Sample Economics Paper on World Economic Development in Historical Perspective

Introduction

 

  1. Clark, Gregory. 2007. A Farewell to Alms: A Brief Economic History of the World. Princeton: Princeton University Press, Chapter 1, p. 1-16.
  2. Describe in your own words the three main economic development schools of thought.

1a. Classical or Institutional (2 points):

Classical school of thought postulates that economic growth occurs due to the presence of institutions that promote market forces. During the Industrial Revolution of 1800, economic growth occurred due to the introduction of external institutions, such as political systems that facilitated modern democracies.

1b. Exogenous growth (2 points):

The exogenous growth model posits that changes in economic growth are a result of external factors. The preindustrial society was in a stagnant but stable equilibrium state until some external shock set market forces in motion resulting in a new and dynamic equilibrium state.

1c. Endogenous growth (2 points):

Endogenous growth postulates that economic growth occurs due to internal processes. As such, the industrial revolution was the product of social conditions in the Malthusian era.

  1. Argue that the “Classical or Institutional” economic development school of thought is the best school of thought (8 points).

Note: Your answer should be based on at least one of the items into the “Midterm readings list” (4 points) and your own opinion (4 points).

The Classical school of thought is the best as it emphasizes the importance of institutions in creating a laissez-faire environment for economic development. Moreover, the article “Constitution and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England” shows how institutions were used to promote saving in banks in England and improve its economy.

  1. Argue that the “Exogenous growth” economic development school of thought is the best school of thought (8 points).

Note: Your answer should be based on at least one of the items into the “Midterm readings list” (4 points) and your own opinion (4 points).

The school of thought is the best because it factors in technology in production for economic growth. The article, “Why isn’t the Whole World Developed?” notes that technological advancement is an external factor affecting the efficiency of other inputs such as human capital in an economy.

  1. Argue that the “Endogenous growth” economic development school of thought is the best school of thought (8 points).

Note: Your answer should be based on at least one of the items into the “Midterm readings list” (4 points) and your own opinion (4 points).

The endogenous school of thought is the best since it focuses on the efficiency of the economic system adopted by a country to achieve optimal economic growth. According to the article, “Was the Wealth of Nations Determined in 1000 BC?” countries that improved on the technological progress of the preindustrial times have higher levels of economic growth today.

  1. Malthusian World
  2. Clark, Gregory. 2007. A Farewell to Alms: A Brief Economic History of the World. Princeton: Princeton University Press, Chapter 2 & 4, p. 19-70

5a. Explain with your own words the Malthusian model described on page 26 of “A Farewell to Alms: A Brief Economic History of the World” (2 points).

Note: Explain the relationship between graph A and B.

The Malthusian model assumes that a country’s economic equilibrium is determined by birth and death rates. The model consists of two graphs A and B. The intersection of birth and death rates in graph A portrays the state of equilibrium, and results in a corresponding income in graph B. The income determined by the intersection in graph A is the subsistence income that sustains the population of the country.

5b. What will happen to the birth rate, dead rate, population and income per person if the population size, N, is larger than the equilibrium population, N*? (2 points)

If population size N is larger than the equilibrium population N*, the corresponding income per person will be lower. As such, death rates will be higher than birth rates, and the population declines. As the population declines, income per person increases. The population will continue to decline as long as income per person is lower than the subsistence income. When the income per person equals the subsistence income, the economy achieves equilibriums, and the population stabilizes.

5c. what will happen to the birth rate, dead rate, population and income per person if the income per person, y, is larger than the income per person, y*? (2 points)

If income per person y is larger than the subsistence income y*, the corresponding population will be lower than the equilibrium population. Therefore, birth rates will be higher than death rates, and the population will grow. As the population grows, income per person declines. The population will continue to grow as the income per person decreases until income equals the subsistence income. Hence, equilibrium will be achieved, and the population will stabilize.

  1. Explain the supply-side constraints that kept human kind in the Malthusian trap until the 1800s.

6a. Labor (1 point)

Labor depended heavily on land, which was a fixed input. As the labor supply increased, the average output per worker declined.

6b. Capital (1 point)

Most of the population lived in poverty (the average income per person was low).

6c. Land (1 point)

Land was a fixed factor input subject to the law of diminishing marginal returns.

6d. Technology (1 point)

Technology was a complimentary factor input since much progress had not been made in its adoption in the production process.

