Economic Of Development – Assignment Example
Economic of Development False, this is because in the long term the growth rate of capital per employee is zero (the same) for any saving rate. In this case, a higher saving rate will result to a steadier state capital per employee, k∗. The growth rate does not change since it remains at zero. It is only in the short-run where an increase in the savings rate will result in an upsurge in the growth rate of capital per employee.
2. Income per capita is 10 times, share of capital production is 1/3 and technology equal.
a. ∆k/k= s· (y/k) − sδ – n
In this case, ∆k/10 = 1/3
∆k = 10/3
10 (∆k)/10 = 1/3
∆k = 1/3
c. Differences in technology are more significant than differences in capital per worker because in the short run, an upsurge in the level of technology results to an increase in the growth rates of capital and real GDP per employee. In the long term, the real GDP per worker and capital growth rates remain the same.
3. Institutions are the rubrics of the game in a civilization or, more correctly, are the physically invented restraints that outline human interaction (Acemoglu, Johnson, & Robinson, 2002).
4. The three characteristics of institutions are: They fulfill the basic and certain wants of people, have a body of rules that define associations between people and inflict a sanction such as punishments and rewards. Slavery is a good institution since it fulfills the basic and certain desires of people and has a body of rules that define relationships between people and inflict punishments (Acemoglu et al, 2002)
5. Bad institutions for growth may still persist because the ruling elite want to benefit from them. This is because they want to control resources such as land in order to suppress the majority poor.
6. The pattern in the “Reversal of Fortune” data shows that there has been a notable reversion of fortune in economic success within the previous European Colonies. The data shows that European colonies in the 1500’s were the wealthiest societies, but are now among the poorer societies at present. This pattern is not consistent with geography being a fundamental factor of disparity in GDP per capita across nations.
7. The Reversal of Fortune is coherent with a leading role for economic institutions in relative development. It is through these institutions that societies can enhance their livelihoods. The Reversal of Fortune notes that the management of institutions determines the progress of a society (Acemoglu et al, 2002). Good institutions promote equitable allocation of resources and efficiency while bad institutions promote inequality and suppression of the poor by the rich.
This diagram is similar to that of Acemoglu, Johnson and Robinson. This shows that urbanization is a good proxy for GDP per capita. This is because there is a remarkable persistence of colonies and not reversal.
Acemoglu, D., Johnson, S., & Robinson, J. A. (2002). Reversal of Fortune: Geography and Institutions in the Making of the Modern World Income Distribution. The Quarterly Journal of Economics, 117(4), 1231-1294.