Economic Development - Article Example

1. Any dashed isoquant diagram like the one given reflects a discontinuity, or the absence of substitutability of the inputs in attaining some given output level. So, an isoquant diagram with abundant 1st world inputs on the vertical axis and abundant 3rd world inputs on the horizontal axis represents the impossibility of substituting 1st word inputs for 3rd world inputs in generating some given total output level. In the diagram above, the discontinuity exists when relatively more 1st world inputs are used in combination with lower 3rd world input levels. However, the lower half of the isoquant is continuous reflecting that the given total output level can be achieved at all combinations of inputs provided 1st world inputs are used lower than a certain level (X2*) and the intensity of using 3rd world inputs is greater than a certain level (X1*). This situation can be interpreted as a depiction of the fact that instead of combining a greater amount of first world inputs which presumably can be interpreted as the magnitude of aid, if a lesser amount of such inputs are used in tandem with relatively higher amounts of 3rd world inputs, the possibility of attaining a certain amount of global output increases. This has a close semblance to Easterly’s idea that instead of providing huge lump sum aids to poorer nations, smaller piecemeal transfers that actually generate incentives for the population in such nations to become efficient in their participations lead to increased national incomes for such nations. For instance, Easterly cites the example of free provision of mosquito nets to prevent malaria in poor nations. He points out that not only does this create a black market for such nets; the nets are diverted into other uses. On the other hand, it is shown that through charging a miniscule amount for providing the nets, proper utilization has been increased thereby implying such low price provisions to be better solutions. He also cites the example of patients fully utilizing doctors’ services in cases they have to pay for them rather than when the services have been provided freely. Therefore, the transfer of any arbitrary amount of aid, financial or in kind actually may not lead to higher incomes, a situation reflected in the dashed segment of the isoquant where these aids, as inputs combined with third world inputs fail to yield any output in the disjoint portions. The better option is thus to use a ‘search’ strategy to locate the amounts of 1st world inputs that combined with a given amounts of 3rd world inputs can generate positive output, or in other words ensure existence of a continuity in the level of production. 2. “A bend in the river” by V.S. Naipal though apparently only an arresting narrative about the life of Salim, an Arab-African of Indian descent whose family has lived on the East coast of Africa over many generations, during the reign of Mobutu Sese Meko of Zaire, actually is a superlative portrayal of the economic and socio-political misery of the greatest continent on the face of the Earth. The tale initiates with Salim choosing to move in to the interior at a natural market created by the existence of a bend in the river, fearing an impending politically charged unrest, where he purchases a store and waits for his town to recover from the destruction resulting from the revolution. Salim, along with him, we the readers are introduced to representatives of the common people and their lives, the plight of the lives in the aftermath of colonial existences. The town is gradually rebuilt, with huge government complexes rising in the vicinity of it. However, soon another turbulent revolution becomes imminent and Salim decides to exit Africa and move to England for a while. When he returns to sell of his shop he finds that all foreign property has been nationalized. Salim then begins an illegal trade of valuables like ivory and gold and is caught and jailed though he is able to protect himself from torture through bribes. In jail, through Salims eyes, we witness many atrocities on the poor prisoners. Finally he is bailed by an acquaintance who now is presently employed with the authorities. The narrative often through heart wrenching depictions presents the shocking realities of the corrupt officials and their unscrupulous deeds which benefit them at the cost of increased miseries of fellow countrymen. However, through the course, Naipal does indirectly bring to notice the abundance of natural resources, the high productivity of the local labor, and the strong work culture of the locals which thereby indicate the potential of fast growth of the nation through proper utilization. However at the same time, attention is intentionally attracted towards the unprincipled practices of corrupt government representatives who increasingly go on abusing their power to earn benefits for themselves all the while pushing the wretched lives of the locals further down. It is in this particular indirect presentation that Naipal succeeds in drawing attention to the actual growth potential as well as the presence of corruption in governments as a major hindrance in the novel. 3. (a) The equation represents a conceptualization of the notion of sustainable development by incorporating environmental concerns in the standard calculations of the NNI. Sustainable development by definition refers to “development that meets the needs of the present generation without compromising the needs of the future generations”. Interpreting this to imply unchanged inter-temporal consumption leads to an unchanged overall capital stock to be the primal requirement for achieving sustainable development. It is further recognized that the present overall capital stock is composed of not only manufactured capital stock but also of environmental capital. Moreover, natural capital stock is by no means substitutable by man made capital or human capital for that matter, at least after a certain extent. Thus, interpreting sustainable development as a state of unchanged capital stock over time and recognizing the impossibility of substituting natural capital stock by manufactured capital stock entirely, the importance of environmental accounting is perceived and we arrive at The Pearce-Warton measure of sustainable NNI. Todaro improves upon this measure by incorporating two important costs implicit in the process of maintaining the natural or environmental capital at its present level and replacing the lost natural capital. Though conceptually this is a very strong notion, and ideally such environmental accounting should form an integral part of all cost-benefit analysis undertaken as a part of computing the optimal time path to be taken by any economy given its present state, the major problem is the practicality of obtaining the exact values of environmental degradation and thereby identifying the replacement costs and aversion costs required to determine the optimal choices that constitute the growth path to be taken. However, given the present knowledge base, I find it more appealing to suggest the development technologies that allow computing these factors rather than searching for an alternative measure as the sheer simplicity and conceptual strength of the approach does make it an irreplaceable tool if a cogent solution to the problem of immeasurability can be obtained. 