Study Guides (248,457)
Canada (121,562)
Economics (571)
ECO435H1 (4)
Final

ECO435 FINAL EXAM FULL REVIEW NOTES

10 Pages
221 Views
Unlock Document

Department
Economics
Course
ECO435H1
Professor
Loren Brandt
Semester
Fall

Description
ECO435: SUMMARY NOTES WEEK 2 Maddison:In theSung dynasty,theeconomywasbureaucraticandin 1700sChinacutitselfofffromthe Western world. The SUNGDYNASTYwascharacterizedbygrowthinmanyaspects: 1. Population Growth,asthecentre ofgravity shiftstothe south 2. Increasein rice growing andexpansion ofagriculture 3. Printingbooks,increasetransferofknowledge 4. Shipbuilding,compass,andgun powder advancements In the MONGOLrule,population fellby1/3due towarandtheplague.Then,GDPstayedstable. In 1890,agriculture was68%ofGDPand80%ofthelabour force.**URBANIZATIONdependson the surplusofworkersnotin the primaryindustry.That’swhyChinahadaslow development. Therewasalandshortage because only10%oflandwasarable,thuscropswasthefocus,notcattle because theyneedtoeat too.Focuson double cropping,grains,andtextilestoincrease productivity. Intensive growth(ModernEconomicGrowth) –increasein technology,higher productivity Extensivegrowth(Smithian,traditionalgrowth) –moreresourcesor people,butper capitaisstillthe same Mokyr:Chinahadimprovementson irrigation,castiron furnaces,spinning wheel,paper,wheelbarrows, etc. th th After the14 century,growth slowed(extensive growth).Bythe 19 century,shipbuilding stopped,silk andcoalmining became primitive,andnothingwasdevelopedfurther. WHYDID CHINANOTGROW?  Taoistideologyaboutthepeacefulnessofman andnature,ambiguoususe oflogic,cultural influences(dismissedbyMokyr)  Needhambelievesit’stheimperialbureaucracyandlack ofincentivesfor entrepreneursthat ledtotheslowdown oftheeconomy  Exploration stopped,soresourceswerenotabundant CLASS How wasGDPmeasured?Population andLand,anddatawashardtocollectsince boundariesshiftall thetime,andlandlordsconcealedlandtoavoidtax.Somedatawasmadeup,andtheveryconcept ofGDPwasn’t developedin Chinatil1940. Chinawasameritocracyemperor delegatedtothebureaucracybytaking exams.Leadersare rotatedsoyou don’tgettooclosewith thelocals(Law ofAvoidance). WHYDID CHINANOWGROW?  Degree ofurbanization waslow  Perkins–600yearsofagriculture,notalotoftechnologicalchange  Chinawasaunifiedstate,solack ofpolitical competition.People didn’thave thefreedomto migrate,thusifone ideawasn’t accepted,theycouldn’tmove toaplace thatdid  Socialstability….technologycan be sociallydisruptive,especiallyifit decreasesjobs How importantistechnologyin yieldincreases?Notvery!Since it’sverylabour intensive Innovation requiresincentives,propertyrights,alow tax rate,education andexternalinteraction (to expandthemarketandgarnerideas),resources/savings/capital WEEK 3 Perkins:Transportcostsstuntedeconomicgrowth,andsome commoditiescouldonlybe producedin a few regions.Aprovince withoutwaterwayscouldn’tdotrade. Governmentwasinadequate in capitalformation andtechchange. Nomodern banking system,andinterestrateswere high becausetheyhadtoborrow fromthewealthy (30-40%interest,while Englandwas6%) CLASS The great divergence–Pomeranz saidthat 250yearsago,ChinaandEuropeweresimilar,butthen diverged.Reciprocal comparisons –lookatEnglandandsee whatwasmissing in China,and similarly,we can lookatChinatoexplainwhathappenedin England. SIMILAR FORCES:  Population densityarehighin bothareas,andresource restraintslimitedfamily size  In modermcountries,theopportunitycostofhaving kidsishigh,andreturnstohuman capital ishigh,sofocusmoreon qualitythan quantityofkids  Englandwasdiverging byhaving lesskidsandregulatingfamilysize (pre-modern rates)  Chinahadabiastowardsboys,anddue toinfanticidethereweremoreboys(fertilitycontrol)  Similarin standardofliving (proto-industrialization) Green