Compulsory SECTION A: You must answer ALL PARTS of the question in this section. Q1.

a) Discuss the effect of accelerating economic growth on the goals of development, as measured by the Human Development Index (HDI) or by poverty reduction. (10 marks) Answer: Page 53 2nd Edition or 57 3rd Edition Nobel Prize-winning economist Simon Kuznets examined the historical relationship between income per capita and income distribution, one broad indicator of equity. While trends in a countrys income inequality are an imperfect indicator of what is happening to the broader goals of development, rising and high levels of income inequality, if persistent, may be a signal of underlying weaknesses in an economys structure in being able to broadly deliver a higher level of development. The research by Kuznets and others following in his footsteps has had a great influence on how many analysts think about the relation between economic growth, as measured by rising per capita income, and the achievement of the broader goals of development. Kuznetss analysis suggested that at low income levels economic growth and rising average income tended to create more income inequality as measured by the Gini coefficient. As income per capita

continues to increase, however, a critical threshold level of income was reached, and further economic growth and even higher average income tended to reduce a nations overall income inequality. This relationship between the level of per capita income and income inequality is referred to as the Kuznets inverted-U hypothesis, from the shape of the curve shown in Figure 2.1 b) Explain why in Ricardos theory it was the productivity of labour in the agriculture sector which was the principal basis for sustaining growth rather than that of labour productivity in the industrial sector. Answer: Page 113 2nd Edition or 119 3rd Edition (10 marks) Ricardo believed it was the productivity of labor in agriculture, rather than in industry, which was the principal basis for sustaining economic growth. Only then would food, the indispensable and predominant component of the consumption of workers in industry, be produced at a lower cost. Ricardo believed greater productivity on existing land could be achieved over the longer run from technological change. In the short term, however, it was overseas markets, especially the colonies, which could supply food to Europe to counteract rising food prices that the law of eventually diminishing returns implied at home. It is this perspective on how the dilemma of short-run

diminishing returns might be escaped that illuminates Ricardos other contribution to economics, his emphasis on the advantages of free trade. Ricardo favored the lifting of existing restrictions on imports of grains into England from the Continent and elsewhere. Opening the doors to free trade would flood the English market with imported grains, particularly wheat, a basic food item for workers at the time. This increase in supply would contribute to keeping wages lower by keeping the price of food down, though this would come at the expense of landowners at home who would see their economic rents dissipated by the lower prices they would now receive for their grain production as a result of increased competition. However, for Ricardo, this was a desirable outcome, since it meant higher profits and more capital accumulation by industrialists. For Ricardo, free trade and an open economy contributed to offsetting the adverse effects of the law of eventually diminishing returns from agriculture in the short term, thus permitting industrial workers real wages to continue to rise even with population growth. A subsistence income was not the necessary outcome provided that food prices could be kept sufficiently low. At the time Ricardo was writing that meant bringing down the barriers to imported food to England that the Corn Laws had erected.

c) Explain and assess the conditions under which land reform causes a decline in food production and an increase in food imports in developing countries. Answer: Page 342 2nd Edition or 380 3rd Edition (10 marks) Land reform has been used to describe a very wide variety of changes in land ownership. For example, colonization programs, where land is given to small farmers who are willing to conquer wastelands, jungles, and other unsettled areas of marginal productive value, often fall under this heading. Likewise, programs that are designed to partition extremely large neo-feudal landholdings into smaller parcels, while leaving virtually untouched all other large landholders, have been considered as land reforms. And land reform has sometimes meant the break-up of village agrarian systems, where land is farmed in common without individual land title; such policies often also entail the sale of previously unclaimed forests and grazing lands which had been utilized on an as-needed basis by subsistence cultivators, much as commons lands had been used in Europe centuries before. Nonetheless, the most common usage of the term land reform refers to the conversion of most, or all, large estates and privately held tracts of land to smallholder shares. Such a shift can, but need not, entail the direct entitlement of land ownership to smallholders. Rather,

land title may reside in the hands of a village system; periodic redistribution can be made as the number of families grows or declines, and to suit other demographic changes at the village level. Normally, land reform sets strict limits on the maximum size of smallholdings. While some specialists argue that land reform is a dead issue, others believe that negotiated land reform may give new life to this issue. Under negotiated land reform there is an attempt to create a responsive market for large landholdings and to give both grants and loans to smallholders/peasants to buy land at fair market value. This approach, which demands the participation of either federal or state governments, avoids the politically explosive issue of condemnation and confiscation of large estates. Some countries are seriously engaged in negotiated sales, such as Brazil, Colombia, and South Africa (Deininger 1999). These programs fall more broadly under the heading of market-led agrarian reform (MLAR), and they include a strong focus on the setting up of viable markets in land. Some of the methods used include titling programs to clear land-ownership documents, an issue of extreme importance where women may be able for the first time to gain full legal title to plots of land they farm. Other approaches seek to rationalize sharecropping arrangements. Yet another approach, backed by the World Bank in countries where large estates are farmed inefficiently, is to advocate progressive land taxes, possibly applicable only to farms

