(5.2) TFP differences

Question 1

How much does each factor contribute to income differences across countries?

Answer 1

• Capital per person - 1/3
• TFP differences - 2/3

Question 2

What is the key insight from the fact capital per person explains 1/3 of the income gap between countries

Answer 2

• Rich countries not rich because they have more capital per person
• they use labour and capital more efficiently

Question 3

List some factors of TFP

Answer 3

• Human capital (positive)
• Health (positive)
• Tech (positive)
• Institutions (positive)
• Misallocation (negative)

can include other factors

Question 4

Define human capital

Answer 4

• Stock of skills that individuals accumulate
• to make them more productive
• built through edu and training

Question 5

Describe returns to education in the US

Answer 5

• Each additional year of schooling raises worker’s wage by approx 10%

Question 6

How much does human capital reduce the unexplained residual in cross-country income differences by?

Answer 6

Reduction from factor of 11 to factor of 6

Question 7

What is the tradeoff in human capital?

Answer 7

• Investment in human capital sacrifices current wages for higher future wages
• akin to physical capital investment

Question 8

How can govts help develop human capital?

Answer 8

• state schools
• subsidised loans for uni

Question 9

How does human capital come into the production function?

Answer 9

• measures worker quality
• Appears in TFP
• L̄ treats all workers as equal

Question 10

What is used to signal worker quality?

Answer 10

• Wages
• as w = MPL
• more productive = more demand

Question 11

What happens to TFP if we ignore human capital?

Answer 11

It decreases

Question 12

2

Describe healthcare expenditure and its importance

Answer 12

• type of investment in human capital
• healthier workers are more productive

Question 13

Give some evidence on nutrition and growth

Answer 13

• Rising caloric intake raises productivity in countries with sig malnourishment
• from 1962-95, caloric consumption rose 44% in SK, coinciding with huge econ growth

Question 14

What is the case study for health and nutrition?

Answer 14

• Pantawid
• Conditional Cash Transfer (CCT) in Phillipines
• 2008

Junius says mention this in exam if health comes up

Question 15

Describe the terms of Pantawid

Answer 15

• Provides cash to poor households
• conditional on investing in child edu, health and maternal health services

Question 16

Describe the impact of Pantawid on the beneficiaries

Answer 16

• unambiguously positive
• 40% decrease in severe stunting, a LR marker of malnutrition

severe stun

Question 17

Describe the impact of Pantawid on the non-beneficiaries

Answer 17

• unintended consequences
• CCT, through monetary expansion, increased food prices for those not in programme
• Stunting increased by 34% for non-beneficiary children in targeted villages

Question 18

1

Describe the role of institutions

Answer 18

• Foster human capital and tech growth

Question 19

Describe the aspects of institutions

Answer 19

• Property rights
• Rule of Law
• Govt systems
• Contract Enforcement

Question 20

What is the core idea of Acemoglu, Johnson and Robinson?

Answer 20

institutions matter economically in LR

Question 21

What is theory of Acemoglu, Johnson and Robinson?

Answer 21

• Where colonial settlers faced high mortality, they set up extractive institutions
• Where colonial settlers faced low mortality, they set up inclusive institutions
• Early institutions from current institutions
• Current institutions affect current econ performance

Question 22

Which countries are difficult to colonise?

Answer 22

• Those near equator
• Tropical diseases

Question 23

Describe some forms of extractive institutions

Answer 23

• slavery
• plantations
• mines

Question 24

Describe some forms of inclusive institutions

Answer 24

• strong property rights
• civil liberties
• strong legal system
• mass edu

Question 25

Define property rights

Answer 25

The ability of people to exercise authority over the resources they own

Question 26

Describe the importance of property rights

Answer 26

* Markets cannot function properly without them * When people fear capital may be confiscated, less investment (domestically and abroad) * Economy functions less efficiently

Question 27

Describe issues in property rights in developing countries

Answer 27

* contracts not always enforced * fraud and corruption often unpunished * firms must bribe govt officials for permits * political instability creates uncertainty over future property rights

Question 28

What is the impact of corruption on TFP?

Answer 28

* Lower TFP

Question 29

Define misallocation

Answer 29

Resources not directed to most productive use

Question 30

Give some examples of misallocation

Answer 30

* Inefficiency of state-run enterprises * Political interference in resource allocation * Barriers preventing capital and labour moving to their highest-value use

Question 31

# 2 How does higher misallocation affect TFP?

Answer 31

* Lowers the measured TFP * not because ideas are worse, but because existing ideas are poorly used * lowers output

Question 32

What is a policy that contributes to misallocation of resources?

Answer 32

Capital controls