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Exam (elaborations) ECS3707 - Development Economics (ECS3707)
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Exam (elaborations) ECS3707 - Development Economics (ECS3707) EXAM PACK MAYJUNE 2022
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ECS3707EXAM PACK
MAY\JUNE 2022
QUESTION 1
QUESTION 1.1
United Nation’s Sustainability goal (17)
Strengthen domestic resource mobilization, including through international support to
developing countries, to improve domestic capacity for tax and other revenue
collection. Developed countries to implement fully their official development assistance
commitments, including the commitment by many developed countries to achieve the
target of 0.7 per cent of gross national income for official development assistance
(ODA/GNI) to developing countries and 0.15 to 0.20 per cent of ODA/GNI to least
developed countries; ODA providers are encouraged to consider setting a target to
provide at least 0.20 per cent of ODA/GNI to least developed countries.
Realize timely implementation of duty-free and quota-free market access on a lasting
basis for all least developed countries, consistent with World Trade Organization
decisions, including by ensuring that preferential rules of origin applicable to imports
from least developed countries are transparent and simple, and contribute to
facilitating market access.
The payoffs / trade-offs between this goal when considering economic growth
and economic development
The SDGs can only be realized with strong global partnerships and cooperation. A
successful development agenda requires inclusive partnerships at the global, regional,
,national and local levels built upon principles and values, and upon a shared vision
and shared goals placing people and the planet at the centre Many countries require
Official Development Assistance to encourage growth and trade. Yet, aid levels are
falling and donor countries have not lived up to their pledge to ramp up development
finance. Due to the COVID-19 pandemic, the global economy is projected to contract
sharply, by 3 per cent, in 2020, experiencing its worst recession since the Great
Depression. Strong international cooperation is needed now more than ever to ensure
that countries have the means to recover from the pandemic, build back better and
achieve the Sustainable Development Goals.
Overall, trade openness in the sense of 'neutrality' or neutral trade orientation of an
economy may have a positive impact on economic growth in the short run by an
enlarged trade sector, for example, trading-related investments in the economy,
boosted imports via increases in income and aggregate demand this may hurt
developing nations in ‘ BRICS’.
QUESTION 1.2
‘BRICS’ countries in terms of economic institutions, imperfect markets and
imperfect information.
Economic institutions
Norms, rules of conduct, and generally accepted ways of doing things. Economic
institutions are humanly devised constraints that shape human interactions, including
both informal and formal “rules of the game” of economic life in the widely used
framework of Douglass North. Some important elements in the institutional framework
includes Macroeconomic Stability (Inflation Rate), Political Stability/No Violence,
Government Effectiveness, Regulatory Quality, Control of Corruption, Voice and
Accountability, and Rule of Law as potential institutional and political determinants of
FDI. The overall results from a study show that two factors, namely Government
Effectiveness and Regulatory Quality, are positively related to FDI inflow in BRICS.
Three variables in the model, namely Political Stability, Voice and Accountability, and
Control of Corruption, have a negative impact on FDI inflow in BRICS economies,
which implies that these three factors are not important for attracting more FDI inflow.
Imperfect markets
, An imperfect market refers to any economic market that does not meet the rigorous
standards of the hypothetical perfectly or purely competitive market. Pure or perfect
competition is an abstract, theoretical market structure in which a series of criteria are
met. The concept is a yardstick of measuring reality and ideal situations in a
hypothetical way, in the real world markets are imperfect, The fact that perfect
competition does not exist in the world and amongst ‘BRICS’ shows that there is
imperfect markets such as Oligopolies and Monopolies that operate in the countries
that are under ‘BRICS’.
Imperfect information
The absence of information that producers and consumers need to make efficient
decisions resulting in underperforming markets. Imperfect information is a situation in
which the parties to a transaction have different information, as when the seller of a
used car has more information about its quality than the buyer. Sellers often have
better information about a good than buyers because they are more familiar with it.
This is particularly significant in developing countries, where limited and imperfect
information in both production and consumption creates a situation of highly
incomplete markets. The fact that consumers can be price discriminated due to their
different segments for the same product is an existence of imperfect information in
‘BRICS’ economies
. QUESTION 2
2.1 The Harrod-Domar growth model stresses the importance of savings and investment as
determinants of economic growth. Make use of the BRICS country data sets to explain this
statement. (10)
The Harris-Todaro model is an equilibrium version of the Todaro migration model that predicts that
expected incomes will be equated across rural and urban sectors when taking into account informal-
sector activities and outright unemployment (:358). The distinctive concept in the model is that the
rate of migration flow from rural (agricultural) areas to urban (industrial) areas is determined by the
difference between expected urban wages and rural wages.
The difference between these sectors are the type of goods produced, the technology of production
and the process of wage determination. The rural sector is specialized in the production of
agricultural goods. It predicts that expected incomes will be equated across rural and urban sectors
when taking into account informal-sector activities and outright unemployment.
The Harris and Todaro model postulates that migration proceeds in response to urban-rural
differences in expected rather than actual earnings. The fundamental premise is that as decision-
makers migrants consider the various labour-market opportunities available to them as, say,
between the rural and urban sectors, choosing the one that maximizes their "expected" gains from
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