BECC-114 Solved Assignment

Title of Course: Development Economics-II

1. Discuss the theory of demographic transition.
2. Explain the basic propositions of dependency theory. Discuss the three approaches to dependency theory in the context of Latin America.
   B. Medium Answer Questions (word limit-250 words)
3. Differentiate between share tenancy and fixed-rental system. Explain the Marshallian argument about the inefficiency of share tenancy.
4. Explain the key results of the efficiency wage model. Derive efficiency wage equilibrium using the neo-classical framework
5. Distinguish among private goods, Community Property Recourse (CPR), and public goods. Explain why a CPR is an "incomplete property right."
   C. Short Answer Questions (word limit 100 words)
6. Differentiate between:
   (a) Linear theories of underdevelopment and structural theories of underdevelopment.
   (b) Positive externalities and negative externalities.
   (c) The internationalistic approach to globalization and globalistic approach to globalisation.
7. Write short notes on the following.
   (a) The Harris-Todaro model.
   (b) Social Capital.
   (c) Sustainable Development.

Expert Answer:

Title of Course: Development Economics-II

Discuss the theory of demographic transition.

Answer:

• Stage 1: Pre-Industrial Society
  In this stage, both birth rates and death rates are high. Societies in this phase experience slow population growth due to high mortality rates, driven by factors such as disease, famine, and poor medical care. Birth rates are high due to limited access to contraception, high infant mortality, and the economic benefits of having more children. The result is a relatively stable and low population growth.
• Stage 2: Early Industrial Society
  This stage is characterized by a significant decline in death rates while birth rates remain high. Advances in medical technology, improved sanitation, and better nutrition contribute to reduced mortality rates. However, birth rates do not immediately decline, leading to rapid population growth. This period often coincides with early stages of industrialization and urbanization.
• Stage 3: Mature Industrial Society
  In the mature industrial stage, both birth rates and death rates decline. Improved healthcare, better living standards, and access to family planning contribute to a decrease in birth rates. The population growth rate slows down and eventually stabilizes as the number of births and deaths approach equilibrium. This stage is associated with more developed economic conditions and increased urbanization.
• Stage 4: Post-Industrial Society
  In this stage, birth rates and death rates are both low, leading to a stable or slowly declining population. Economic development, higher levels of education, particularly for women, and access to contraception contribute to low birth rates. Societies in this stage often experience an aging population, with a higher proportion of elderly individuals relative to younger age groups.
• Stage 5 (Optional)
  Some models include a fifth stage where the population begins to decline due to very low birth rates and an aging population. In this stage, the population may shrink as the death rate exceeds the birth rate. This stage is observed in some highly developed countries facing demographic challenges such as low fertility rates and high life expectancy.

• Economic Development: Economic growth and industrialization drive improvements in healthcare, education, and living standards, leading to reduced mortality rates and changes in family planning practices.
• Healthcare Advancements: The development of medical technologies and healthcare systems significantly impacts mortality rates by reducing the incidence of diseases and improving overall health.
• Education and Family Planning: Increased access to education, particularly for women, and the availability of family planning services contribute to lower birth rates as individuals become more aware of and utilize contraception.
• Urbanization: As societies industrialize and urbanize, lifestyle changes and higher living costs often lead to lower birth rates. Urban living typically involves smaller living spaces and higher expenses, influencing family size decisions.

• Economic Growth: The demographic transition often correlates with economic growth, as a growing working-age population supports increased production and consumption. However, transitioning to later stages can present challenges, such as ensuring sustainable economic growth in the face of an aging population.
• Population Aging: Advanced stages of demographic transition, especially Stage 4 and 5, can lead to an aging population. This shift presents challenges for pension systems, healthcare services, and workforce dynamics, requiring policy adjustments to address the needs of an older population.
• Urban and Rural Dynamics: The movement from rural to urban areas during industrialization affects social structures and economic activities. Urbanization can drive economic development but may also lead to issues such as overcrowding, inadequate infrastructure, and environmental degradation.
• Social and Policy Challenges: Governments need to adapt policies to address the changing demographic structure. This includes implementing social security systems, healthcare reforms, and educational programs to manage the impacts of demographic shifts.

Explain the basic propositions of dependency theory. Discuss the three approaches to dependency theory in the context of Latin America.

Answer:

• Exploitation and Unequal Exchange: Dependency Theory emphasizes that wealthy, developed nations exploit poorer, developing countries through mechanisms such as unequal trade terms and exploitation of natural resources. Developed countries often extract raw materials at low costs from developing nations and sell finished products back at higher prices, creating an imbalance that hinders development.
• Economic Dependence: Developing countries are economically dependent on developed nations due to their reliance on exporting raw materials and importing finished goods. This dependence reinforces a cycle of poverty and underdevelopment, as developing countries are unable to diversify their economies or build their own industries.
• Underdevelopment as a Structural Condition: Dependency theorists argue that underdevelopment is not simply a stage in a country’s growth but a result of its position within the global economic system. They believe that the structures of international trade and finance are designed to benefit developed countries, perpetuating the underdevelopment of poorer nations.
• Historical Context and Colonial Legacy: The theory also highlights the historical context of colonialism, asserting that colonial powers established economic systems that extracted resources from colonies and left them with economies structured to serve the interests of the colonizers. This legacy continues to affect the economic conditions of former colonies.

