Economics of Development, Essay Example

Many policy makers hope the rural non-farm economy (RNFE) can offer a pathway out of poverty for many struggling farmers, however the RNFE often does not work as well as hoped. In the context of what was discussed in class, discuss (1) why policy makers would want to move people out of agriculture and (2) why it might not achieve poverty reduction. Please also briefly discuss how RNFE may influence the evolution of local inequality – i.e. how or why might it increase or decrease inequality?

In most cases, policy makers usually aim at involving rural non-farm economy procedures especially towards the reduction and control of high poverty levels to various farmers. However, this does not usually provide positive results as majority of struggling farmers rarely move out of poverty through the use of non-farm economic policies and strategies.  According to several research studies and reports, agriculture contributes largely towards development and reduction of poverty in a number of ways. For example, agriculture provides employment to majority of individuals in developing countries. Agriculture is also the main source of income for rural individuals thus policy makers cannot reduce poverty levels among farmers through engaging in rural non-farm economy procedures.  Rural-non-farm procedures do not include wage-labor produced from the farm thus will lead to low capital access to rural farmers in the society. This may increase the local inequality and levels of poverty among local individuals.

There are several ways through which RNFE may contributes to high levels of local inequality in the society. For example, the majority of rural individuals depend on agriculture and farming activities as their main source of income thus implementing RFNE policies will promote local inequality in the society.

Since you are taking a class on development and poverty, a friend notes that in his country, there has been very high GDP per capita growth but very little reduction in poverty. Why might this occur?

In most cases, economic development is directly related to standards of living of individuals in the society. However, increase in GDP per capita growth does not usually results in the reduction of poverty levels. This is mainly because human development is based on a number of factors not only the per capita growth. For example, human development and poverty reduction is seen in terms of long and healthy living systems, ability of individuals to acquire education as well as having improving living standards in the society.  It is also important to note that GDP per capita growth does not deal with fair distribution of resources in the society thus may not results into the reduction of poverty. Poverty level is also measured using different procedures and differs from country to country globally.  For example, the total number of people, their income level and their standards of living are some of the procedures that are used to measure the level of poverty in the society.

A 1989 article by Rosen Zweig and Stark finds that large portion of migrants in low-income countries are women from areas with large covariate shocks who move to other regions for marriage. Why might households exposed to large covariate shocks be more likely to enter long-distance migration-marriage arrangements? As part of your answer, please explain the difference between types of shocks, and why certain households respond more than others.

One of the major reasons why migrant’s women in low-income countries especially with large covariate shocks usually move to other regions for marriage and also enter long-distance migration marriage systems is to move away from high levels of poverty and high levels of shocks in their areas. Shocks are mainly events that results in different states and is mostly associated with risks and uncertainties thus these low income women mostly enter into long-distance relationships and marriage systems in order to cope with many risks and problems in their areas especially in rural areas.  The women also wish to migrate from their low income areas and this can be effectively achieved through entering long distance marriage arrangements.  There are various types of shocks including idiosyncratic shocks that mostly affects only households. There is also the covariate or systemic shocks that involve the whole society.  Some households usually respond positively to shocks especially those with stable income and adequate resources. However, it is evident that rural households usually face more shocks than urban households mainly because rural households have fewer means to insure against risks and also experience low income levels.

Savings plays a critical role in both the Harrod-Domar and Solow growth models. How does the role of savings in HD differ from the Solow model? How does the different role of savings influence your recommendation on how to raise GDP per capita?

According to both Harrod-Domar and Solow growth models, saving is one of the central strategies of raising the GDP per capita output in the country.  The main policy and idea according to Harrod-Domar saving model is to promote economic growth through creation of physical capital in the society. This model has been applied in a number of European countries as well as to rebuild Japan and to promote industrialization of the Soviet Union.  The model is also promotes high saving rate, continuous growth and view saving as an investment opportunity thus promotes the faster growth rate of the economy. On the other hand, Solow growth model is based on the idea that capital output ratio is related to endowments and income level of workers in the society.  According to Solow growth model, population growth rate and savings rates of individuals is directly related to new capital output.  Therefore, Harrod-Domar promotes steady saving rate and faster growth rate while Solow growth model results into high initial growth rate and convergence of income at a slow rate.

Does your answer change in the short/long run for either model? That is, would you always give the same advice?

My answer changes in the long term and short term basis for both the models. This is because I believe that Harrod-Domar model is more effective for long term periods while Solow growth model is more effective and efficient for short term saving periods.  However, Harrod-Domar model is more effective in developed and rich countries while Solow growth model is more effective in poor countries as it promotes high growth rate of capital leading to long run growth rate in people living standards in the society.

Solow Growth: How does long run equilibrium change if population increases in the Solow model?

If population increases in the Solow growth model, the long run equilibrium will shift to the left due to low capita income and low saving rate of the general population.  However, the long run growth rate does not change if the population increases in the Solow growth model.

The 2000 Interim Poverty Reduction Strategy Paper for Kenya reports the following information for poverty measures by gender (Annex 2 Table 2). These are the urban statistics:

Note that the “Household head” is the person who primarily makes decision in the household. This table looks at the poverty in households where it is a male vs when it is a female Please explain the differences in poverty indicators between male vs female-headed households, and what it means about their overall poverty status. 

According to a number of economic reports and studies, it is true that households headed by males usually experience low levels of poverty compared to households headed by females.  In this scenario, majority of households headed by females are experience high levels of poverty levels in the country. For example, poverty gap in male households in Kenya is at 15 while those for females is at 18. The high poverty level among female headed households is mainly due to marginalization, discrimination against women, poor traditional values in the society and low levels of education among females in Kenya. From the scenario, it is also evident that Kenya experience high levels of poverty since majority of households are headed by females and the poverty gap among female households is also very high in the country.  Male headed households are less poor compared tp female headed households in Kenya according to the scenario.

The 2008 World Development Report discusses (as we did in class) three rural worlds, and describes how poverty changes as countries become more urbanized and less reliant on agriculture. Please explain (1) how the potential role of agriculture changes and (2) how might policymakers expect shifting from agriculture to RNFE would help with poverty?

According to recent World Development reports and studies, there are three rural worlds including urbanized regions, transforming countries as well as agriculture based countries. The reports also indicates that over-reliance on agriculture as the back bone of economy and a tool for reducing poverty is currently changing as countries become more urbanized and less reliant on agriculture.  Currently, majority of countries are becoming more industrialized and education and technology is becoming one of the focus towards the reduction of poverty among global countries.  In the past, rural economies were majorly based on agriculture but due to diversification and high rural-urban migration, majority of countries and communities are shifting their focus from agriculture to non-farm activities.  Furthermore, the condition is currently changing and majority of people are involving in enterprise and business activities through the use of technology in order to reduce high levels of poverty in the society.  Urbanization has led to low reliance on wage labor from the farm and permanent migration of individuals to towns and cities thus engaging in non-farm activities such as trade, education and industrialization.  Individuals have realized that rural areas are more vulnerable to shocks and experience low income levels thus not effective towards mitigation of high poverty levels.  The rural land is not effective to be used as a collateral thus makes it difficult to get loans for productive investments in the society. Due to this, policy makers are implementing policies that will promote shifting from agriculture to RNFE to reduce high levels of poverty in the society.  This will also promote the achievement of MDGs which include increase of income levels, high standards of education, effective health care systems and provision of proper environmental conditions globally.