Assignment Code: BECC-114/AST/TMA/2022-23

Course Code: BECC-114

Assignment Name: Development Economics-II

Year: 2022-2023

Verification Status: Verified by Professor

Maximum Marks: 100

Answer all the questions

A. Long Answer Questions (word limit-500 words) 2 × 20 = 40 marks

1) Discuss the theory of demographic transition.

Ans) Demographic transition is a theory that explains how fertility rates eventually decrease to low and stable levels. A three-stage process is used to explain how population growth rates will eventually slow down. High birth and death rates characterise the initial stage of stagnant growth (Stage 1). The second stage is a time of rapid growth but is also characterised by high rates of both births and deaths (Stage 2). It is the third stage, characterised by stability, low growth, and low rates of birth and death (Stage 3). These three stages or phases collectively make up the demographic transition. Together, they explain why these phases have been experienced by both modern developed and developing countries. Nearly all of the nations are currently in the second or third phase of the demographic transition.

First Stage of Demographic Transition

Because of a combination of high birth rates and nearly equal high death rates, all modern developed nations had stable or very slow population growth for centuries prior to economic modernization. Despite the fact that the net growth rate was still very low, the phase was marked by a rise in population. Despite the high birth rates, the persistently high and high death rates also helped to restrain growth rates.

Second Stage of Demographic Transition

This phase started when better public health infrastructure, a healthier diet, and higher incomes were linked to modernization. These caused a significant drop in mortality, gradually increasing life expectancy from 40 to 60 years. The decline in fertility did not, however, occur simultaneously with the decline in death rates. Sharp increases in population growth were caused by the widening gap between high birth-rates and declining mortality rates. The same factors that reduced death rates also increased economic productivity. For instance, the expansion of the economy's overall carrying capacity was a result of the rise in agricultural productivity. Second, the inertia that characterises household decisions regarding fertility is the reason why birth rates are high.

Third Stage of Demographic Transition

At this stage, modernization and development's forces and influences start to cause a decline in fertility. Birth rates decrease and population growth rates slow as time overcomes inertia. Population growth is minimal or non-existent as a result of declining birth rates and declining mortality rates. The third and last stage of the demographic transition is now.

We can assume that the birth and death rates are high during the early stages of the demographic transition. The death rates decrease while the birth rates continue to be high as the nation advances along the economic development curve. As a result, population growth occurs. Finally, the population growth rate stabilises as birth rates decline. In Western Europe, birth rates were generally low at the beginning.

Either a late marriage or celibacy was to blame for this. Even at their highest point, population growth rates overall hardly ever went above 1%. Due to advancements in technology, birth rates gradually decreased in later years. Instead of a sudden explosion, population growth in these countries was more of a slow spurt; birth rates varied slightly, and death rates were either largely stable or gradually rising. Thus, the demographic transition pattern in European nations was evident.

2) Explain the basic propositions of dependency theory. Discuss the three approaches to dependency theory in the context of Latin America.

Ans) It is not necessary for developing economies to adopt the developed nations' economic development strategy. The approach taken by developed nations is what initially caused the peripheral nations' underdevelopment. Through an exploitation- and unequal-exchange relationship between the core and the periphery, the developed countries' development strategy assisted their own development.

The way that the less developed nations use their resources differs from how the developed nations do. For instance, developing nations are experts at exporting food and basic goods. Dependency theorists contend that despite the fact that developing nations produce a lot of food for export, malnutrition is pervasive in these nations. Dependency theorists contend that developing nations should concentrate on producing food grains for domestic consumption in order to reduce the prevalence of malnutrition.

Dependency theorists contend that, even in the case of developing nations, not all nations can adopt the same approach or set of policies. There is a case to be made for each nation having its own national economic policy. The needs of the poor and marginalised, rather than those of the corporate sector or the country's dominant classes, would be best served by each nation's national interest.

The coercive power of the countries in the "core" as well as that of the elites in the peripheral countries maintains the distribution and diversion of resources over lengthy historical periods. Dependency theorists contend that domestic elites collaborate to exploit domestic resources and labour because their interests coincide with those of the core country. The elites at home have a vested interest in continuing their dependence on the core economies.

