BECC-114: Development Economics-II

Programme Code: BAECH

Course Code: BECC-114

Assignment Code: BECC-114/AST/TMA/2022-23

Maximum Marks: 100

Answer all the questions

A. Long Answer Questions (word limit-500 words) 2 × 20 = 40 marks

1) Discuss the theory of demographic transition.

ANS Theory of Demographic Transition is a theory that throws light on changes in birth rate and
death rate and consequently on the growth-rate of population.

Along with the economic development, tendencies of birth-rate and death rate are different.

“Demographic transition refers to a population cycle that begins with a fall in the death rate,
continues with a phase of rapid population growth and concludes with a decline in the birth rate”-
E.G. Dolan.
According to this theory, economic development has the effect of bringing about a reduction in the
death rate. The relationship between birth and death rates changes with economic development
and a country has to pass through different stages of population growth. C.P. Blacker divided
population into five types as high, stationary, early expanding, low stationary and diminishing.
According to the theory of demographic transition, population growth will have to pass through
these different stages during the course of economic development.
The four stages of demographic transition mentioned by Max are explained as follows:

First Stage:

This stage has been called high population growth potential stage. It is characterised by high and
fluctuating birth and death rates which will almost neutralize each other. People mostly live in rural
areas and their main occupation is agriculture which is in the stage of backwardness. The tertiary
sector consisting of transport, commerce banking and insurance is underdeveloped.

All these factors are responsible for low income and poverty of the masses. Social beliefs and
customs play an important role in keeping birth rate high. Death rate is also high because of
primitive sanitation and absence of medical facilities. People live in dirty and unhealthy
surroundings.

As a result, they are disease ridden and the absence of proper medical care results in large deaths.
The mortality rate is highest among the poor. Thus, high birth rates and death rates remain
approximately equal over time so that a static equilibrium with zero population growth prevails.

Second Stage:
It is called the stage of Population Explosion. In this stage the death rate is decreasing while the birth
rate remains constant at a high level. Agricultural and industrial productivity increases, means of
transport and communication develops. There is great mobility of labour. Education expands.
Income also increases. People get more and better quality of food products. Medical and health
facilities are expanded.

Demographic Transition of India

During the stage economic development is speeded up due to individual and government efforts.
Increased use of better technology, mechanization and urbanisation takes place. But there is no
substantial change in the men, attitude of the people and hence birth rate stays high i.e., economic
development has not yet started affecting the birth rate.

Due to the widening gap between the birth and death rates, population grows at an exceptionally
high rate and that is why it has been called the population explosion stage. This is an “Expanding”
stage in population development where population grows at an increasing rate, as shown in figure,
with the decline in death rate and no change in birth rate.

Third Stage:
It is also characterised as a population stage because the population continues to grow at a fast rate.
In this stage, birth rate as compared to the death rate declines more rapidly. As a result, population
grows at a diminishing rate. This stage witnesses a fall in the birth rate while the death rate stays
constant because it has already declined to the lowest minimum. Birth rate declines due to the
impact of economic development, changed social attitudes and increased facilities for family
planning. Population continues to grow fast because death rate stops falling whereas birth rate
though declining but remains higher than death rate.

Fourth Stage:
It is called the stage of stationary population. Birch rate and death rate are both at a low level and
they are again near balance. Birth rate is approximately equal to death rate and there is little growth
in population. It becomes more or less stationary at a low level.

2) Explain the basic propositions of dependency theory. Discuss the three approaches to

dependency theory in the context of Latin America.

ANS dependency theory, an approach to understanding economic underdevelopment that

emphasizes the putative constraints imposed by the global political and economic order. First
proposed in the late 1950s by the Argentine economist and statesman Raúl Prebisch, dependency
theory gained prominence in the 1960s and ’70s.

