphere) - the level and efficiency of infrastructural development (roads, electricity, water, communication services, port facilities and so on) - the role and level of development of organized banking and lending activities and of equity (stock) and other financial markets and financial intermediaries - an ineffective or underdeveloped educational system, including both relatively low levels of literacy and an imbalance between allocations of financing to lower and higher education - prevailing ideological concepts and their impact on thinking and behaviour, including the influence of religious thinking, the accepted role of women and ethnic or religious minorities, the prevailing economic orthodoxy - the initial endowment of natural resources of a nation - the role of the state, that is, the power and nature of the influence of government, including the degree of political freedom and the strength of democratic processes - the extent and importance of political corruption and patronage and the impact of these on public policies and on economic behaviour of those governed - the existence of substantial market failures, in which market signals are not fully, completely, or accurately transmitted to economic agents, thus distorting resource allocation, production decisions, spending patterns External - multinational or transformational corporation - the international division of labour and the prevailing patterns of international trade (e.g., primary commodity exporting countries versus manufactured-good exporting countries), including the operation of the organized institutional structure of the international trade system, the effects of the World Trade Organizations negotiations and of regional trading arrangements, such as the European Union (EU) or the NorthAmerican Free TradeAgreement (NAFTA) - the functioning of international financial institutions, including not only the international private commercial banks, but also the World Bank and the International Monetary Fund (IMF) - the influence of the geopolitical and strategic interests of larger economic powers vis-`a-vis smaller and weaker economic entities - the economic policies (on interest rates, for example, or on tariffs or non-tariff barriers) of more developed nations on the global economic system Be able to explain the different measures of economic development (e.g. GDP, GNI, HDI). What, specifically, does each one measure? What are the relative strengths and limitations of each measure? What adjustments are commonly made to income-based measures? GDP - the market value of all final goods and services produced within a country in a given period - GDP per capita is often considered an indicator of a country's standard of living - The major advantage of GDP per capita as an indicator of standard of living is that it is measured frequently, widely, and consistently - The major disadvantage is that it is not a measure of standard of living. GDP is intended to be a measure of total national economic activity a separate concept GNI - the sum of value added by all resident producers plus any product taxes (less subsidies) not included in the valuation of output plus net receipts of primary income (compensation of employees and property income) from abroad. - the profits of a US-owned company operating in the UK will count towards US GNI and UK GDP, but will not count towards UK GNI or US GDP - if a country becomes increasingly in debt, and spends large amounts of income servicing this debt this will be reflected in a decreased GNI but not a decreased GDP - if a country sells off its resources to entities outside their country this will also be reflected over time in decreased GNI, but not decreased GDP HDI - measures a country's average achievements in three basic aspects of human development: longevity, knowledge, and a decent standard of living. - Longevity is measured by life expectancy at birth - knowledge is measured by a combination of the adult literacy rate and the combined primary, secondary, and tertiary gross enrollment ratio - standard of living is measured by GDP per capita. - an indication of where a country is development wise. - The index can take value between 0 and 1. Countries with an index over 0.800 are part of the High Human Development group. Between 0.500 and 0.800, countries are part of the Medium Human Development group and below 0.500 they are part of the Low Human Development group. Be able to interpret different measures of income distribution (e.g. Gini coefficient, Lorenz curve) Gini Coefficient - a number between zero and one that is a measure of inequality.An example is the concentration of suppliers in a market or industry.- the ratio of the area under the Lorenz curve to the area under the diagonal on a graph of the Lorenz curve - if the suppliers in a market have near-equal market share, the Gini coefficient is near zero. If most of the suppliers have very low market share but there exist one or a few supplies providing most of the market share then the Gini coefficient is near one. Lorenz Curve - Agraphical representation of wealth distribution - On the graph, a straight diagonal line represents perfect equality of wealth distribution; the Lorenz curve lies beneath it, showing the reality of wealth distribution. - The difference between the straight line and the curved line is the amount of inequality of wealth distribution (described by the gini coefficient) - can be used to show what percentage of a nation's residents possess what percentage of that nation's wealth. For example, it might show that the country's poorest 10% possess 2% of the country's wealth. Be able to explain the relationship between economic growth and inequality - Acountry's economic structure or system (for example, capitalism or socialism), ongoing or past wars, and differences in individuals' abilities to create wealth are all involved in the creation of economic inequality. - According to Kuznets, countries with low levels of development have relatively equal distributions of wealth. As a country develops, it acquires more capital, which leads to the owners of this capital having more wealth and income an
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