The Approach of Frank and dos Santos

Paul Baran's concepts serve as Frank and dos Santos' starting point. According to Baran, the advanced nations do not benefit from the economic growth of developing nations. The developed nations might be cut off from significant sources of raw materials and natural resources if the less developed nations develop. Additionally, the market for imported goods will decline as developing nations will no longer need to import manufactured goods from underdeveloped nations. The underdeveloped nations will not be able to absorb the surplus capital of the developed nations.

The Approach of Sunkel and Furtado

Let's now discuss Osvaldo Sunkel and Celso Furtado's strategy. Let's start with Sunkel's strategy. Osvaldo Sunkel combined the viewpoints on internal constraints and ECLA. The ECLA economists had made an effort to use the pattern of Latin American countries' international trade to explain the phenomenon of underdevelopment in the region. These nations imported manufactured goods while exporting basic commodities. The terms of trade were never in their favour.

The Approach of Cardoso

Let's finally talk about Fernando Henrique Cardoso's strategy. Sunkel-Furtado and Frank dos Santos do not share Cardoso's perspective. Cardoso contends that Latin America cannot develop capitalism. Additionally, he disagrees with the idea that labour in Latin America is subject to extensive exploitation and should only be compensated at the subsistence level. Third, he thinks it is incorrect to assume that the native or national bourgeoisie in Latin American nations is a parasitic class rather than an active social force.

B. Medium Answer Questions (word limit-250 words) 3 × 10 = 30 marks

3) Differentiate between share tenancy and fixed-rental system. Explain the Marshallian argument about the inefficiency of share tenancy.

Ans) Land is distributed very unequitable in developing nations like Asia and Latin America, with a sizable portion of it in the hands of a small number of individuals. In Asia, share tenancies account for 84.5 percent of all rented land. However, the percentages vary from about 30% (Thailand), through 50% (India) or 60% (Indonesia), all the way up to 90% (Bangladesh).

In this type of tenancy, the tenant gives the landlord a set sum of money in exchange for the right to farm the land. This kind of tenancy is more likely to be accepted by wealthy tenants. In a fixed-rent tenancy, the landlord assumes no risk because the fixed rent must be paid whether or not the production is successful. The tenant must therefore be prepared to assume the risks associated with poor crops or crop failures. Rich tenants use this type of tenancy because they are wealthy enough to take such risks. There is circumstantial evidence that large farmers hold most of the tenancies in Latin America. Compare this to Asia, where sharecropping accounts for the majority of tenancy.

The "Marshallian inefficiency argument" operates in two ways. In a fixed-rent agreement, the tenant keeps all marginal output, and the landlord has no incentive to put forth any effort. On the other hand, in a wage-labour agreement, the landlord receives all of the marginal output, while the tenant is merely an employee receiving pay. The tenant won't be motivated to put in a lot of effort. Thus, there is a problem with two incentives. Sharecropping, on the other hand, can be considered a hybrid form where both the landlord and the tenant have some incentive to put in the work.

4) Explain the key results of the efficiency wage model. Derive efficiency wage equilibrium using the neo-classical framework

Ans) Since they are the ones who seek to maximise profits, the employers are okay with this. We must comprehend what forbids such an arbitrage. To this, the efficiency wage theory offers a solution. According to this, if a worker's productivity depends on their pay, a pay cut will result in a decrease in their productivity, making the arbitrage useless to the employer. The aforementioned explains why a company can afford to pay higher wages. Raising wages can be appealing to an employer in order to increase productivity and labour effort.

Different sectors end up paying different wages because the ideal wages in each sector vary. The main characteristic of efficiency wages is that businesses are discouraged from lowering wages due to the negative impact on employee effort, motivation, cost of new hiring, retention, etc. Workforce Markets These factors combined have an impact on the overall firm's profits. The efficiency wage theory thus does not explain why higher wages result in lower labour costs, despite the fact that it does explain the existence of wage differentials across sectors.

5) Distinguish among private goods, Community Property Recourse (CPR), and public goods. Explain why a CPR is an “incomplete property right.”

Ans) Let's start by examining how goods are categorised according to whether they are private, public, or a combination of both. These were covered in your microeconomics courses. Private goods can be excluded and are competing. Public goods differ from private goods in that they are non-excludable (i.e., cannot be stopped from being consumed) and non-rival (consumption by individuals does not reduce the amount of the good available for consumption by others). Community members have the right to access, extract, manage, and exclude common property resources (CPR).