According to dependency theory, underdevelopment is mainly caused by the peripheral position of

affected countries in the world economy. Typically, underdeveloped countries offer cheap labour
and raw materials on the world market. These resources are sold to advanced economies, which
have the means to transform them into finished goods. Underdeveloped countries end up
purchasing the finished products at high prices, depleting the capital they might otherwise devote to
upgrading their own productive capacity. The result is a vicious cycle that perpetuates the division of
the world economy between a rich core and a poor periphery. While moderate dependency
theorists, such as the Brazilian sociologist Fernando Henrique Cardoso (who served as the president
of Brazil in 1995–2003), considered some level of development to be possible within this system,
more-radical scholars, such as the German American economic historian Andre Gunder Frank,
argued that the only way out of dependency was the creation of a noncapitalist (socialist) national
economy.

middle power, in international relations, a state that holds a position in the international power
spectrum that is in the “middle”—below that of a superpower, which wields vastly superior
influence over all other states, or of a great power, but with sufficient ability to shape international
events.

The origins of the concept of the middle power as an analytical tool can be traced to the 16th
century, in the writings of the Italian philosopher Giovanni Botero. Even though that concept may
seem a relatively straightforward construct, there is disagreement among theorists about how
middle powers should be defined and how they act in world politics. There are two ways to define a
middle power: one is based on a state’s military strength, capabilities, and geostrategic position,
while a second is based on a state’s leadership capabilities—in other words, that such states are
perceived as being liberal, oriented toward democracy, and having legitimate concerns in
international politics. The first conceptualization stems from a realist paradigm and the second from
a pluralist paradigm.

Research suggests that middle powers are categorically different because of their reliance on
diplomacy and the specific conditions under which they pursue foreign policy. Middle powers favour
multilateral foreign policy and the formation of coalitions rather than unilateral decision making in
foreign policy. The style of diplomacy used by middle powers has been labeled “niche diplomacy,”
mainly because middle powers have to follow limited foreign-policy objectives as a result of their
power capabilities, which are lower than those of great powers or superpowers. However, middle
powers do not challenge the status quo in the international system; they are not revisionist or
transformatist states.

During the Cold War, the concept of middle powers became empirically stronger as an analytical tool
in international relations as a result of a balance of power between the two superpowers, the United
States and the Soviet Union. States that did not have superpower capability but still exerted some
influence in world politics, such as Canada, the Netherlands, and Sweden, were categorized as
middle powers. This categorization sought to acknowledge the role they played in international
relations while also allowing an analytical differentiation between different types of power.

The role that middle powers play as legitimate brokers is emphasized in the pluralist paradigm of
international-relations theory. Middle powers are important to the creation and maintenance of
world order, and they favour the establishment of international institutions. In that sense, they act
as stabilizers in the world system. According to conventional international-relations theory,
hegemonic powers are responsible for the creation of international institutions, but the
maintenance and survival of those institutions depend on the convergence of interests between
other players; that is where the role of middle powers is enhanced. Middle powers often concern
themselves with issues such as nuclear nonproliferation, international economic order, debt relief,
banning of land mines—issues that do not directly involve the vital interests of the great powers. In
such international problems, middle powers are able to set and influence international agendas,
build successful coalitions, and challenge great-power hegemony in those issues. That role played by
middle powers results partly from perceptions of their legitimate concerns on issues of human
security. Middle powers can succeed in effecting change because of their diplomatic capability and
their ability to project a credible position, which enables them to act as moral and intellectual
leaders. Middle powers also typically possess highly institutionalized foreign services and are able to
disseminate their ideas and foreign-policy objectives through the relatively wide network of
diplomatic missions they maintain.

B. Medium Answer Questions (word limit-250 words) 3 × 10 = 30 marks

3) Differentiate between share tenancy and fixed-rental system. Explain the Marshallian

argument about the inefficiency of share tenancy.

