Deck 4: Contemporary Models of Development and Underdevelopment  

Question 1

In contrast to the earlier neoclassical models of economic growth, in endogenous growth models, there is more emphasis on
(a) human capital.
(b) externalities.
(c) increasing returns to scale.
(d) all of the above.

Answer 1

D

Question 2

Explain what is meant by the term coordination failure and provide an example.

Answer 2

This is a state of affairs in which agents are unable to coordinate their efforts, and hence end up in an equilibrium that leaves them worse off than they would be if they were able to coordinate.There are several examples offered in the text, or the students may come up with their own.

Question 3

Is it possible for a super-entrepreneur to solve all of the coordination failure problems within
a developing economy? Discuss.

Answer 3

not answered

Question 4

In endogenous growth models, it is assumed that
(a) there are external economies from public or private investments.
(b) there are diminishing marginal returns to capital.
(c) growth is explained by forces outside the model.
(d) the capital-labor ratio is constant.

Question 5

Suppose that a developing country devotes extensive resources towards improving the education and skill level of the labor force.How might this help the country avoid a coordination failure? Is this strategy likely to be successful? Why or why not?

Question 6

The Solow residual helps explain growth that derives from
(a) increasing the size of the labor force.
(b) increasing the size of the capital stock.
(c) increasing the capital-labor ratio.
(d) anything except increases in the size of the labor force or the capital stock.

Question 7

What is meant by the term technological spillover?

Question 8

Explain how relatively high wages in the modern sector, as compared to the traditional sector, can lead to a coordination failure.

Question 9

Explain the basic idea behind the Big Push model?

Question 10

Is a coordination failure a type of market failure? Explain.

Question 11

According to the HRV growth diagnostic framework why is there no "one size fits all" development policy?

Question 12

Explain how the S-curve reflects the typical nature of complementarities?

Question 13

The big-push theory argues that coordination failures may arise because of
(a) pecuniary externalities.
(b) technological externalities.
(c) lack of human capital.
(d) all of the above.

Question 14

Explain how the government can help the economy avoid a coordination failure.

Question 15

What three factors distinguish models of endogenous growth from their neoclassical counterparts?

Question 16

Show in a diagram an S-curve and a 45-degree line.Are all three points of intersection stable equilibrium points? Explain.

Question 17

Based on the HRV growth diagnostic framework and the case study in Box 4.2, what are the binding constraints faced by Brazil, El Salvador and the Dominican Republic and how can these constraints be overcome?

Question 18

How can the O-ring theory help explain the existence of a low-level equilibrium that an economy may find itself in?

Question 19

The new growth theory attempts to explain
(a) the rate of population growth within a country.
(b) the rate of capital accumulation within a country.
(c) the factors that determine the size of the Solow residual.
(d) why there are diminishing returns to capital.

Question 20

The S-curve is used to illustrate
(a) the typical path taken by the current account over time.
(b) economic fluctuations in the economy.
(c) the typical growth path of a developing economy.
(d) the existence of multiple equilibria.

Question 21

The O-ring theory places emphasis on
(a) education of the labor force.
(b) skill complementarities.
(c) purchases of machinery and equipment by firms.
(d) none of the above.