Blattman, Christopher, Gustavo Duncan, Benjamin Lessing, and Santiago Tobon, 2019, "Gangs of Medellin: How Organized Crime is Organized," Working Paper
Blattman, Christopher, Gustavo Duncan, Benjamin Lessing, and Santiago Tobon, 2019, "Gangs of Medellin: How Organized Crime is Organized," Working Paper
Blattman, Christopher, Gustavo Duncan, Benjamin Lessing, and Santiago Tobon, 2019, "Gangs of Medellin: How Organized Crime is Organized," Working Paper
Blattman, Christopher, Gustavo Duncan, Benjamin Lessing, and Santiago Tobon, 2019, "Gangs of Medellin: How Organized Crime is Organized," Working Paper
Blattman, Christopher, Gustavo Duncan, Benjamin Lessing, and Santiago Tobon, 2019, "Gangs of Medellin: How Organized Crime is Organized," Working Paper
In what sense is Medellin "underdeveloped?"
U.S. States and Federal Government was clientelist1, no professional bureaucracy until the Pendelton Civil Service Reform Act of 1883
Cities governed by "political machines"
1 Also called "patronage" or "the spoils system".
George Washington Plunkitt
1842-1924
EVERYBODY is talkin' these days about Tammany men growin' rich on graft, but nobody thinks of drawin' the distinction between honest graft and dishonest graft. There's all the difference in the world between the two. Yes, many of our men have grown rich in politics. I have myself. I've made a big fortune out of the game, and I'm gettin' richer every day, but I've not gone in for dishonest graft—blackmailin' gamblers, saloonkeepers, disorderly people, etc.—and neither has any of the men who have made big fortunes in politics.
There's an honest graft, and I'm an example of how it works. I might sum up the whole thing by sayin': "I seen my opportunities and I took 'em."
Plunkitt of Tammany Hall, Ch. 1
These are characteristics of "normal countries"
Note: "normal" ≠ "good" or "just"!
Democratic, politically free countries with open access and low corruption are a very new thing historically!
Shleifer, Andrei and Daniel Treisman, 2005, "A Normal Country: Russia after Communism," Journal of Economic Perspectives 19(1): 151-174
Is a "developed country" politically developed?
What does that mean? Democracy?
Is democracy important for
If not (or not only) democracy, then what?
state capacity
Sources: Our World in Data: Democracy; Polity IV Data
Economic Freedom Score (2016) from Fraser Institute Data; Political Freedom Score from Freedom House Data
GDP per Capita (2018) from Gapminder; Political Freedom Score from Freedom House Data
Among the major things, macroeconomists care about:
Economic growth (rising GDP)
A large working population (low unemployment rate)
Stable purchasing power (low inflation rate)
The three most common macroeconomic measures of an economy's performance
Wealth (in)equality
Health outcomes
Life quality/satisfaction
Environmental quality
Political stability
Low corruption
Human and civil rights (especially for minority groups)
Y=C+I+G+NX
Gross National Income (GNI)1: market value of all final goods and services produced by resources owned by a country's citizens both at home and abroad
Comparing GDP to GNP shows how much a nation's citizens' wealth comes from domestic vs. international sources
1 This used to be called Gross National Product (GNP).
GDP per capita is a measure of income per person1: GDP per capita=Gross Domestic ProductPopulation
A better measure of how the "average" person is doing in a country
1 Capita means person.
The World Bank defines as of 1 July 2018 countries as being:
Income level | GNI per capita |
---|---|
High income | >12,055 |
Upper-middle income | 3,896−12,055 |
Middle income | 996−3,895 |
Low income | ≤995 |
To compare GDP across countries that use different currencies (e.g. Pounds, Euros, Yen, Yuan), we need a common denominator by using an exchange rate between currencies
Exchange Rates express the amount of one currency needed to convert to 1 unit of another
To compare GDP across countries that use different currencies (e.g. Pounds, Euros, Yen, Yuan), we need a common denominator by using an exchange rate between currencies
Exchange Rates express the amount of one currency needed to convert to 1 unit of another
Example: 0.88 EUR:1 USD0.78 GBP:1 USD1.30 CAD:1 USD
Other Country's GDP in USD=Other Country's GDP in Local CurrencyExchange Rate for 1 USD
Example: Great Britain's GDP in 2018 is £2.307 trillion GBP. One USD ($) exchanges for 0.88 pounds sterling (£). Calculate British GDP in US Dollars.
Britain's GDP in USD=£2.307 trillion£0.88/$1 =$2.622 trillion
e.g. whether you buy using Dollars in US or Euros in EU, you should get the same amount of goods on average
Example: Suppose a sweater in the U.S. costs 50 USD.
Suppose the exchange rate is 100 YEN: 1 USD
Then the price of the same sweater in Japan should be 5000 YEN
Otherwise, an arbitrage opportunity!
Ah, but transaction costs!
Example: A haircut of similar quality in Norway is $65, $5 in Mexico, and $1 in India
Economists often use the Geary-Khamis dollar, aka the "international dollar" as the standard hypothetical unit
Again, main purpose is to make accurate comparisons of measures such as GDP per capita across countries
Several ways we can talk about how a measure changes over time, from time t1→t2
Difference (Δ): the difference between the value at time t1 and time t2 Δt=t2−t1
Several ways we can talk about how a measure changes over time, from time t1→t2
Difference (Δ): the difference between the value at time t1 and time t2 Δt=t2−t1
Relative Difference: the difference expressed in terms of the original value Δtt1=t2−t1t1
%Δ=Δtt1×100%=t2−t1t1×100%
Example: A country's GDP is $100bn in 2019, and $120bn in 2020. Calculate the country's GDP growth rate for 2020:
=72GDP Growth Rate
* Different people use other numbers, like 70. The point is more to make mental calculations easily rather than accurately.
