MEcon Master of Economics Development Economics 1 — Questions and Answers
Question 1: What does the Human Development Index (HDI) measure?
- GDP per capita only
- A composite of health, education, and income (Correct answer)
- Military strength and political stability
- Trade surplus and foreign currency reserves
Correct answer: A composite of health, education, and income
The HDI combines life expectancy, mean years of schooling, and gross national income per capita into a single composite measure of human development.
Question 2: Which concept describes poor countries growing faster than rich ones after controlling for structural differences, leading to income convergence?
- Absolute divergence
- Conditional convergence (Correct answer)
- The resource curse
- Malthusian trap
Correct answer: Conditional convergence
Conditional convergence occurs when poorer economies grow faster than richer ones once structural characteristics such as savings rates and technology are controlled for.
Question 3: Paul Rosenstein-Rodan's 'big push' theory argues that economic development requires:
- Small incremental private investments spread over time
- Coordinated large-scale investment to overcome poverty traps (Correct answer)
- Unilateral trade liberalization as the primary catalyst
- Foreign aid channeled exclusively through NGOs
Correct answer: Coordinated large-scale investment to overcome poverty traps
The big push theory contends that coordinated, large-scale investment is necessary to overcome coordination failures and achieve the critical mass needed for self-sustaining growth.
Question 4: The 'resource curse' in development economics refers to the paradox that:
- Natural resources are depleted too quickly in poor countries
- Resource-rich countries often experience slower economic growth (Correct answer)
- Environmental degradation inevitably follows industrialization
- Agricultural exports crowd out manufacturing development
Correct answer: Resource-rich countries often experience slower economic growth
The resource curse describes how countries abundant in natural resources often achieve slower long-run growth due to institutional decay, Dutch disease, and commodity price volatility.
Question 5: Amartya Sen's 'capability approach' defines development as:
- Maximizing aggregate GDP growth rates
- Expanding people's real freedoms and capabilities to live fulfilling lives (Correct answer)
- Building export-oriented industries to achieve middle-income status
- Reducing government expenditure to spur private investment
Correct answer: Expanding people's real freedoms and capabilities to live fulfilling lives
Sen's capability approach argues that development should be assessed by the expansion of substantive freedoms people enjoy, not merely income or utility.
Question 6: What is 'Dutch Disease' in the context of development economics?
- A financial contagion originating from Dutch banking failures
- Real exchange rate appreciation that harms non-resource export sectors after a resource boom (Correct answer)
- Over-investment in agricultural sectors at the expense of industry
- Fiscal deficits caused by excessive welfare spending
Correct answer: Real exchange rate appreciation that harms non-resource export sectors after a resource boom
Dutch Disease occurs when a resource boom drives up the real exchange rate, reducing the competitiveness of manufacturing and other tradable sectors.
Question 7: W. Arthur Lewis's two-sector model of economic development assumes that:
- Agricultural and industrial sectors have equal marginal productivity
- Surplus labor in agriculture can shift to industry without raising wages above subsistence (Correct answer)
- Industrial wages must always exceed agricultural wages by a substantial premium
- Technology is the sole driver of structural transformation
Correct answer: Surplus labor in agriculture can shift to industry without raising wages above subsistence
Lewis's dual-sector model posits an unlimited supply of labor at subsistence wages in the traditional sector, which the modern industrial sector absorbs until labor surplus is exhausted.
MEcon Master of Economics Development Economics 1
What does the Human Development Index (HDI) measure?