ANS

Sharecropping vs Tenant Farming

As the population increases, people tend to shift their agricultural pattern from ranching to farming,
which consists of several different systems. Sharecropping and tenant farming are two of the
traditional farming systems where the difference is based on the pattern of payments. Both systems
have two significant characters, namely the landowner and the tenant. Sharecropping can be
identified as a branch of tenant farming, but based on the payments these systems vary to each
other. This article describes both the systems, their similarities, and differences between them.
Making use of a unique tenant-landlord matched data from the Tigray region of Ethiopia, we are
able to show how strategic response of tenants - to varying economic and tenure security status of
the landlords - is important in explaining productivity differentials of sharecroppers. The results
show that sharecroppers’ yield are significantly lower on plots leased from landlords who are non-
kin; female; with lower income generating opportunity; and tenure insecure households, than on
plots leased from landlords with contrasting characteristics. While, on aggregate, the result shows
no significant efficiency loss on kin-operated sharecropped plots, a more decomposed analyses
indicate strong evidences of Marshallian inefficiency on kin-operated plots leased from landlords
with weaker bargaining power and higher tenure insecurity. This study, thus, shows how failure to
control for such heterogeneity of landowners' characteristics can explain the lack of clarity in the
existing empirical literature on the extent of moral hazard problems in sharecropping contracts.

4) Explain the key results of the efficiency wage model. Derive efficiency wage

equilibrium using the neo-classical framework

ANS In labor economics, efficiency wages are a level of wages paid to workers above the minimum
wage to retain a skilled and efficient workforce. Efficiency wage theory posits that an employer must
pay its workers high enough so that workers are incentivized to be productive and that highly skilled
workers do not quit. Efficiency wages may also be paid to workers in industries that require a great
deal of trust—such as those working in precious metals, jewels, or finance—to help ensure that they
remain loyal.
Efficiency wage theory helps explain why firms seem to overpay for labor by arguing that these
increased wages boost overall productivity and profitability for a firm over the long run.

Understanding Efficiency Wages

Efficiency wages were theorized as far back as the 18th century when classical political economist
Adam Smith identified a form of wage inequality where workers in some industries are paid more
than others based on the level of trustworthiness required. For instance, Smith identified that those
working for goldsmiths or jewelers, while often just as skilled as those working for blacksmiths or
other craftsmen, were paid relatively more per hour. Smith supposed that this must be due to the
need to incentivize such workers from stealing these more valuable products. In more modern
contexts, efficiency wages refer to the fact that many employers do not slash wages to the minimum
wage, even in the face of competition from other firms or during periods of recession when an eager
supply of unemployed labor is abundant. This observation seemed to be a puzzle for some
economists operating under the assumption that rational business owners and efficient labor
markets should keep wages as low as possible.

5) Distinguish among private goods, Community Property Recourse (CPR), and public goods.

Explain why a CPR is an “incomplete property right.”

ANS.

In one way or another, all environmental and natural resource problems associated with
overexploitation or under provision of public goods, arise from incompletely defined and enforced
property rights. As a result private decision makers do not consider or internalize social benefits and
costs in their production or investment actions. The gap between private and social net returns
results in externalities - harmful effects on third parties: overfishing, excessive air pollution,
unwarranted extraction or diversion of ground or surface water, extreme depletion of oil and gas
reservoirs. These situations are all examples of the 'The Tragedy of the Commons'. In this paper, I
consider options for mitigating the losses of open access: common or group property regimes,
government tax and regulation policy, more formal private property rights. I briefly summarize the
problems and advantages of each option and describe why there has been move toward rights-
based instruments in recent years: ITQ (individual transferable quotas), tradable emission permits,
and private water rights. Introductions to the papers in the special issue follow. Copyright Journal
compilation 2009 Australian Agricultural and Resource Economics Society Inc. and Blackwell
Publishing Asia Pty Ltd. No claim to original US government works.

C. Short Answer Questions (word limit 100 words) 2 × 3 × 5 = 30 marks

6) Differentiate between:

(a) Linear theories of underdevelopment and structural theories of underdevelopment.

ANS LINEAR THOERY OF UNDERDEVELOPMENT--- Development theory is a collection of theories

about how desirable change in society is best achieved. Such theories draw on a variety of social
science disciplines and approaches. In this article, multiple theories are discussed, as are recent
developments with regard to these theories. Depending on which theory that is being looked at,
there are different explanations to the process of development and their inequalities. The linear
stages of growth model is an economic model which is heavily inspired by the Marshall Plan which
was used to revitalize Europe's economy after World War II. It assumes that economic growth can
only be achieved by industrialization. Growth can be restricted by local institutions and social
attitudes, especially if these aspects influence the savings rate and investments. The constraints
impeding economic growth are thus considered by this model to be internal to society.[2]

According to the linear stages of growth model, a correctly designed massive injection of capital
coupled with intervention by the public sector would ultimately lead to industrialization and
economic development of a developing nation

STRUCTURAL THEORY OF UNDERDEVELOPMENT-- Thus, both the views of structural internationalist

model emphasize that the development would be more meaningful when the attention is drawn not
only to the growth of GNP but rather to the planning of poverty reduction and employment to all.

