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EC 414 – Economics of sub-Saharan Africa

Instructions:

Please write your answers in a MS Word document and submit it in the appropriate dropbox in D2L by the due date and time. Use at least 1.5 spacing and an acceptable font (Calibri, Arial, etc.).

A student’s responses will be evaluated based on the following criteria:

1. Reference to the provided resource in support of the argument.

2. Reference to the class content in support of the argument.

3. Reference to at least one other peer-reviewed article outside the textbook or the provided resource, where indicated (please remember to cite the sources and show the full references at the end of the report).

4. Student’s own critical thoughts about the question.

5. Student answered all questions satisfactorily.

Question 1 (40 points)

Read the paper on the syllabus, “Reversal of Fortune: Geography and Institutions in the Making of the Modern World Income Distribution,” Daren Acemoglu, Simon Johnson, and James A Robinson. Quarterly Journal of Economics, 117(4) 2002: 1231-1294.

Daren and company argue that European colonizers settled immensely in poor areas that were sparsely populated (such as Australia, New Zealand) and introduced there a European-like institutional system based on the protection of private property. On the other hand, Europeans introduced extractive institutions in more populous and prosperous regions where they could not settle, reversing their development trends. How true (or untrue) is this in sub-Saharan Africa. Please substantiate your answer using the knowledge learned in class and other outside resources. (Length: not more than 2 pages; at least one peer-reviewed reference, besides the article mentioned above).

P.S. The two references in lectures notes 2 (historical legacy – Geo-economy) on the impact of colonialism on development by Daren Acemoglu and others, and by David Albouy can be used to satisfy the requirement of “outside” resources. These papers are accessible through the online tools of the MSU library. Please call the library if you need help.

Question 2 (20 points)

a. Download UNDP Human Development Data for Cote d’Ivoire, Ghana, the Democratic Republic of Congo, Malawi, and Ethiopia. Replicate the calculation of these countries’ HDIs. Please make sure you show all your work (like we did in the lecture notes); copying and pasting the answers from the UNHD without showing the work will result in no credit (10 points).

Here are the steps to follow:

Go to: http://hdr.undp.org/en/data#; click on the “Data Center” tab.

1) Select one of the three dimensions of HDI: Health, Education, and Income/composition of income.

2) Select the appropriate indicator (e.g. life expectancy).

3) Download data and open in Excel.

4) Repeat the exercise for the other two dimensions.

4) Calculate the appropriate indexes.

5) Put them together to calculate the HDI.

b. For each country, provide a one-paragraph interpretation of the calculated HDI and its components (5 points).

c. In another paragraph or two, compare and contrast the calculated HDIs across the concerned countries (5 points).

Question 3 (40 points)

The government has hired you as an economic statistician and has given the job of calculating the CPI (the Chili Price Index; not the consumer price index) at Purchasing Power Parity Brussels and New York City. According to the government's official recipe, the ingredients for a batch of chili are: 3 pounds of hamburger, 2 pounds of tomatoes, and 1/2 pound of onions.

The prices of the ingredients for chili are determined by an extensive survey. The current prices for the ingredients in each city are as follows:

Please make sure you show all your work

1) Calculate the cost of a batch of chili in each city (10 points)

2) Calculate the cost of a batch of chili in PPP in each city (10 points)

3) What is the Price Level Index (PLI) of a batch of chili at the current exchange rate of $1.00 to €0.91, with the United States as the base economy? (10 points)

4) What would happen to the PLI of a batch of chili if the exchange rate were to be $1.00 to €0.77? (10 points)