Revolution –New varietyofcrops,chemicalfertilizersandirrigation.Trying tosublabour and capitalfor land,whichwasthebinding constraint(CHINA) Englandgot raw materialsfromUS andCanada,colonizedplacestorelaxthatconstraint. The MINGDYNASTYclosedtrade with other countries.DouglasNorth arguedthatit’saboutthe constraintsthat ledtothegreat divergence,notpolitics. In the 1830s,ChinalosttheOpiumWars,sotreaty portsforcedChina’smarket toopen.Goodbecause ofcapitalinflow.Even though importswere athreattothelocaleconomy,thetransfer of knowledge andtechnologywasgood.Although thisshouldmakeChinasimilartoEngland,thegap widens.WHY? Social upheavals…Industrial Revolution? Perkins–Governmentplaysarolein termsoflaws,banking,andtax reformstoboosttheeconomy. Mindshiftonwhatthe priorityis:revolutionvs.economicdevelopment Governmentshouldregulate,provideeducation,andstabilitytoencourage investment. Brown –technologyfailedbecause peoplearguedchinaneedslabour intensivework (cheaper)than capitalintensive work(withnew technology).However,therealreason ofthefailure isdue to peoplein power,suchasmonopolistsandguilds(for cocoonsandsoybeans).Due tolocalinterests, theseforeign technologywasshunned. CHINAgrew at8%ayearafter 1895to1930s.In the1900’s,Chinabegun toexperience modern economicgrowth.The growth in 1978andafter wasaresultofwhathappenedin history. WEEK 4 Fluctuationsin the economydue topoliticalturmoil,warfare,andnaturaldisasters.Redistribution of landandproducts,butresourceswere scarce. Chinese datawassecrettil1960,butpeoplebelieve industrialproductswere overvaluedcomparedto agricultural.MEANS Governmentprofitedfromindustrialgoods,while keeping raw material costsandwageslow. Rate ofcapitalformation wasextremelyhigh (over20%),butnoincreasesin wages,aclosedeconomy “demonstration effect”.Low urbanization andconsumption. People’sRepublicofChinaformedin 1949,andthesoviet unionwasitsprimarymodel.Socialism. BIG PUSH Industrializationheavyindustry,invested26%ofGDP…itemslikesteelthat can go downstreamorupstream.JKandTWproducedlightindustrylikeconsumergoods. CommandEconomy  Governmentownedfactories,transport,communications  Assignedproduction targetsandallocatedresources  Set pricesandthe Partycontrolledcareerpaths. Material Balance Planning –technique ofrunning the economybyassigning quantitiesfor producers andartificiallymanipulating demandandsupply. 1953-57:Five Year Plan 1958:HundredFlowers–Open politicaldiscussion,butwassuppressedbyMao Great Leap Forward(characterizedbycommunestocontrolfarmworkers,nofreemarkets, decentralizeddecision making,andsimple technology)  Gov’tcutproduction andincreasedindustry.  Antirightestcampaignwasunleashedtothosein theparty  1960s–foodshortage!25-30million deaths  Soviet advisorsleftChinaasasignaltostopthemassstarvation butthisonlyintensifiedtherift between thecountries  1964-66:THIRD FRONT–buildfactoriesin interior regions Cultural Revolution:Studentscalledredguardstooverthrow entrenchedcommunistleaders,aside fromMao.However,thisdidn’tdisrupt the economytoomuch. CLASS Guomingdangwasoverthrown toTWandCommunistpartytook over. *When countriesfight,taxesincrease,andthisleadstohyperinflation (GMD).The governmentcan’t borrow beausepeople are afraidofbaddebt. Hyperinflation endsbysetting reformstobecome credible sopeoplebelieve thevalue ofmoneywillbe stable.Thus,inflation willgodown. In 1988,therewasinflationin China. Landreform–redistribution oflandfromrichtopoor. Focuson industry,sotheycan produce weaponsand respondtoanythreatsfromtheUS. To Designan Economic System:  ResourceAllocation Mechanism(Market,Plan)  Technology  Ownership  Revenue Generation for Gov’t  Heavyvs.LightIndustry Agriculturevs.Industry,then HvsL  InvestmentRate (Rate ofcapitalformation)  SavingsVoluntaryvsInvoluntary Command Economy 1. Plannersdecideon resource allocation,andeverything Isstateowned. 