economic growth in developing countries
This module provides a general framework for the study of economic growth. The model allows to understand both, growth in developed and developing economies, and the level of income across countries. In the model, developing countries are thought to have the equivalent of an implicit tax on capital, which reduces investment, output, and wages.
The question of income differences across countries is a big puzzle among economists, why are the gaps so large given capital and technology can move around the world, and the populations be educated? Part of the explanation lies on history and its by-product, institutions: rules and norms that govern social and economic interactions.
you have to synthesize the theoretical and empirical aspects that explain the gap between rich and poor nations. Theory suggests that a “tax” on capital reduces investment, wages, and output, weak institutions in the form of bribes or heavy regulatory burden, for instance, lead to the same result.
The challenge is to lay out both lines of reasoning (growth theory and institutions) and illustrate the point using the resources below, how it is the case.
– Go to www.worldbank.org (Links to an external site.) and look for the World Development Indicators, there pick a developing country (HAITI) and look for the USA. Retrieve the data for GDP per capita (constant –latest year-US$) starting in the year 2000, up to the latest 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 of institutional scores, you can focus on one, all, or a few. There is also a percentile ranking and an absolute score. The absolute score is better suited for this analysis.
[you can talk about the income gap between the countries, whether there is evidence of convergence/divergence in income terms; and, of course, the equivalent in terms of their institutions. A good reference to get a sense of the role of institutions in 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. do not focus on the literature review, but rather on the complementary of our theory and institutions, for a reader that does not much about either.
This type of exercise is useful for, say, a firm looking to expand into foreign markets.
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