  1. Analyze the graph described on page 30 of “A Farewell to Alms: A Brief Economic History of the World.” Does it provide empirical support for the theoretical Malthusian economy model? Why? (2 points)

Yes, the graph provides empirical support to the Malthusian economy model. For instance, in the 1310s, the population was approximately six million, and the corresponding income per person was 40. In the 1450s, the population declined due to the effect of “Black Death,” but the level of income per person increased to 80.

  1. Analyze the graph described on page 47 of “A Farewell to Alms: A Brief Economic History of the World.” Does it provide empirical support for the theoretical Malthusian economy model? Why? (2 points)

The graph of comparative European real wages 1250-1809 supports the Malthusian economy model. As the population increased, the real wage in England, the Netherlands, and North/Central Italy declined. For example, from the year 1550, there was a progressive increase in population in the three regions that resulted in a steady decline in the real wages.

III. Wealth of nations

  1. Comin, Diego, William Easterly and Erick Gond. 2010. “Was the wealth of nations determined in 1000 BC?” American Economic Journal: Macroeconomics, pp. 64-66

9a. Summarize the main argument of the reading, “Was the wealth of nations determined in 1000 BC”. (2 points)

The article aimed to determine if previous technological adoptions have a significant effect on the modern-day economic development of a country. The data used was for 1000BC, 0AD, and 1500AD. The research findings reveal that technological adoption levels persisted during the three periods. However, the overall technological adoption in 1500AD is positively and significantly associated with modern income per capita. The wealth of nations can be traced to 1000BC, but it was not determined during that time.

9b. Classify the reading, “Was the wealth of nations determined in 1000 BC” as one of the three main economic development schools of thought.  Justify your answer. (5 points)

The reading falls under the endogenous growth school of thought. The argument presented by the researchers indicates that technological adoption grew from 1000BC to 1500AD. The argument supports the endogenous model that postulates that economic growth is achieved as a result of internal progress. Moreover, the article shows the progress made by different regions in preindustrial times, and the resultant current income per person. Hence technological progress is an internal factor of economic growth.

  1. Easterlin, Richard A. 1981. “Why isn’t the Whole World Developed?” Journal of Economic History, 41(1): 1-19

10a. Summarize the main argument of the reading, “Why isn’t the Whole World Developed.” (2 points)

The article presents an emphasis that economic growth can only occur when the level of technology adoption is high. However, per the researchers, the level of technological adoption relies heavily on the education system of a country.

10b. Classify the reading, “Why isn’t the Whole World Developed” as one of the three main economic development schools of thought.  Justify your answer. (5 points)

The reading falls under the exogenous school of thought. Per the reading, technological progress must be obtained as a complementary factor to labor in achieving economic growth. The argument presented in the article shows that human capital is crucial in determining the level of technological progress adopted by a given country.

  1. The following two readings argue that differences in current economic development are explained by differences in technology:

*5. Comin, Diego, William Easterly and Erick Gond. 2010. “Was the wealth of nations determined in 1000 BC?” American Economic Journal: Macroeconomics, pp. 64-66

*9. Easterlin, Richard A. 1981. “Why isn’t the Whole World Developed?” Journal of Economic History, 41(1): 1-19

11a. Which one has the strongest empirical support? (6 points)

The article “Why isn’t the world developed?” has the strongest empirical support. The evidence presented in the article are from reliable sources while data for the article, “Was the wealth of nations determined in 1000BC?” have a lot of extrapolations due to missing data. The data from the second article uses several countries in demonstrating its argument while the former article uses three periods, but has to make assumptions in case of missing data.

11b. Which one is the most plausible explanation and why? (6 points)

The article, “Why isn’t the world developed?” has a plausible explanation. It explains why technological adoption differs in various countries: because of the disparity in the formal education systems in countries. For instance, Japan imported specialists and sent its students to stud in Europe. After that, it realized that technological adaptation also depends on the learners’ attitude and not the teacher. Secondly, the first article’s data has a lot of caveats; hence, assumptions are made to make the first study feasible.

  1. Landes, David S. 1999, The Wealth and Poverty of Nations: Why some are so rich and some so poor. New York: Norton, 29-59

12a. Summarize the main argument of the reading, “The Wealth and Poverty of Nations: Why some are so rich and some so poor. Chp. 3, 29-59”. (5 points)

The article explains why Europe experienced the industrial revolution despite having been a war-prone area in preindustrial times. Foremost, Europe’s population declined; hence, the land was not a limiting factor in production. Therefore, output per worker and real wage increased. Secondly, Europe adopted a decentralized system of authority that made it safe from attacks (single-stroke conquest). Lastly, the importation of gunpowder from China promoted innovation in Europe as technical military weapons were invented.

