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Below is the prompt. Any info that I am missing in the image? This module provides a general framework for the study of economic growth.

Below is the prompt. Any info that I am missing in the image?

This module provides a general framework for the study of economic growth. The model allows to understand both,growthin developed and developing economies, and thelevelof income across countries. In the model, developing countries exhibit lower income because they are thought to have the equivalent of an implicit tax on capital (because of bribes or frictions for doing business), which reduces investment, output, and wages.

The question ofincome differences across countriesis a big puzzle among economists. If you think for a moment about the issue, natural questions arise: why are the gaps so large given that capital and technology can move around the world, and that countries' populations can be educated? Part of the explanation lies in history and its by-product institutions: rules and norms that govern social and economic interactions.

In this Box you have to synthesize thetheoreticalandempiricalaspects that explain the gap between rich and poor nations.Theorysuggests that a "tax" on capital reduces investment, wages, and output; on the flip side, in practice, weakinstitutionsin the form of bribes or heavy regulatory burden, for instance, lead to the same result.

The challenge in this Box is to lay out both lines of reasoning (growth theory and institutions) and illustrate the point using the resources below.

- Go to worldbank.org and look for the World Development Indicators. Once you are there pick a developing country (or countries ---could be more than one) and also look for the USA. Retrieve the data for GDP per capita starting in the year 2000, up to the latest available year. There are many variables with that name so pick: GDP per capita constant -"latest year"-US$; the series are constantly updated, so look for the latest base-year available.

- Look online for the Worldwide Governance Indicators and match the countries and years that you have picked from the World Bank. There are six categories for institutional scores, you can focus on one only, on all (average), or on a few. You will find a percentile ranking and an absolute score. The absolute score, which ranges between -2.5 to 2.5, is better suited for this analysis so use that one.

In this box talk about the income gap between the countries in general [25 points]. Explain through the lens of the theory and institutions why this is the case [25 points]. Discuss whether there is evidence of convergence/divergence in income terms [25 points] and institutional quality [25 points] among your selection of countries. The charts (one for GDP per capita and another for Governance Indicators) should have a title and have the axis labeled (with time in x-axis, and label variable(s) and units in the y-axis).

When talking about thetheoryfrom the book chapter be sure touch on the set up of the model, interpretation, and its predictions. For the practical side, a good reference to get a sense of the role ofinstitutionsin economic performance read Hali Edison, "How strong are the links between institutional quality and economic performance?", Finance and Development, June 2003, Vol. 40, Num. 2, International Monetary Fund. There is a large literature on the topic, but this a good introduction, so don't look further for this assignment. In the Box focus on the complementarity between thetheoryand the concept ofinstitutionsto explain the issue to a reader that does not much about either. This type of exercise is useful for, say, a firm looking to expand into foreign markets.

image text in transcribed
GROWTH IN DEVELOPED AND DEVELOPING ECONOMIES: GUATAMALA VERSUS THE UNITED STATES OF AMERICA John Cassidy M3: BOX ECON562_FA21 Professor Luis San Vicente Portes, Ph.D. Guatemala has struggled like many Central and South Through the lens of the theory and institutions: American countries to elevate their economy. "After a "Growth theory traditionally assumed the existence of multi-decade guerrilla war that killed more than 200,000 an aggregate production function, whose existence and people ended in 1996, macroeconomic and political reforms properties are closely tied to the assumption of optimal attracted foreign investment in Guatemala" ("Guatemala." resource allocation within each economy." (Banerjee, Guatemala Economy: Population, GDP, Inflation, Abhijit, and Esther Duflo. Growth Theory through the Business, Trade, FDI, Corruption) "Guatemala has Lens of Development Economics, Dec. 2004, pp. 1-1. ) experienced continued economic stability, but this has not translated into growth acceleration to close the income gap Convergence or divergence in income terms: with rich countries. In fact, poverty and inequality in the Divergence is when the price of an asset and an indicator country are persistently high, with Indigenous Peoples move away from each other. continuing to be particularly disadvantaged." . Convergence is when the price of an asset and an ("Overview." World Bank, 31 May 2021) indicator move toward each other Compared to the United States of America there is a substan Guatemala is experiencing convergence. The countries tial gap between the two countries' Gross Domestic Product. with the highest income level like The United Staes of America does not give faster growth. Guatemala's top On average from 2000 to 2020 the average GDP for sectors are services, agriculture and manufacturing Guatemala is $41, 131,489,715.18. This has helped to elevate the country to have the largest The U.S. is $15,233, 144, 166,777.30. economy in Central America. This means the average income gap between the Institutional quality: two countries is $15,192,012,677,062.10 which is massive. . Institutional quality is a broad concept that captures law, individual rights and high quality government AVERAGE GROSS DOMESTIC PRODUCT OF regulation and services GUATEMALA VERSUS THE UNITED STATES OF AMERICA . Institutional quality and economic development reinforce each other over the longer term, but we argue that institutional quality leads this virtuous circle AVERAGE FOR GUATEMALA Unlocks growth potential and does not intrinsically suffer from diminishing returns COUNTRIES AVERAG . Data shows that countries with high institutional quality NITED STATES have been more successful in adopting frontier technology and productivity since the turn of the $0.00 millennium $5,000,000,0.. 10,000,000,.. $15,000,000... $20,000,00 AMOUNT IN US DOLLARS "To achieve greater economic freedom, the government would have to implement a deep, broad-based, and com- prehensive set of reforms to strengthen its rule-of-law in- References: stitutions. Their relative ineffectiveness is reflected in low Banerjee, Abhijit, and Esther Duflo. Growth Theory through the Lens of Development Economics, Dec. 2004, pp. 1-1. Index scores for the property rights, judicial effectiveness, and government integrity indicators." This is a possible 'Guatemala." Guatemala Economy: Population, GDP, Inflation, move the government can take to help lift the Guatemalan Business, Trade, FDI, Corruption, www.heritage.org/index/ economy even further. country/guatemala. 'Overview." World Bank, 31 May 2021, www.worldbank.org/en/ country/guatemala/overview

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