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Study guide 3 1 Education a Gross Enrollment Ratio The country divides the number of children who are of school enrollment age by the number of individuals who are actually enrolled in schools b Net enrollment ratio enrollment of the official age group for a given level of education Ex The share of children of primary school age that are enrolled in primary school i Always less than 100 c Life Expectancy in school a measure of how many years of education the average citizen of a country is expected to receive in their lifetime d Completion and Drop out rates Various measures of education Benefits of education both at individual private and social public levels Returns to education both private and social View education as an investment that yields a rate of return Benefits earning advantage of a given level of education over some other lower control level Costs Direct costs tuition living expenses materials Indirect or opportunity costs foregone earnings while in school calculated as wages of control group Private Rates of return accumulate to individual and have wider benefits or externalities to a society as a whole Positive Externalities More Rapid Growth More Productivity and healthy workforce greater politician participation and greater innovation These externalities justify government investment on education Negative externalities for government direct cost of investment or subsidy and forgone labor o Social and private returns are highest at lower levels of development o Social and private returns are higher at lower levels of education Education level and unemployment rate wage graph Education and gender the importance of female education Private returns to investment in girl s education most likely higher than for boys Women s education associated with increased entry into the labor force Education of mother associated with a lower infant mortality rate and positively related to the child s health Education of women negatively associated with fertility more education less children Lower incidence of HIV AIDS Indirect effects delayed marriage economic independence 2 Foreign aid Definition types of foreign aid Developmental Aid o Transfer of finance commodities etc Humanitarian Aid o Disaster relief assistance Military Assistance Food Aid o Offered to countries facing food shortages Three arguments regarding the effectiveness of foreign aid on growth positive negative and conditional understanding each side Positive capacity o Foreign Aids supplement local savings o Enhances investment which makes possible expansion in productive o It furnishes foreign exchange for essential o imports such as machinery fuel and food o Aid builds large construction projects o Aid could promote economic growth by o acting as a financial incentive for recipient governments to engage in political costly but growth enhancing economic reform For example classical modernization theory Negative William Easterly o Recipient governments misspend their foreign aid o aid can corrode governance and competitiveness o aid decreases savings of recipient government o can mirror resource curse o aid may have no effect on growth rates o Bottom up approach based on accountability and learning o Aid can support and encourage corruption o Making aid more effective is the solution not increasing aid levels Conditional policies o Aid has no effect on average very limited effect o Aid increases GDP capita growth only in countries with good economic o Good economic policies fiscal monetary and trade policy o Based on Olson s Stationary Bandits argument Long tenured governments are more likely to use foreign aid effectively 3 World Bank and IMF What does the IMF do International Monetary Fund maintains international monetary cooperation among its members supervising monetary cooperation at international level today Mission Surveillance that are could lead to financial instability middle income countries manage their economies practical guiding and training to help mainly low and fiscal stability of international monetary system scrutinizes economic policies of members to identify weaknesses Technical Assistance Articles of Agreement of the IMF o i Promote international monetary cooperation o ii Expansion and balanced growth of international trade o iii Promote exchange rate stability o iv Help establish multilateral system of payments and eliminate foreign exchange restrictions o v Make resources of the Fund available to members o vi Shorten the duration and lessen the degree of disequilibrium in international balances of payments o The role of IBRD and IDA IBRD International Bank for Reconstruction and Development founded in 1944 at Bretton Woods Conference o to finance reconstruction of countries affected by WWII o help with development of impoverished nations o Lends to countries with relatively high per capita incomes o poverty reduction in middle income or credit worthy poor counties o Money is used for o development projects highways schools o programs to help governments change the way they manage their economies o Provides technical assistance in projects IDA International Development Association Established in 1960 to assist the poorest developing countires o Lends to countries with annual per capita incomes of about 800 or less Comparing the IMF and World Bank Differences IMF is aimed at stability of international financial system macro WB aimed at long term development and poverty reduction IDA emphasizes concessional loans and grants more focused on developing countries Similarities Bretton Woods institutions Weighted voting privileges economically powerful members IBRD and IMF emphasize loans Both are key players in international development Institutionalized cooperation and coordination Conditionality World Bank Criticisms Bias political tool of major donors US and western countries Opaque and secretive little input from recipients Disregard for human and environmental costs Conditionality failed to produce growth and hurt the poor the most 4 Trade Definition of comparative advantage Comparative advantage is the idea that countries should specialize in their economic production based on the opportunity costs of producing various goods It is NOT about producing something cheaper it is about producing what will give you the most profit and using your resources wisely Example of factors and factor endowment of different countries What are Heckscher Ohlin and Stolper Samuelson theorem How are they


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FSU INR 3933r - Study guide #3

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