2. Pricesareusedtochannelresourcestothestate,andisasource ofprofit,ratherthan amarket determinedequilibriumofsupplyanddemand. 3. Hierarchicalpersonnelsystem 4. Collectivizationofagriculture,nomoreprivate farms 5. MaterialBalancing (since pricesplaynorole) High investmentandheavyindustry Source offinancing –profitsofstateownedenterprises(SOEs) Keep wages/foodpriceslow andincreaseindustryprofits HOWEVERifpricesarelow,farmershave noincentivetowork,sothegov’tputthemin collectives.This isan exampleofforcedsavings,while repressing consumption andstandardofliving. Factorymanagersaccumulatedalotofinventorybecauseresourceswere scarceandtheycouldn’t alwaysmakeaquota.ThisisBAD for theeconomy. WEEK 5 Notes: Field–slow growth oflabour productivityin Chinacan be attributedtothefollowing factors: 1. Change in employmentstructure 2. Decline in productivityofcapital 3. Decline in realearnings(50%ofoutputincreaseisassociatedwith increase in labour,where employmentwas94%. When energy/resourcesare low,thefocusshouldbe on lightindustry,butthegovernmentwantedhigh employment,soproductivitysuffered. Lardy–Chinadidn’tgrowbecause ofan imbalancedgrowth strategy(heavyvslightindustry), collective farming (noincentivesor efficientinvestment),andincreasedsubsidiestostate employeeswidenedthegap. ------------------------------------------------------------------------------------------------------------------------------- ----- SOEshadnofreedomaboutwhattoproduce since quotaswere filled,andthegov’tallocatedjobs. Employeesworkedtherefor alifetimeandreceivedmanybenefits,soitwascalledan Iron Rice Bowl (noone evergotfired!).There were alotofmanagersfor few workers,because salarieswere similar – therealwageincludeshousing andhealthcare.Thewage differencesarenotbasedon productivity,but rather seniority. Investmentdecisionswereinefficientbecause theministryissuesgrantstothefactorieswhodonotpay itback.ThisreducesSOEsincentive tomake theoptimalinvestmentdecision. Collectivesweresetup:Communes(largest) for the township,brigade for thevillage, andproduction teamfor thesmallercounties.Eachproduction teamhadaround25households. Eachproduction teamhasaquota on grains,with pricessetbythestate.“UnifiedPurchase Unified Sale”.Problemsaboutallocating duties,dividing leftovers,andhaving incentivestoworkharder arose. In ruralareas,private plotswere formed,where 100%ofmarginalproductcouldbe captured.This incentivizedfarmerstodivertfertilizersandresourcestotheir plots.In theGLF,thesewere made illegal. There are twotypesofcentralplanning,directandindirect. Directplanning meansautarkyor selfsufficiency,whichprohibitstradeandprivate plots.Thisgives verylow incentivesandinduceslow productivity.In China,theeconomywasveryCELLULAR. Indirect planning setsrelativeprices,butgivesmorechoice.Itencouragesthe mostefficientproducers tospecializein that areaandtradewithothers.Ithascomparative advantageandismoreliberalon private plots. WEEK 6 Roland:Economistscouldnotpredictthat privatization in Chinaafter 1989wouldleadtoan output decline.Factorymanagersbenefittedthemostfromthis,buttheydonotperformbetterthan non- privatizedSOEs.The demandwashigh enough tomeet the supply,andthere wasalack of competition in the market initially. In Europe,after the communists’rule ended,crime andmafiasbegan todevelop.In addition,countries startedbreakingup.However,in China,GDPgrew at9.5/year,a4x increase.However,privatization wasstillnotreallyallowedanditwasahalf-bakedtransformation. Unde
More Less

Related notes for ECO435H1

Log In


OR

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


OR

By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.


Submit