• Concept: Historical Structuralism is an approach within Dependency Theory that focuses on the historical and structural aspects of dependency. It examines how historical processes, particularly colonialism and imperialism, have shaped the economic structures of Latin American countries. This approach argues that these historical factors have entrenched economic dependence and inequality.
• Key Features: Historical Structuralism emphasizes the role of external forces, such as foreign investment and international trade policies, in perpetuating dependency. It also explores how these forces interact with internal factors like political instability and social inequality to maintain a dependent economic structure.
• Latin American Context: In Latin America, Historical Structuralism has been used to analyze the persistent economic inequalities and the challenges faced by countries trying to achieve economic independence. It highlights how the colonial legacy has influenced the economic systems and continues to affect development prospects.

• Concept: World-System Theory, developed by Immanuel Wallerstein, expands on Dependency Theory by analyzing the global economy as a single capitalist system divided into core, semi-peripheral, and peripheral regions. This theory categorizes countries based on their role in the global economic system.
• Key Features: According to World-System Theory, core countries are economically dominant and exploit peripheral countries, which are less developed and often serve as sources of raw materials and labor. Semi-peripheral countries fall in between, having characteristics of both core and peripheral regions. The theory focuses on the dynamics between these different regions and their impact on global inequality.
• Latin American Context: In Latin America, World-System Theory helps explain how countries are positioned within the global economy and how their economic activities are shaped by their position in the world-system. It provides insights into how Latin American nations interact with core countries and the challenges they face in moving towards a more equitable economic status.

• Concept: The Dependency School of Thought is a broader approach within Dependency Theory that focuses on the relationships between developed and developing countries. It explores how these relationships create and sustain dependency and underdevelopment.
• Key Features: This approach examines various forms of economic and political dependency, including trade imbalances, debt dependency, and reliance on foreign aid. It also looks at the role of multinational corporations and international institutions in perpetuating dependency.
• Latin American Context: The Dependency School of Thought has been particularly influential in Latin America, where it has been used to critique the impact of foreign aid, international loans, and trade policies on development. It highlights how these factors contribute to economic dependency and limit the ability of Latin American countries to achieve sustainable development.

• Overemphasis on External Factors: Critics argue that Dependency Theory places too much emphasis on external factors and neglects internal factors such as governance, institutions, and local policies that also play a crucial role in development.
• Deterministic View: Some critics suggest that Dependency Theory presents a deterministic view of development, implying that developing countries are perpetually trapped in a cycle of dependency without considering possibilities for change or improvement.
• Changes in the Global Economy: The global economic landscape has evolved since the theory’s inception, with emerging economies and shifts in international trade patterns challenging some of the theory’s assumptions.

Differentiate between share tenancy and fixed-rental system. Explain the Marshallian argument about the inefficiency of share tenancy.

Answer:

1. Lack of Incentives for Maximizing Output: In a share tenancy arrangement, both the tenant and the landowner share the risk and reward of farming. However, because the tenant’s share of the output is fixed and does not necessarily reflect their total input or effort, there may be less incentive for the tenant to maximize productivity. The tenant might not invest enough in improving the land or using the best farming practices, as the benefits are not entirely reaped by them.
2. Suboptimal Input Usage: Share tenancy may lead to suboptimal use of resources because the tenant has less control over how inputs are used and may not have a full incentive to improve efficiency. The division of output does not always align with the efficiency of input utilization, leading to potential wastage and inefficiency.
3. Disincentive for Long-Term Investments: Tenants under share tenancy may avoid making long-term investments in land improvements or advanced farming techniques since the benefits of such investments are shared with the landowner. This short-term focus can result in lower overall productivity and land degradation.

Explain the key results of the efficiency wage model. Derive efficiency wage equilibrium using the neo-classical framework.

Answer:

1. Increased Productivity: By paying higher wages than the equilibrium market wage, firms can enhance worker productivity. Higher wages can lead to greater worker effort, reduced shirking, and better overall performance because workers have a greater incentive to keep their jobs and perform well.
2. Reduced Turnover: Higher wages can reduce employee turnover. When firms pay above-market wages, employees are less likely to leave for other jobs, which reduces hiring and training costs. Lower turnover helps maintain a more experienced and skilled workforce.
3. Attraction of Better Talent: Firms that offer higher wages are able to attract more skilled and talented workers. The ability to attract better talent can improve the firm’s overall performance and competitiveness.
4. Enhanced Worker Health and Well-being: Higher wages can improve workers’ living standards, leading to better health and fewer absences. Healthier workers are more productive and contribute positively to the firm’s output.

