Economics Dr.

Sauer

Lecture ch 13: Development Economics Most of the people in the world do not have an ______________________ standard of living. - access to food - job opportunities - access to clean water - access to health care - adequate housing - education

Why should you care? Countries are linked together by trade, finance, the environment, migration, disease, etc Poverty The Cycle of Poverty:

Where could the cycle be broken?

Hunger Hunger is an __________________manifestation of poverty. There are about 900 million undernourished people in the world. The vast majority live in developing nations. 3/4 live in __________ areas. The majority are __________.

The Relationship Between Poverty and Hunger:

Globally, there is more than enough food produced to _________________ everyone. There is an ___________________ distribution of food within and across countries. Most food _________________________ are caused by natural disasters, conflicts, or economic crisis. Poverty makes people more ___________________________ to any emergency. What can be done? Short Run: - public food distribution - food-for-work programs Long Run: - irrigation projects (prevent consequences of drought) - improve rural roads (improve access to markets) - government policies to decrease unemployment - government policies to grant land ownership

There is ____________________________ for making poor countries rich. We do have an understanding of some key things that rich countries have in common. - stages of economic development, human capital, health issues, property rights, effective government institutions, openness to trade Stages of Economic Development

leading sector production process

consumer products major factor that influences economic growth

agriculture - human-nature interaction - labor and natural resource intensive - food - handmade items - natures productivity (fertile soil, rainfall, etc)

industry - human-machine interaction - capital intensive manufactured goods labor productivity

services - human-human interaction - knowledge intensive information / knowledge services innovation / intellectual property

Three Broad _______________________ of Sustainable Development: Social - full employment - equity - security - education - health Economic - economic growth - efficiency - stability Environmental - healthy environment to live in - rational use of non-renewable resources - conservation of renewable resources

The challenge is to _______________________ all three at once.

Foreign Aid: (humanitarian or development) - 2 types of sources - government - private Government - ______________________________ government bilateral aid programs (ex: US Agency for International Development or the OECDs Development Assistance Committee) -_______________________________ institutions (ex: World Bank or IMF) Private - charitable organizations - nongovernment organizations (NGOs)

2 common types of aid: ________________________ development assistance (ODA) grants or loans provided on concessional financial terms (with a grant element of at least 25%) by the official sector with promotion of economic development and welfare as the objective ____________ aid ODA that is used by the donating country to build infrastructure or buy goods/services

In 1970, at the UN General Assembly, rich nations pledged to spend ________% of their Gross National Income on ODA.

2007 ODA as a share of GNI

In 2005, the EU pledged to spend 0.56% of Gross National Income on poverty reduction by 2010 and 0.7% by 2015. Other OECD countries are targeting 0.35% of GNI.

Does aid make a difference in development? - 4 views on the link between aid and economic growth 1. It has been argued that ________________________ to break poor countries out of the poverty trap. - Developing nations often lack a minimum amount of capital (infrastructure, human capital, public administration) to support modern economic activity. Key to breaking the poverty trap is __________________ in physical and human capital. Funds for investment have to come from ______________________ sources.

2. There is a positive relationship between economic growth and aid, but the returns to aid are ________________________________. - limits to absorptive capacity and other constraints - type of aid matters

3. The effect of aid depends on - quality of ________________ and institutions - _________________ characteristics

4. There is _____________________ of aid on growth (or negative effect). - unproductive projects - graft / corruption - pressure on currency to appreciate