above a certain minimum. The MLAR approach is thought to be more efficient, from the World Banks perspective, than earlier state-led agrarian reform schemes because no costly ministry of agrarian reform is required, and no entrenched bureaucracy will result. Nor will the state be burdened with the funding for the acquisition of land because peasants and small cultivators will obtain loans from the private banking sector or from aid agencies to finance purchases of land. The most important factor and guiding principle of MLAR is cooperation with landlords. Another aspect of MLAR is the privatization of farm extension services another approach to shrinking the role of the state. Saturnino Borras has conducted a broad assessment of land reform in the Philippines, where 10 million hectares of land one-third of all land became the target for land reform in 1988 (Borras 2005). Furthermore, 2 million hectares of sharecropping land would be converted to a leaseholder arrangement. The project was scheduled to affect 4 million peasants, 80 percent of the agricultural population. According to the official agency charged with the land reform, by 2001 5 million hectares had been redistributed to 2 million poor families although critics put the numbers much lower (Borras 2006: 101). All the above occurred via either a mandated land transfer arrangement or via a voluntary land transfer scheme that reflected the new approach of MLAR. Although not stressed by the government, increasingly the main focus turned to voluntary land

reform. But, at this point landlord bias came into the process, with a very large share of the new owners under the voluntary scheme actually being fictional or unqualified as large landholders proceeded to transfer reformed land back to their possession via their children and other relatives (Borras 2005: 10310). One top administrator estimated that up to 70 percent of the land transfers were fraudulent (ibid.: 116). Nor did the titling program work as the World Bank anticipated: in one flagrant case the agribusiness giant Dole effectively took control of 20,000 hectares of prime land when Dole advanced the loan funds for a land transfer to 20,000 peasant households, but only on the condition that the peasants owners lease the land to Dole and that they would work for Dole as long as twenty years as laborers on their land at the minimum wage ($3.20 per day). Officially this might appear a successful titling program within the concept of MLAR. In reality Dole locked in a captive labor force at subsistence wages, effectively continuing to control the land and its use (ibid.: 11112). More generally, Borras found that in Brazil, Colombia, and South Africa under MLAR projects landowners managed to overprice land by 3050 percent while frequently selling only marginal or excess land (ibid.: 123). In Brazil, where the state for some time since the 1990s has been engaged in the process of purchasing land for land

settlement, large landowners have refused to sell to the state. Most state purchases (82 percent) have come from small and intermediate-level farmers who have sold underutilized or abandoned land (Borras 2003: 377). Most of the land acquired was in remote, roadless areas without irrigation or electricity, condemning most beneficiaries to income levels lower than their preownership levels (ibid.: 378, 380). Hence, where large landholders farm or utilize only 17 percent of their vast holdings of 360 million hectares, the goal of reducing the power of the landed agroexport elite is not being realized. Given the research by Borras and others into the applications of the MLAR approach, and given the renewed thrust of governments and social movements for distributing land to peasants without burdening them with loan payments and privatized farm extension services, some specialists are now advocating a return to stateled agrarian reforms that do not involve full compensation to landlords. Most adamant has been Keith Griffin, who has vigorously marshaled an array of theoretical arguments and empirical evidence urging a return to state-led land reform schemes that offer limited or no compensation to large landholders (Griffin, Khan, and Ickowitz 2002, 2004). The premise behind such an approach is that large landholders have reaped the advantages of controlled labor markets which have unjustly lowered farm-workers incomes, often for generations. Large landowners have frequently managed

to avoid justified land taxes, they have received subsidies in the form of irrigation projects, electrification and roads, and they have often acquired lands through manipulation and arranged land deals orchestrated by friendly governments d) Discuss and evaluate the statement that there is no population problem in developing countries, but rather a development problem. Answer: Page 352 2nd Edition or 392 3rd Edition The change in real income per person over time depends both on the growth rate of aggregate real income (measured by GNI or GDP) minus the rate of population growth. Obviously the faster that total income grows, with population growth held constant, the more rapid will income per capita rise. The faster that population grows, the slower will be the expansion in income per person, for any given rate of aggregate income growth. This, however, does not mean that faster population growth causes slower growth in income per capita or that slower population growth leads to a faster increase in income per person. So statement 12.1 says nothing about whether population growth affects income per person or vice versa. It simply states that both population growth and total income growth are important for what happens to income per person. It does not imply anything about causation. If population is growing 2 percent per year, total income must grow