1. Labor Supply and Demand Curves: The labor supply curve represents the number of workers willing to work at various wage levels, while the labor demand curve represents the number of workers firms are willing to hire at those wage levels. At equilibrium, these curves intersect, determining the market-clearing wage and employment level.
2. Efficiency Wage Setting: According to the efficiency wage model, firms set wages above the market-clearing level to enhance productivity. Let’s denote the equilibrium market wage as $W_e$$W_e$W_(e)W_e$W_e$. Firms offer a wage $W>W_e$$W>W_e$W > W_(e)W > W_e$W>W_e$, which is designed to increase efficiency and productivity.
3. Adjustment to Efficiency Wage: When firms pay an efficiency wage, the labor supply at this higher wage $W$$W$WW$W$ may exceed the labor demand. This creates an excess supply of labor, meaning unemployment exists at the efficiency wage level. The higher wage improves productivity but also results in fewer hires than would be the case at the equilibrium wage.
4. Efficiency Wage Equilibrium: In this scenario, the equilibrium is not reached at the intersection of supply and demand curves but rather at a higher wage level where the productivity gains from paying above-market wages offset the costs associated with paying higher wages. Firms achieve efficiency and productivity gains despite having excess labor.

Distinguish among private goods, Community Property Resource (CPR), and public goods. Explain why a CPR is an "incomplete property right."

Answer:

1. Overuse: Because it is difficult to exclude others from using the resource, individuals may exploit it beyond sustainable levels. This can lead to the "tragedy of the commons," where collective overuse depletes the resource.
2. Ambiguity in Ownership: The rights to use and manage CPRs are often unclear or not well-defined. This lack of clarity can lead to conflicts and inefficient use of the resource.
3. Management Challenges: The non-excludability of CPRs complicates management and regulation, making it hard to ensure that all users adhere to sustainable practices.

Differentiate between:

• (a) Linear theories of underdevelopment and structural theories of underdevelopment.
• (b) Positive externalities and negative externalities.
• (c) The internationalistic approach to globalization and the globalistic approach to globalization.

Answer:

• Stages of Growth: Linear theories propose that societies progress through distinct stages of economic growth, such as traditional society, preconditions for take-off, take-off, drive to maturity, and high mass consumption.
• Development Model: They typically advocate for adopting Western-style economic and political institutions as a path to development, assuming that all countries can achieve similar levels of prosperity through modernization.

• Global Inequality: Underdevelopment in some countries is due to their position in a global economic system that benefits more developed countries. They highlight how historical exploitation, unequal trade relations, and global economic structures contribute to persistent poverty in less developed nations.
• Economic Structures: Structural theories emphasize the importance of historical, social, and economic structures, arguing that development is impeded by existing global and local structures that perpetuate inequality and dependency.

• Example: Vaccination not only protects the individual receiving the vaccine but also contributes to herd immunity, reducing the spread of diseases to others.
• Effect: Positive externalities can lead to under-provision of beneficial goods or services, as the market may not fully account for the additional societal benefits.

• Example: Pollution from a factory affects the health of nearby residents and damages the environment, imposing costs on society that are not reflected in the price of the factory’s products.
• Effect: Negative externalities often lead to overproduction or overconsumption of harmful goods, as the market price does not include the full social cost of the negative effects.

• Global Collaboration: It highlights the importance of multilateral agreements, international organizations, and cross-border collaborations in addressing global issues such as trade, environmental challenges, and security.
• Focus on Nations: This approach often views globalization as a process that requires collective action by sovereign states to achieve mutual benefits and resolve global challenges.

• Transnational Networks: It highlights the interconnectedness of global markets, cultures, and communities, where local and national boundaries become less significant.
• Global Identity: This approach often promotes the idea of a global citizenry and advocates for policies that address global issues from a perspective that is not confined by national interests.

Write short notes on the following:

• (a) The Harris-Todaro model.
• (b) Social Capital.
• (c) Sustainable Development.

Answer:

• Migration Decision: The model posits that individuals make migration decisions based on expected income rather than actual income. Rural workers migrate to urban areas if the expected urban income, adjusted for the probability of finding employment, exceeds the current rural income.
• Urban Unemployment: It assumes that even if many migrants face unemployment in cities, the expected utility of urban wages, accounting for the likelihood of finding a job, outweighs the benefits of staying in rural areas.
• Equilibrium: The model highlights that urban unemployment can persist as a consequence of the migration process, where workers continue to migrate based on expected rather than actual outcomes, leading to a situation where urban unemployment remains high despite available jobs.

• Networks: Social capital encompasses the relationships and networks individuals have with others, which can provide support, information, and resources.
• Norms and Trust: Shared values and norms of reciprocity and trust are fundamental to social capital. They enable individuals and groups to work together more effectively and resolve conflicts.
• Economic and Social Benefits: High social capital is associated with better economic outcomes, such as improved access to job opportunities and enhanced community support. It also contributes to social cohesion and effective governance.

• Environmental Sustainability: Focuses on conserving natural resources, reducing pollution, and protecting ecosystems to ensure that natural environments are preserved for future generations.
• Economic Sustainability: Emphasizes the need for economic growth that is stable and equitable, ensuring that resources are managed efficiently and that economic benefits are distributed fairly.
• Social Sustainability: Aims to improve quality of life, promote social inclusion, and ensure that development processes are equitable and just, addressing issues like poverty, education, and health.