Assignment 2
IDEC 8022 Economic Development
Submit your answer by 3 October 2024
1. The file hs0ind.dta contains information on a sample of household in country X at year t, where:
provid = provincial ID
distid = district ID
hhid = household ID
indid = individual ID
islanid = island group ID
nrt = size of household (# of persons)
expr = total household monthly expenditure
edu = educational attainment
illit = illiterate
age = age of an individual
urban = 1 if the district is a city
wert = household sample frequency weight
The file hs1ind.dta contains information on a sample of household in country X in year t+6, where:
provid = provincial ID
distid = district ID
hhid = household ID
indid = individual ID
nrt = size of household (# of persons)
expr = total household monthly expenditure
edu = educational attainment
illit = illiterate
age = age of an individual
urban = 1 if the district is a city
wert = household sample frequency weight
Please note that these two datasets are repeated cross section.
(Use information on household weight for the following exercises.)
a. For yearstand t+6, calculate the level of inequality using the Gini
coefficient and the Top 10% indicator, of expenditure per capita, at both the provincial and national levels. The Top 10% indicator is defined as the ratio between the average expenditure of the richest 10% and the average expenditure in the region. Compare the Gini coefficient and the Top 10% indicator, and discuss the findings.
b. Draw the individual expenditure Growth Incidence Curve (GIC) for the
entire nation between yearstand t+6. Comment on whether the GIC can explain changes in inequality measures and discuss the advantages of using the GIC compared to the Gini coefficient and the Top 10% indicator.
c. For each district in year t and year t+6 calculate the following:
• Mean years of schooling for adults (age ≥ 28)
• Proportion of adults (age ≥ 28) with junior highschool degree (education attainment ≥ 9)
• Proportion of adults (age ≥ 28) with senior highschool degree (education attainment ≥ 12)
Suppose that between year t and t+6, the government heavily invested in infrastructure in all districts within provinces with provid value of less than 52 (provid < 52). Using asimple difference-in-differences (DiD) method (without the need for any control variables), assess whether this infrastructure investment program has any effect on the following at the district level:
• Mean years of schooling for adults
• Proportion of adults with junior highschool degree
• Proportion of adults with senior highschool degree
Discuss your results.
d. Conduct a similar analysis as in question (a), but at the individual level. Check whether this infrastructure investment program has any effect on the following:
• Years of schooling for adults at individual level
• Adults with junior highschool degree (dummy equal to 1)
• Adults with senior highschool degree (dummy equal to 1)
Compare and discuss your results with those obtained from question 1a.
Note: Attached your do-file (in pdf) as well with your answer sheet that you submit.
2. Assume that a country has a national saving rate of 15% and that the capital-output ratio is 5. Suppose that capital lasts forever, so that the rate of depreciation = 0.
In the world of Harrod-Domar model:
a. Calculate the rate of GDP growth.
b. What should the savings rate be in order to achieve an 8% growth rate?. Discuss the roles of savings in development.
c. Assuming the savings rate remains unchanged, by how much does the capital- output ratio need to decrease to achieve a 9% growth rate? Discuss the issues of capital-output ratio related to development.
d. What happens to the growth rate if the depreciation rate increases to 2%? Discuss the problems caused by an increasing depreciation rate.
e. Discuss the weakness of Harold-Domar model.
3. Provide three real-world examples of development programs/policies in three different countries across Asia, Latin America, and/or Africa, excluding your own country, that could be argued as not being sustainable development programs/policies.
a. Describe the 3 programs (max 200 words)
b. Explain why they are not a sustainable development program/policy (max 200 words)
c. Provide references of these programs (journal articles, newspapers or on-line articles)
4. Suppose there is an island with an economy as presented in this Input-Output Table below:
|
In $
|
Agriculture
|
Manufacturing
|
Services
|
Consumption
|
Total
|
|
Agriculture
|
60
|
20
|
20
|
125
|
225
|
|
Manufacturing
|
10
|
20
|
30
|
100
|
160
|
|
Services
|
20
|
30
|
20
|
50
|
120
|
|
Labour
|
135
|
90
|
50
|
|
|
Total
|
225
|
160
|
120
|
(Note: The numbers are not the same as those discussed in our class)
Also suppose that to produce the $225 of agricultural products, the island needs to have 100 units of agricultural land. Land needed for manufacturing and services is trivial.
a. Calculate the island’s GDP and the “Matrix A” (Input-Output coefficient matrix) of the island.
b. Suppose the population of the island increases so that the total consumption of agricultural products increases to $150, manufacturing products to $120 and of services products to $60. Calculate the new GDP and total output of the island.
c. Let's revert to the initial condition where there is no increase in demand for
agricultural, manufacturing, or services products. Imagine the inhabitants of the island initiate a reforestation program, converting 20 units of agricultural land back to forested areas. Assuming a constant land productivity, let's assess the effect of this reforestation program on the consumption of agricultural, manufacturing, and services products.
d. Let's consider that the island's population comprises both rural and urban
households. Rural household income solely stems from agricultural labor, meaning all agricultural labor income is directed to rural households. Urban household income, on the other hand, arises from manufacturing and services labor, with all corresponding incomes directed to urban households.
The island's authority aims to offset the income loss experienced by rural households due to the reforestation program (as mentioned in 2.c.) by levying a tax on the income of urban households at a specified tax rate. This tax rate is designed such that the proportional reduction in rural household income matches the proportional reduction in urban household income after the implementation of the new tax system. Let's calculate the tax rate imposed by the authority and determine the size of compensation provided to rural households.