The process of development is dualistic in nature. There are countries which have confined
themselves to proceeding faster upon what has widely been accepted as the path of development
and there are other countries which have not yet confined and refuse to move as fast as the former.
These situations have naturally moved ahead to form dual societies: one treated as superior and the
other inferior. The theories of underdevelopment are essentially dependency theories. This model
relates to the scholars like Andre Gunder Frank, Samir Amin, Immanuel Wallerstein and H. Magdoff.
Paul Baran, in his work The Political Economy of Growth (1973, first published in 1957), pioneered
the theory of underdevelopment.

(b) Positive externalities and negative externalities.

ANS

(c) The internationalistic approach to globalization and globalistic approach to

globalisation.

ANS Recent trends across Europe and America suggest that the liberal international order is
increasingly changing. The changes are evident in the rise of new nationalism following the Brexit
referendum of 2016 and subsequent exit of the UK from EU, the Catalonia independence
referendum of 2017, the 2018 New Caledonia referendum in France, plus decline in multilateralism
and rise in trade protectionism at the heels of the new US- led trade war with China. Other signs of
change include the new US immigration policies and the proposed wall on the US/Mexico border, a
shift of U.S. policy from openness to isolationism, and the withdrawal of the U.S. from the 2015 Paris
Agreement on climate change. This article – traces the causal linkages between globalization and the
changing international order. It revisits some of the assumptions and promises of globalization and
argues that the changes suggest the decline of the liberal international order on which the world had
been situated for decades. Conclusion reflects on the future of global governance.

7) Write short notes on the following.

(a) The Harris-Todaro model.

Ans The Harris–Todaro model, named after John R. Harris and Michael Todaro, is an economic model
developed in 1970 and used in development economics and welfare economics to explain some of
the issues concerning rural-urban migration. The main assumption of the model is that the migration
decision is based on expected income differentials between rural and urban areas rather than just
wage differentials. This implies that rural-urban migration in a context of high urban unemployment
can be economically rational if expected urban income exceeds expected rural income. In the model,
an equilibrium is reached when the expected wage in urban areas (actual wage adjusted for the
unemployment rate), is equal to the marginal product of an agricultural worker. The model assumes
that unemployment is non-existent in the rural agricultural sector. It is also assumed that rural
agricultural production and the subsequent labor market is perfectly competitive. As a result, the
agricultural rural wage is equal to agricultural marginal productivity. In equilibrium, the rural to
urban migration rate will be zero since the expected rural income equals the expected urban
income. However, in this equilibrium there will be positive unemployment in the urban sector. The
model explains internal migration in China as the regional income gap has been proved to be a
primary drive of rural-urban migration, while urban unemployment is local governments' main
concern in many cities

(b) Social Capital.

Ans The term social capital refers to a positive product of human interaction. The positive outcome
may be tangible or intangible and may include favors, useful information, innovative ideas, and
future opportunities. Social capital is not held by an individual, but instead appears in the potential
between social network connections between individuals. It can be used to describe the contribution
to an organization's success that can be attributed to personal relationships and networks, both
within and outside an organization. It can also be used to describe the personal relationships within
a company that help build trust and respect among employees, leading to enhanced company
performance.

(c) Sustainable Development.

Ans Sustainable development can be defined as an approach to the economic development of a
country without compromising with the quality of the environment for future generations. In the
name of economic development, the price of environmental damage is paid in the form of land
degradation, soil erosion, air and water pollution, deforestation, etc. This damage may surpass the
advantages of having more quality output of goods and services.

Sustainable Development Goals

To promote the kind of development that minimises environmental problems.

To meet the needs of the existing generation without compromising with the quality of the
environment for future generations.

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