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"In the 1960s, the Netherlands experienced a vast increase in its wealth after discovering large natural gas deposits in the North Sea. Unexpectedly, this ostensibly positive development had serious repercussions on important segments of the country's economy, as the Dutch guilder became stronger, making Dutch non-oil exports less competitive." - http://www.imf.org/external/pubs/ft/fandd/2003/03/ebra.htm

Therefore, the currency increases and then the cost of exports also increases.

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Hong Kong, Singapore, Taiwan, South Korea: They are called the Asian Tigers because of their rapid growth and impressive dynamism. All countries however had very different economic and business structures.

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Any concerns for the future of the Asian tigers?

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GDP= Spending + Producing

spending= C+I+G+(x-m)

Producing= Q=f(K,L) (A)

C=Consumption

I=Investment

G= Government Spending

x= Exports

m=Imports

Q= Quality Produce (National Income)

K= Capital

L= Labour

L=Land

A= Technology or Productivity

OLD = f(KLL)

NEW =f(KLLA)

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Growth is the combination between savings and investments.

- Linear-stages theory -> Rostow and Harrod-Domar model

- Lewis theory of development

- Neo-classical model

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"Mr Romer assumed that ideas were goods—of a particular kind. Ideas, unlike things, are “non-rival”: everyone can make use of a single design, recipe or blueprint at the same time. This turn in the argument led to a second: the fabrication of ideas enjoys increasing returns to scale. Expensive to produce, they are cheap, almost costless, to reproduce. Thus the total cost of a design does not change much, whether it is used by one person or by a million."

http://www.economist.com/node/6943519?zid=295&ah=0bca374e65f2354d553956ea65f756e0

A Rival good

A non-rival good

Non-excludable good

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what is the different between macro and micro economics? 

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what is the different between macro and micro economics? 

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“Microeconomics is generally the study of individuals and business decisions, macroeconomics looks at higher up country and government decisions.

Macroeconomics and microeconomics, and their wide array of underlying concepts, have been the subject of a great deal of writings. The field of study is vast; here is a brief summary of what each covers”, Investopedia.com.

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Whats the difference between Old Growth Theory and New Growth Theory?

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Whats the difference between Old Growth Theory and New Growth Theory?

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Can you explain what is the weak institutional trap?

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Can you explain what is the weak institutional trap?

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Week Institutional Trap: Birdsall
1) Don’t have accountability/ autonomy
2) Reliance on natural resources “Dutch Disease”: oil => increase currency => decrease manufacturing (exports) 3) Poor distribution of income: (middle class): “missing middle” spending 4) Experience of conflicts (one of the causes is about history: colonialism) 5) Non-trade tax revenues => It is a trap because you cannot get off of the institution trap. Poverty is not a trap but institution is

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krugman´s argument about the likelihood of future growth in East Asia:

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krugman´s argument about the likelihood of future growth in East Asia:

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Paul Krugman: The myth of Asia’s Miracle
- compared Asian growth to Soviet Union in 1950’s - massive mobilisation of resources
- rapid growth of inputs
- the asian countries started from low base: "catch up"
- overtime growth will slow down

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Chaebols are family run conglomerates in South Korea, which were founded in the 1960’s after the Korean war. The companies are large multinationals operating in various different sectors, all of which are family owned. On top of being family owned they are very closely linked with the government. Hayundi, LG and Samsung.

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What is the role of institutions and how have they helped the Asian tigers

-its heavy investments and involvement from the economic institutions

_ sensible and stable macro economic policies (low inflation, small fiscal deficit,low stable interests rates, secure financial systems)

pro export regime

-the exchange rate-Asian countries have policies to weaken policies e.g. fixed chinese currency against-US$

- the selective policies they have in place : openness to foreign technology and the promotion of specific industries e.g. Japan in the 70s promoted technology.

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“The East Asian Miracle”, World Bank; Krugman (1994). – It was considered a miracle because each of the countries had an extremely high growth rate so rapidly, where they were even seen to surpass European or American technology. Each of the countries started from a very poor economic situation. It was thought the success of the Tigers was due to them industrializing and going into value adding industries leading them to increasing returns. Krugman called them the “paper tigers” instead, saying that there was no miracle but it was just plain economics.

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The difference between diminishing and increasing returns

Diminishing returns  is the decrease in the marginal output of a production process as the amount of a single factor of production is incrementally increased, while the amounts of all other factors of production stay constant.

α + β < 1 where α and β are the percentage of factors of production.

Increasing returns states that when more and more,units,of a variable factor is employed, while other factor remain fixed, there is an increase of production at a higher rate.  α + β > 1

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Summarise the Harrod- Domar theory how best we explain in the exam?

The Harrod–Domar model is an early post-Keynesian model of economic growth. It is used in development economics to explain an economy's growth rate in terms of the level of saving and productivity of capital. It suggests that there is no natural reason for an economy to have balanced growth.

1) mobilisation of saving to fund investment

2)more investments lead to higher income

dY/Y=s/c ►Y=GDP where s=net rate of savings and c=capital-output ratio