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Homework 2
Economics 2000
Assigned: Thursday, October 14th, 2014
Due: Friday, October 31st, 2014
1.
Institutions vs. Geography. In class, we have examined two competing
theories explaining under-development. One theory focuses on geographical
shortcomings. Another suggests that good institutions that minimize transactions costs
and the exercise of property rights. Economist Jeffrey Sachs is a leading exponent of the
former theory. In a review of “Why Nations Fail,” by Daron Acemoglu and James
Robinson1, he wrote, “Compare Bolivia and Vietnam in the 1990s, both places I
experienced firsthand as an economic adviser. Bolivians enjoyed greater political and
civil rights than the Vietnamese did, as measured by Freedom House, yet Bolivia's
economy grew slowly whereas Vietnam's attracted foreign investment like a magnet. It is
easy to see why: Bolivia is a landlocked mountainous country with much of its territory
lying higher than 10,000 feet above sea level, whereas Vietnam has a vast coastline with
deep-water ports conveniently located near Asia's booming industrial economies.
Vietnam, not Bolivia, was the desirable place to assemble television sets and consumer
appliances for Japanese and South Korean companies.” Explore this assessment using
data.
A.
Measure FDI. Quantify Sachs’ assertion:
i.
Calculate the average FDI inflows for the two countries using Foreign direct
investment, net inflows (% of GDP) for 2004-2013. Is this indeed larger in Vietnam?
Calculate average FDI inflows for the same years for Lower Middle Income economies as a
group. Is Bolivia or Vietnam exceptional? Consider the importance of trade in the two
economies.
ii.
What is the share of GDP accounted for by exports in the two economies in 2012
(use Exports of goods and services (% of GDP)). Can geography explain the difference? Use
the World Bank’s Doing Business survey of some objective measures of the cost of
Trading Across Borders for both Bolivia and Vietnam.
iii.
Examine the quality of transportation infrastructure. Get data on Road density (km
of road per 100 sq. km of land area) and Roads, paved (% of total roads) for 2007. Which
country has better transportation?
B.
Background. Compare the level of development of Bolivia and Vietnam using
GNI per capita, Atlas method (current US$) for 2013 from the World Development
Indicators. Compare the industrialization of the two countries using Manufacturing, value
added (% of GDP) from the most recent year 2012. Are the two countries of comparable
level of development? Compare economic growth in the two countries over the last
decade using the average of GDP per capita growth (annual %) for 2004-2013.
1
Read at the library Link here.
C.
Governance.
i.
Assess the type of government. Use the most recent Freedom House Freedom in
the World to compare the level of democracy.
ii.
Assess the quality of government. Use Worldwide Governance Indicators Table
View to assess the percentile ranking in 2013 of Bolivia and Vietnam in terms of Political
Stability and Absence of Violence/Terrorism, Government Effectiveness, Regulatory
Quality, Rule of Law. Which country does well on which measure?
iii.
How big a problem is corruption in these economies? See the Corruptions
Perceptions Index from Transparency International 2013 . What is the rank out of 177?
D.
Compare Institutions. Examine how well the institutions of the two countries
might be doing in supporting the economy.
i.
Use the objective Doing Business measure to compare the transactions
environment in the two countries. Contract Enforcement to the effectiveness of the legal
environment. Which country ranks higher in this measure?
ii.
Use the Registering Property and Starting a Business measures to assess the
degree to which property rights can be exercised. How do these countries rank along this
dimension?
iii.
On which of the dimensions of Doing Business does Vietnam rank the best. On
which dimension does Bolivia do the best.
Write a paragraph summarizing your findings. What factors make you think that
Bolivia’s relative performance can be explained by its landlocked nature? What factors
make you think the relative performance can be explained by institutional quality.
2.
E-Commerce in ASEAN. E-commerce has shown enormous success in filling
institutional gaps in China. Assess the market potential in some potentially comparable
Southeast Asian nations: Malaysia, the Philippines, and Thailand.
A. Infrastructure.
i. Internet. Use data from the World Bank Jobs Database to get information on
Internet users (per 100 people), and Fixed broadband Internet subscribers (per 100
people) for the most recent year available for these three countries plus China.
ii. Transport. Examine the World Economic Forum Global Competitiveness Report
which provides subjective measures of the quality of the transport
infrastructure in various countries. How do the individual ASEAN economies
compare with China?
iii. Information. Find data from World Bank Jobs Database to assess the availability
of consumer credit information for the four countries. Use the most recent
measure of Public credit registry coverage (% of adults) and Private credit bureau
coverage (% of adults) to assess the quality of information in each country.
B. Payments e-Commerce requires use of electronic payments. Use the Global
Financial Inclusion database to assess penetration of electronic payments methods
in the three ASEAN countries and China. Get the most recent value of Credit card,
older adults (% age 25+), Mobile phone used to pay bills, older adults (% age 25+) , and
Debit card, older adults (% age 25+). How do these countries compare with China in
terms of potential for on-line payment?
C. Informal Institutions In the case of China, e-commerce has been on the
consumer to consumer model (C2C). This might depend on the level of
interpersonal trust. Get information from the World Values Survey on the levels
of trust in the economy. The traditional measure of trust from this source is based
on the answer to the question “Generally speaking, would you say that most
people can be trusted or that you need to be very careful in dealing with people?”
Report the responses to Question V24 from Survey Wave 6 for China, Malaysia
and the Philippines and to Question V23 from Survey Wave 5 for Thailand. How
do the countries compare in terms of social trust?
Along these dimensions, write a paragraph or two assessing the potential for the growth
of e-commerce in the ASEAN countries. What additional cross-country data on the
background or resources of these countries might be useful in assessing this potential?