  1. Classify the reading, “The Wealth and Poverty of Nations: Why some are so rich and some so poor. Chp. 3, 29-59”.” in one of the three main economic development schools of thought. Justify your answer. (5 points)

The reading falls under the exogenous economic development school of thought since it explains the effects of Black Death, a plaque from Asia, on economics in Europe. The article also explains how Europe corrected its endogenous economic activities that led to the Industrial Revolution of 1800.

  1. North, Douglass C. and Barry Weingast. 1989. “Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England.” Journal of Economic History, 49(4), 803-832.

13a. Classify the reading, “Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England” as one of the three main economic development schools of thought.  Justify your answer. (2 points)

The reading falls under the Classical economic development school of thought since the article mainly focuses on the political factors that promote economic growth, that is, the policies adopted by the government and the institutions placed to ensure economic growth.

13b. Describe the process of separation of powers that happened in England according to the reading. (2 points)

The separation of powers and the Constitution occurred when the general public revolted against the king leading to civil warfare known as the “Glorious Revolution.” After the war, the royal prerogative powers were minimized, and parliamentary supremacy upheld.

13c. How did the separation of powers and the Constitution help the development of private capital markets? (3 points)

Separation of powers and constitution resulted in the formation of institutions to regulate government borrowing and stabilize the capital market. These institutions also allowed parallel markets for private citizens. For example, the bank of England was formed to intermediate public funds, but it also dealt with discounted bills, notes in circulation, and drawing accounts for private citizens.

13d. Economic theory argues that the interest rates should rise if the government demands more loans. However, the opposite happened in England. Provide an explanation. (3 points).

Interest rates remained low in England to help the government pay its debts without accruals. Moreover, suppliers were willing to source the government as long as it kept its promises, such as protection and political stability.

  1. Allen, Robert C., Jean-Pascal Bassino, Debin Ma, Christine Moll-Murata, and Jan Luiten Van Zanden. 2011. “Wages, prices, and living standards in China, 1739-1925: in comparison with Europe, Japan, and India”. Economic History Review, 64(1): 8-38.
  2. Pamuk, Sevket. 2007. “The Black Death and the origins of the ‘Great Divergence’ across Europe, 1300-1600”. European Review of Economic History, 11(3): 289-317.
  3. Hoffman, Philip T. 2012. “Why was it Europeans who conquered the World? Journal of Economic History, 72 (3): 601-633
  4. Voigtlander, Nico and Hans-Joachim Voth. 2013. “Gifts of Mars: Warfare and Europe’s Early Rise to Riches”. Journal of Economic Perspectives, 27(4); 165-186.

14a. Define the concept “Great Divergence” using your own words. (2 points)

The great Divergence refers to changes in income distribution due to the Industrial Revolution of 1800, such that income inequalities within societies reduced but increased between them.

14b.  Why did northwestern Europe had higher income per capita than Southern Europe, the middle east, China and Japan by 1800 AC (before the industrial revolution)? (8 points)

Note: You should use at least two different readings to support your answer.  Note: Describe the evolution of: mortality rates, labor supply, labor productivity or technology, political organization, labor market, land market, and capital markets for the period between 1300 and 1800.

  1. The population in Northwestern Europe was low as compared to the other regions. The Black Death of 1345 negatively affected the fertility behaviors of the people in Northwestern Europe as compared to their counterparts in Southern Europe. For example, according to Sevket (2007), a significant proportion of women opted to enter the labor market instead of getting married due to the availability of well-paid employment.
  2. Europe’s political climate promoted wars within the region, while other countries such as Japan and China had unified empires. The population in Japan and China increased while that of Europe declined due to an increase in mortality rate.
  3. The interest rates in Northwestern Europe were lower than in Southern Europe due to the decline in population, resulting in a decline in total output. The interest rates remained low due to institutional changes after the Black Death divergence. Low interest rates increased investments resulting in economic growth.

 

 

References

Diego, C., Easterly, W. & Gond, E. (2010). Was the wealth of nations determined in 1000 BC? American Economic Journal: Macroeconomics 2, pp. 64-66

North, D. C. & Weingast, B. (1989). Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England. Journal of Economic History, 49(4), pp.803-832

Easterlin, R. A. (1981). Why isn’t the Whole World Developed? Journal of Economic History, 41(1), pp.1-19

Sevket, P. (2007). The Black Death and the origins of the ‘Great Divergence’ across Europe, 1300-1600. European Review of Economic History, 11(3), pp. 289-317