03 Jun Question 1. Using the analytical tools of growth acco
Question
1. Using the analytical tools of growth accounting and/or the neoclassical (Solow) growth theory, comment on the following real life questions from Asia’s economic development.
A. Many developing countries—China and India being notable examples—have pursued in the past policies to curb population growth. What was the rationale? What was the impact of this policy on the level and growth in GDP as well as per capita GDP?
B. In his famous 1994 article in Foreign Affairs, Nobel Laureate Paul Krugman argued that Asia’s economic growth was driven more by “perspiration” than “inspiration”. A key element of “perspiration” was increasing saving, and hence, investment, by suppressing consumption. Assess the impact of such policy on per capita GDP growth.
C. China’s policy to curb population growth (e.g. “one-child policy” from 1978) proved more effective than India’s. As a result, China is now at a demographic turning point, where the population is beginning to age and dependency ratio is rising (more older population to support per working population). By contrast, India still has one of the youngest demographic structures. What are the implications of these demographic differences for growth in GDP and per capita GDP in China and India over the next generation (i.e., next 20-30 years)?
D. Many Asian countries have been able to narrow the gap in their living standard with rich countries. What has been more challenging is further closing the gap once they reached the middle income level (e.g. around USD5,000-10,000 per capita GDP). Why is it generally “easier” for a poor country to narrow the gap with rich countries when they are starting out poor? What do countries need to do escape the “middle income trap”?
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