3. (b) While the risk of incorporating ‘environmental decay’ in spite of a lack of convincing measurement methods lies in the possibility suboptimal usage of environmental resources in the form of either too much or too little being utilized, the risk of not incorporating it at all exists in a possible destruction of all human kind. In case of incorporating the environmental decay factor, if the sub optimality of utilization exists in excess usage it more likely that it will still be used at a pace slower than if the factor is not considered at all since in the latter case, the optimization in essence ignores the inter-temporal optimality in utilization of environmental resources. On the other hand, if the resource is underutilized due to improper calculations, the environmental quality will be sustained may be at the considerably lower cost of reduced productivity of manufactured capital and other factors of production. Therefore, in spite of the possibility of sub optimality, I believe incorporation of environmental decay in any decision calculus is crucial. 3. (c) I would allocate a larger portion of the resource to poorer nations and levy a progressive tax on the emissions that cause degradation. So, poorer nations will have a lesser tax burden an will be able to industrialize, though at a rate that will be moderated due to the presence of the tax which will thereby curtail the environmental damage. Further, with richer nations paying higher taxes, the optimal choices of utilization of the resource shall also be moderated. The higher tax burden, for me seems to be justifiable since the process of industrialization which has led these nations to be richer till now has been inconsiderate of the environmental decay caused. The generated revenue shall be invested in R&D to develop new lesser environment intensive production technologies. Given the progressive nature of the taxation, as poorer nations industrialize and earn higher incomes, the tax burden rises leading thus to a gradually lesser usage of environmental resources. However, an impartial organization that eclectically has representatives from both rich and poorer nations has to be created and assigned the role of overseeing this pattern of allocation. 4. In an ideal free market system, socially optimum allocation of resources can be ensured the marginal benefits to society caused by some action is equated to its marginal cost. This in essence requires all agents to pay society at the margin amounts that are equal to the benefits they receive from their actions. For this system to work, enforceable, universal property rights, that ensure excludability and transferability are necessary and ensuring such rights have been identified as the only role of governments. However due to the nature of particular natural resources, such as ones defined as common pool resources, ensuring excludability or transferability is extremely difficult. Moreover, in the presence of externalities that are often immeasurable, obtaining the social optimum becomes exceedingly difficult. It is due to these factors that the practical roles of the governments for development have been identified to cover a much wider spectrum. Provision of primary health, education, sanitation etc along with ensuring optimality in the allocation is essential. A broad scope of policy reforms exist in moving towards such optimality. In fact in the face of the looming environmental crisis, governments of developed as well as underdeveloped nations both have significantly important roles particularly considering the sustainability concerns. For LDC governments, ensuring proper resource pricing, creating enhanced community involvement particularly to ensure sustainable usage of common pool resources, clearly defining property rights and implementing proper enforceability, generating lesser environment-intensive production alternatives for poorer sections, improving the status and economic participation of women so that through increased opportunity costs, the population growth can be checked, strengthening abatement policies particularly in their implementation and playing a central role in preparing for adapting to the imminent climate changes have been identified to crucially stand out by Todaro. For developed nation governments, facilitating trade liberalization, providing debt relief and forwarding technological assistance to developing nations stand out as the central roles that can be played so that developing nations can move on to lesser resource intensive more sustainable growth paths thereby reducing global environmental degradation indirectly, and reducing harmful emissions, developing cleaner technologies and regulating harmful domestic demand patterns to directly benefit the global environment have been recognized as the most important roles. 5. To effectively analyze the validity of the given statement it is crucial to understand the implicit assumptions underlying the prescience. First, for the statement to be true, the productivity of the given stock environmental resources has to remain unchanged, or at least non-increasing. Secondly, the U.S. standard of living represents a non-declining benchmark. So, if technologies can be developed and continuously advanced so that the ensuing productivity increments in the environmental resources can lead to much higher outputs with same or, in fact lower utilization of the resources, then the standard of living of LDCs can rise significantly. Moreover, with the usage of environmental resources being regulated particularly for richer nations who are made to pay higher for using them, the standard of living of nations of USA, along with effective steps ensuring harmful demand growth being curtailed, the standard of living of nations like USA are likely to fall or, to maintain the same standard of living advanced sustainable technologies are likely to be developed and if these are given to poorer nations which represents as already mentioned an important part of the necessary steps to be taken by developed nations, the poorer nations can raise their productivities even further which will bring them more towards the standard of living of nations like the USA. So, theoretically at least, if we relax the implicit assumptions, the statement is found to be too rigid. Read More