Problem Based Learning Task n. 3

Time: task to be started in Week 7 and to be completed by Week 9

Presentations: Week 9 – Groups 4, 5, 8

Coursework: the completed task is part of the Coursework to be submitted by Week 11

Mark: this task accounts for 40% of the overall coursework mark

The task below has the following aims and Learning Outcomes

Aims / This task will help you
  • Acquire an understanding of the theory concerning the relationships between income distribution and growth, inflation and growth and financial development and growth
  • Use empirical evidence to test theories and inform evidence-based policies
  • Appreciate the tension developing from the implementation of alternative policies
  • Set up and test a growth regression

Learning Outcomes /
  • Understand and analyse the theoretical and empirical evidence concerning the relationship between income distribution and growth
  • Understand and analyse the theoretical and empirical evidence concerning the relationship between inflation and growth
  • Understand and analyse the theoretical and empirical evidence concerning the relationship between financial development and growth
  • Understand the importance of growth regressions in the area of growth theory
  • Develop an ability to work with others

Task

The following statistics provide a snapshot of some economic statistics of a developing non-democratic country:

Statistics / Value
GDP per capita / $1,444
Average growth in last 10 years / 0.1%
Average Years of Education / 4.01
% of College Educated / 2.12
Average Years of Education for females / 2.97
Income share of top 20% / 0.44
Income share of bottom 20% / 0.07
Gini Coefficient / 0.64

1)Provide a brief interpretation of these figures by commenting on the country’s performance relative to other countries around the world.

(200 words)

2)On the basis of the analysis in 1) and with reference to the statistics in the table, provide the government with some policy suggestion that will foster future growth (make sure that your analysis is supported by theory and cross-country evidence).

(400 words)

3)The government is considering the possibility of increasing spending in education. What advice would you give to the government?

(300 words)

The group should consider organising the analysis around the following concepts and ideas

Key Concepts: / Gini coefficient, income distribution, Kuznets curve, political economy of income distribution, financial development, functional approach, measures of financial development, financial liberalisation, financial crises, costs of inflation, misallocation of resources
Notes / The theory of income distribution and growth, financial development and growth, inflation and growth should be clearly understood and should be at the basis of your analysis. Use the datasets available on WebLearn to test the various theories. You should generate your own graphs rather than photocopying graphs from textbooks or journals.

Key Readings

Lecture notes 6, 7, 8 on WebLearn

Books and Articles

Inflation and Growth

Barro R., (1997), The Determinants of Economic Growth, MIT Press, Chapter 3

Gylfason T., (1998), Principles of Economic Growth, OUP, Chapter 4, pages 90-98

Briault C., (1995), “The Costs of Inflation”, Bank of England Quarterly Bulletin, pp. 33-45

Inflation and Income Distribution

Weil D., (2005), Economic Growth, Chapter 13

Aghion P., Caroli E., Garcia-Penalosa C., (1999), "Inequality and Economic Growth: The Perspectives of the New Growth Theories", Journal of Economic Literature, 37, pp. 1615-1660

Benabou R., (1996), "Inequality and Growth", NBER Macroeconomic Annuals, pp. 11-74 (this is a more difficult article but worth looking at. It is not available in the library but you can borrow it from the lecturer)

Milanovic B., (2006), “Global Income Inequality: What it is and Why it Matters”, World Bank Policy Research Working Paper 3865

Krongkaew M., Kakwani N., (2003), “The Growth-Equity Trade-off in modern Economic Development: the Case of Thailand”, Journal of Asian Economics, 14, 735-757

Gylfason T., (1998), Principles of Economic Growth, OUP, Chapter 4, pp. 101-105

Persson T., Tabellini G., (1994), "Is Inequality Harmful for Growth", American Economic Review, 84, pp. 600-621

Alesina A., Rodrik D., (1994), "Distributive Politics and Economic Growth", Quarterly Journal of Economics, 102, pp. 465-490

Easterly W., (2002), The Elusive Quest for Growth, Chapter 13, pages 263-267

Growth and Financial Development

Levine R., (1997), "Financial Development and Economic Growth: Views and Agenda", Journal of Economic Literature, 35, pp. 688-726

Pagano M., (1993), "Financial Markets and Growth: An Overview", European Economic Review, 37, pp. 613-622 (this article is not available in the library but you can borrow it from the lecturer if needed)

Kose A.M., Prasad E., Rogoff K., Wei S.-J., (2006), “Financial Globalisation: A Reappraisal”, IMF Working Papers, WP/06/189

Gertler M., (1988), "Financial Structure and Aggregate Economic Activity: An Overview", Journal of Money Credit and Banking, 20, pp. 559-588

Arestis P., Demetriades P. O., (1997), “Financial Development and Economic Growth: Assessing the Evidence”, Economic Journal, 107, 783-799

Loayza N., Ranciere R., (2002), “Financial Development, Financial Fragility, and Growth”, World Bank

Growth and Trade

Weil D., (2005), Economic Growth, Chapter 11

Thirlwall A.P., (2005), Growth and Development, Chapters 16 and 17

Salinas G., Aksoy A., (2006), “Growth Before and After Trade Liberalisation”, World Bank Policy Research Working Paper 4062

Brenton P., Hoppe M., (2006), “The African Growth and Opportunity Act, Exports, and Development in Sub-Saharan Africa”, World Bank Policy Research Working Paper 3996

Barro R., Sala-I-Martin X., (1998), Economic Growth,

Lopez R.A., (2005), “Trade and Growth: Reconciling the Macroeconomics and Microeconomics Evidence”, Journal of Economic Surveys, 19, 623-648

Darity W., DavisL.S., (2005), “Growth, Trade and Uneven Development”, Cambridge Journal of Economics, 29, 141-170

Growth and Education

Weil D., (2005), Economic Growth, Chapter 6

Barro R., Sala-I-Martin X., (1998), Economic Growth,

Barro R., (1997), The Determinants of Economic Growth, MIT Press, Chapter 2