Which proposal for India is Amaral most likely referring to in his response to Mantri?

A. Patent initiative B. Highway network C. Auto and textile factories

Transcribed Image Text:

At a recent international finance and economics conference in Bamako, Mali, Jose Amaral of Brazil and Lucinda Mantri of India are discussing how to spur their countries' economic growth. Amaral believes that growth can be bolstered by removing institutional impediments, and suggests several possibilities for Brazil: launching a rural literacy program, clarifying property rights laws, and implementing a new dividend tax on foreign investors. Mantri responds that, for India, capital deepening will be more effective, and has proposed the following ideas: building a group of auto and textile factories in the southern states, developing a north-south and east-west highway network, and sponsoring a patent initiative. In response, Amaral says to Mantri: "Based on endogenous growth theory, one of those proposals is more likely to raise total factor productivity than result in pure capital deepening." While Mantri recognizes that India lacks the significant natural resources of Brazil, she states that India can overcome this challenge by bolstering long-term growth through three channels: Channel 1: Deepening the capital base. Channel 2: Making investments in technology. Channel 3: Maintaining a low rupee exchange rate. Each country's basic economic statistics were presented at the conference. Selected data for Brazil and India are shown in Exhibit D. Adama Kant, a fund manager based in Mali, is planning to increase the fund's allocation to international equities, and, after some preliminary analysis, has determined that the new allocation will be to Brazilian or Indian equities. After reviewing the data in Exhibit D, Kant decides that the allocation will be to Indian equities. EXHIBIT D Economic Statistics, Brazil and India Economic Statistic GDP per capita, 2010 GDP per capita growth, 1990-2010 GDP growth, 2005-2008 Growth due to labor productivity component Growth due to capital deepening component Brazil India $9,589 $3,575 1.62% 4.84% 4.9% 8.2% 2.9% 6.0% 3.4% 3.6% Kant is concerned about the low standard of living in Mali. To improve per capita GDP, Kant is considering five specific strategies: Strategy 1: Lower the country's tax rate. Strategy 2: Introduce policies that encourage the return of highly educated Malian emigrants. Strategy 3: Build day care centers to permit greater participation of women in the workforce. Strategy 4: Impose high tariffs on imports to protect the country's nascent industries. Strategy 5: Use economic development bank loans to improve the country's transport and manufacturing infrastructure.