The CPR states that a resource's services are I collectively excludable (non-members are excluded, but members cannot be excluded), and (ii) rival in use. Examples of such services include fishing, animal grazing, and the extraction of firewood or timber from a forest (the fish, forage, or timber depletes faster with appropriation by members). The five dimensions are necessary for full property rights.

Thus, the most complete form of property rights in an economy is private ownership, including the right to alienate. Unfinished property rights could result in improper resource management. This demonstrates that one of the primary determinants of how resources are used is the distribution of property rights and the nature of these rights.

Due to the fact that property rights are upheld by the law, economists typically regard the rule of law as the most significant institution. However, this does not imply that in order for property rights to be effective, they must be in the form of individual ownership or completeness. The best possible use of resources can also come from community ownership, which includes the other four rights but excludes the right to buy and sell and is supported by strong cooperative skills.

C. Short Answer Questions (word limit 100 words) 2 × 3 × 5 = 30 marks

6) Differentiate between:

(a) Linear theories of underdevelopment and structural theories of underdevelopment.

Ans) Following the Second World War, economists in the industrialised nations were unprepared when interest in the developing world began to grow. They lacked the expertise to evaluate the course of economic development in predominantly agrarian nations with antiquated economic structures.

A development theory called structuralism concentrates on the structural elements of the development process. The core of this theory is the transition of an economy from a subsistence agricultural economy to a modern, urbanised, and service economy. To support the industrial sector, particularly the Import Substitution Industrialization, it calls for significant government intervention in the economy (ISI).

(b) Positive externalities and negative externalities.

Ans) In economics, the concept of a "positive externality" refers to how one person's actions can benefit other people without requiring them to pay for those benefits. These externalities are prevalent throughout the world and have a significant impact on society as a whole.

An economic concept known as "negative externality" refers to costs that are borne by parties unrelated to production or consumption. These costs may be economic, social, or environmental. Other than the producer and consumer, other groups are also impacted by this cost. In essence, negative externalities are expenses that are not included in the firm's production costs

(c) The internationalistic approach to globalization and globalistic approach to globalisation.

Ans) Internationalization is the process of creating flexible products that can be examined, distributed, acquired, and consumed by individuals from various countries, potentially leading to global expansion. The process of globalisation, on the other hand, enhances cross-national exchanges of goods and services, money, knowledge, cultural values, etc.

The process of internationalisation, when taking into account national and international organisations and businesses, aims to give them appropriate approaches to enter the international market while becoming an integral part of other countries. On the other hand, globalisation is linked to the global economy; it aims to link all economies so that they can trade freely while also coordinating with various nations' laws and regulations

7) Write short notes on the following.

(a) The Harris-Todaro model.

Ans) The traditional theory of rural-to-urban migration is built on the work of Harris and Todaro (1970). The core idea of the Harris-Todaro model is that urban unemployment results from high wages paid to employees in the formal urban sector. reasons why city wages are so high.

1. While other economic sectors are not even close to being as organised, which makes wages in those sectors more flexible, the sector may be unionised and subject to collective bargaining over wages.

2. Furthermore, because the urban formal sector is frequently viewed as the demonstration of government policy, minimum wage laws, pension plans, unemployment benefits, and other facilities might be mandated by law.

3. Finally, it's possible that businesses in the urban formal sector purposefully pay wages that are higher than those found elsewhere in order to hire employees of the highest calibre and fire subpar employees after their calibre becomes apparent.

   
   

(b) Social Capital.

Ans) Lack of ability to build long-term cooperative relationships based on trust can result in significant loss. Lack of trust can cause communication to deteriorate or break down. Transaction costs decrease as a result of developing relationships in networks and establishing trust. According to authors like James Coleman and Robert Putnam, "social capital" refers to the totality of a person's network connections with other people in the community.

While similar to human capital, this is not based on an individual's endowment for health and education. Instead, it is found in the network and interaction of people. A person with connections to a large number of people is said to have a large social capital.

(c) Sustainable Development.

Ans) Natural resources are considered as basic requirements for development of an economy. But they are limited and available on specific location only. The limit leads to the scarcity and the basic three central problems of an economy. The extraction of resources and moving them at the required location involves cost which gets added to the cost of production.

Hence, it becomes necessary to allocate these resources in a judicious manner. This helps us achieve the most efficient cost combination. So, we can say that resource allocation is an important area of study for efficient allocation of factors of production including natural resources. Many countries have achieved rapid growth due to the existence of natural reserves like minerals, oil, and other metals.