POLC38H3 Study Guide - Public Capital

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Bottom Billion - Study Guide
Globalization’s effects in economies of developing countries comes from 3 distinct process:
-trade is good
-the flow of capital
-migration of people
Primary commodity exports are likely to generate income inequality
There is a huge gap between developing countries and the developed world because of trade
barriers on both side, also the rich world can get away with a huge wage gap because there are
spatial economies of scale.
Economies of agglomeration: one companies moves to where none has and slowly attracts
others. 1990s Asia took hold of agglomeration of manufactures and services, through low wages
combined with economies of scale, neither rich nor the bottom billion could compete. (so the
bottom billion missed the boat) This leads to:
-a reduction of incentives for countries in the bottom billion to reform, make peace, etc
because it’ll be extremely hard to actually achieve anything with so much competition
-people start seeing society as intrinsically flawed
oexpectation of same future causes brightest people to leave
Countries of the bottom billion are short on capital. Public capital can provide the infrastructure
for the economy but only private capital from investors can provide jobs, industries, etc. But
private investors don’t want the risk of investing in a bottom billion country with bad governance
and poor policy. It takes a long time for this view to change because:
-countries with the strongest reforms are those that started with the worst of situations
-their economies tend to be very small
-policy improvements are usually very fragile
Money tends to flow out of the bottom billion than in because of all the instability, corruption,
illegal trade, and a better rate of return through foreign markets
Migration of people is very limited to the brightest and smartest, leaving little behind for the
countries to improve their situation
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