Global Economy

Global Economy Study Guide As you did for the midterm, go back and read again the course description and objectives in the syllabus. That is the best summary possible for what I want you to know, how I want you to think about the course, and therefore what is likely to be emphasized on the final exam. The exam is not cumulative: it covers all course material since the midterm, but the syllabus helps frame the key objectives and can help you focus your effort. Here is a highlighting of key topics from each of the lectures. Topic 6 and 7 - Development Over The Long Run What is the neolithic revolution and why is it important? What were the main factors that sparked the neolithic revolution according to Diamond? What is the “reversal of fortune”? What does it imply for Diamond’s arguments? Understand the key mechanisms linking colonial history with underdevelopment today. Be able to give specific examples. Topic 8 - Growth Theory and Inequality Intuition behind growth models… key ideas about relationships between consumption, savings, investment, and growth. Understand key parameters and conclusions of the Harrod-Domar growth model. Be able to interpret quantitatively and intuitively the effects of changes in the parameters. Understand model’s weaknesses. Explain what endogenous and exogenous variables are. Interpret the capital stock equation (equations 9 and 10), understand each term, etc. Understand what is a production function and what its slope means, in particular in reference to diminishing returns. Understand the main Solow diagram, including what the curved line represents (note: it’s more than just a production function) and what the straight line represents. Use the graph to describe how the capital per capita evolves from different initial starting points. What is the effect of population growth on the total capital level in the Solow model? What is the effect of population growth on the capital growth rate in the Solow model? What is the primary source of per capita growth in the Solow model? In the Harrod Domar model? Understand and be able to reproduce a Lorenz curve and Gini estimate. Topic 9 - Big Picture Development Again Explain the main patterns of the demographic transition. What did Malthus say would be the long-run relationship between economic and population growth? What causes high fertility? What factors does a simple microeconomic model of fertility highlight as drivers of fertility rates? Be able to make several arguments both for and against the statement: “population growth is a problem”. What are the three main equilibria/regimes of unified growth theory and what are the principal characteristics of each? Relationship between human capital formation and technological change (this general topic is one of the most important, organizing themes of the entire course. Understanding how these interact will teach you more about circumstances and prospects of the global economy than just about anything else I can think of). What did the industrial revolution have to do with changing this relationship? Topic 10 - Geography Vs Institutions in Development Human capital and technological change as the most important drivers of economic growth. What factors affect human capital formation? What factors affect technological change? How does geography affect trade and therefore development? How can geography affect institutions and therefore development? What geographical factors are most important in affecting development? In general, be fluent in the geography vs. institutions debate. How does disease affect development? What kind of diseases are most important? Why, i.e. what mechanisms actually undermine development? What is the return to human capital and what does it have to do with geography? What does the return to human capital have to do with the demographic transition? What are Acemoglu and Robinson’s two broad categories of institutions? Explain how they either promote or undermine development. What is the role of the state in creating or protecting institutions? How do these types of institutions relate to technology and/or human capital? Explain how political struggles affect economic institutions. Be able to relate this discussion back to our analysis of winners and losers from trade reforms (or economic policies more generally). Understand even how the establishment of inclusive institutions often requires dislocation that is unjust (I discussed this in relation to establishment of land and labor markets in early industrializing England). Topic 11 - Development Policy Today Do we know how to make a country develop? Explain the main institutional innovations in China that sparked its remarkable growth. How does this compare to standard Washington Consensus-style advice about how countries should grow? Relate this experience to what we’ve learned about South Korea and its industrial policies. Be able to give concrete examples. Identify several of the most cost-effective ways of improving human welfare. Explain the difficulty in identifying the causal effect of development interventions. How are these difficulties being overcome? More generally, understand the basic difference between correlation and causality, and be able to apply these concepts to the content of this course. What are some effective interventions in the fields of health, education, infrastructure, institutions, micro finance, agriculture? Topic 12 - Sustainable Development What is discounting and how does it relate to intergenerational equity? What is the relative importance of intergenerational justice vs intragenerational justice? What is the difference between weak and strong sustainability? What do we need to know before we can choose which one is right? Why is substitutability of capital assets important in considering sustainability? Does natural capital really matter for sustainable well-being? What evidence is there about whether we are currently on a sustainable path?                                                                                                                                

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