by at least 2 percent just to keep income per person constant. If total income only grows 1 percent, then per capita income will decrease by 1 percent with 2 percent population growth. But this does not mean that population growth causes income per person to decrease. Both the growth of total income and the growth of population are important, (10 marks) (Total: 40 marks) Q1. a) For all their diversity, developing countries are linked by a range of common problems. What are these problems? Answer: Page 90 Economic Development (10 marks) The common problems shared in varying degrees by most developing countries: widespread and chronic absolute poverty; high and rising levels of unemployment and underemployment; wide and growing disparities in the distribution of income; low and stagnating levels of agricultural productivity; sizable and growing imbalances between urban and rural levels of living and economic opportunities; serious and worsening environmental decay; antiquated and inappropriate educational and health systems; severe balance of payments and international debt problems; and substantial and increasing dependence on foreign and often inappropriate technologies, institutions, and value systems.

b) What part does the periphery play vis--vis the centre in the international division of labour? (10 marks) c) Critically explain what Peter Evans meant by the predatory state. (10 marks) d) Critically discuss the economic rationale for imposing an infant industry tariff. To what extent do you agree with this trade strategy? (10 marks) Chapter 7 1. Discuss the main arguments of the neoliberal economists on the issue of the state in the process of development based on the ideas of -Bauer -Lal -Krueger Bauers perspectives have been applied selectively by the advocates of neoliberal economics. For example, race and ethnicity do not play an explicit explanatory role in neoliberal thinking. Yet one of Bauers major themes has become the pivotal point of neoliberal analysis. The essentially negative role of government. If one were to express in a sentence the essence of the neoliberal approach to development issues. It would be the following nations are not poor because they are poor, that is, because vicious circles, rather they are poor because of too much government interference.

Bauer and others have constructed their criticism of the state on these pillars: The public sector has become over extended in the economy. The public sector has over emphasized capital formation and mega investment projects. The public sector has caused the proliferation of economically distorting controls in the economy that create incentives for inefficient production and ineffective economic structures. (Page 210 in 3rd edition and page 199 in 2nd edition)

SECTION B: Answer ANY TWO questions from this section, each of which carries 30 of the total marks. Q2. Explain the Harrod-Domar growth model. What are the limitations of this model and to what extent do endogenous growth models address these limitations? (30 marks) Q3. Discuss the advantages of export-led industrialisation and critically examine whether it is as relevant a policy option for developing countries today as it was when NICs adopted it in the 1960s and 1970s. (30 marks) Q4. According to the Prebisch-Singer hypothesis, the centre nations

gain doubly from new technology and trade with the periphery, while the periphery becomes worse off as a result of a deterioration of their terms of trade . (Cypher and Dietz, 2004, page 166) Critically discuss this statement. (30 marks) Q5. Critically assess the long-term contribution that the agricultural sector can make to the industrial development of developing countries. (30 marks) Q6. Explain why economic growth on its own may not be sufficient to bring about a reduction in poverty. Support your argument with reference to a country example. (30 marks) End of Examination Paper SECTION B: Answer ANY TWO questions from this section. Q2. Critically assess the contribution of endogenous growth models to an understanding of the process of economic development. (30 marks) Q3. Industrialisation per se, at least of the easy Import-Substitution-

Industrialisation (ISI) variety, is not sufficient for maintaining economic growth over time. (Cypher and Dietz, 2004) Critically explain and discuss the above statement. (30 marks) Q4. The theory of comparative advantage may provide a one-off boost to world production such that all countries gain. Over time however, exporters of primary commodities will not benefit from relying on static comparative advantage. Critically discuss the above statement with reference to the Prebisch- Singer hypothesis. (30 marks) 4EQM7B1-LW-S2-2010/11 Page 2 of 3

Q5. Critically explain some of the major economic and non-economic arguments or rationales for planning in developing countries. (30 marks) Q6. Autonomy implies that the state can stand alone, above the fray and

beyond the controlling reach of vested interests which seek to capture the power of the state to their very specific, short-term advantages. (Cypher and Dietz, 2004) Critically assess the above statement in the light of P. Evans theory of states and industrial transformation. (30 marks) End of Examination Paper 4EQM7B1-LW-S2-2010/11 Page 3 of 3