Example:
Example:
If our economy is growing at 2% per year, the economy doubles in 722=36 years
If our economy is growing at 3% per year, the economy doubles in 723=24 years
Example:
If our economy is growing at 2% per year, the economy doubles in 722=36 years
If our economy is growing at 3% per year, the economy doubles in 723=24 years
If our economy is growing at 4% per year, the economy doubles in 724=18 years
Example:
If our economy is growing at 2% per year, the economy doubles in 722=36 years
If our economy is growing at 3% per year, the economy doubles in 723=24 years
If our economy is growing at 4% per year, the economy doubles in 724=18 years
If our economy is growing at 6% per year, the economy doubles in 726=12 years
Growth rates are unbelievably important!
It makes all the difference in the world if we grow at 2% vs. 3% per year
More importantly, growth compounds!
Example: Suppose 2 countries start with the same GDP of $1 Trillion
Country B grows at 4% per year
After 72 years:
GDP is a good but (like every other measure) an imperfect measure for social welfare and standard of living
Things NOT included in GDP:
GDP by definition cannot measure the shadow economy or the "informal sector"
A major component of developing countries' economies
Staggering numbers, % of recorded GDP:
Schneider, Friedrich and Dominik H. Enste, 2000, "Shadow Economies: Sizes, Causes, and Consequences," Journal of Economic Literature 37(1): 77-114
Don't just think crime, drugs, and human trafficking!
For various reasons, many citizens of many countries do not have access to legal markets for goods and services
Resort to informal economies and black markets to exchange goods and services
A typical grocery store in Vilnius, Soviet-controlled Lithuania, 1990
The list of scarce items is practically endless. They are not permanently out of stock, but their appearance is unpredictable...Leningrad can be overstocked with cross-country skis and yet go several months without soap for washing dishes. In the Armenian capital of Yerevan, I found an ample supply of accordians but local people complained that they had gone for weeks without ordinary kitchen spoons or tea samovars. I knew a Moscow family that spent a frantic month hunting for a child’s potty while radios were a glut on the market...
In an economy of chronic shortages and carefully parceled-out privileges, blat is an essential lubricant of life. The more rank and power one has, the more blat one normally has ... each has access to things or services that are hard to get and that other people want or need.
Consumers: The Art of Queuing, in The Russians
Smith, Hedrick, 1976, The Russians
Smith, Hedrick, 1976, The Russians
Again, GDP is a flawed measure
But remember, economists always ask, "compared to what?"
You will see later on that variation in GDP between countries and over time strongly explain variation in other measures we care about
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Blattman, Christopher, Gustavo Duncan, Benjamin Lessing, and Santiago Tobon, 2019, "Gangs of Medellin: How Organized Crime is Organized," Working Paper
Blattman, Christopher, Gustavo Duncan, Benjamin Lessing, and Santiago Tobon, 2019, "Gangs of Medellin: How Organized Crime is Organized," Working Paper
Blattman, Christopher, Gustavo Duncan, Benjamin Lessing, and Santiago Tobon, 2019, "Gangs of Medellin: How Organized Crime is Organized," Working Paper
Blattman, Christopher, Gustavo Duncan, Benjamin Lessing, and Santiago Tobon, 2019, "Gangs of Medellin: How Organized Crime is Organized," Working Paper
Blattman, Christopher, Gustavo Duncan, Benjamin Lessing, and Santiago Tobon, 2019, "Gangs of Medellin: How Organized Crime is Organized," Working Paper
In what sense is Medellin "underdeveloped?"
U.S. States and Federal Government was clientelist1, no professional bureaucracy until the Pendelton Civil Service Reform Act of 1883
Cities governed by "political machines"
1 Also called "patronage" or "the spoils system".
George Washington Plunkitt
1842-1924
EVERYBODY is talkin' these days about Tammany men growin' rich on graft, but nobody thinks of drawin' the distinction between honest graft and dishonest graft. There's all the difference in the world between the two. Yes, many of our men have grown rich in politics. I have myself. I've made a big fortune out of the game, and I'm gettin' richer every day, but I've not gone in for dishonest graft—blackmailin' gamblers, saloonkeepers, disorderly people, etc.—and neither has any of the men who have made big fortunes in politics.
There's an honest graft, and I'm an example of how it works. I might sum up the whole thing by sayin': "I seen my opportunities and I took 'em."
Plunkitt of Tammany Hall, Ch. 1
These are characteristics of "normal countries"
Note: "normal" ≠ "good" or "just"!
Democratic, politically free countries with open access and low corruption are a very new thing historically!
Shleifer, Andrei and Daniel Treisman, 2005, "A Normal Country: Russia after Communism," Journal of Economic Perspectives 19(1): 151-174
Is a "developed country" politically developed?
What does that mean? Democracy?
Is democracy important for
If not (or not only) democracy, then what?
state capacity
Sources: Our World in Data: Democracy; Polity IV Data
Economic Freedom Score (2016) from Fraser Institute Data; Political Freedom Score from Freedom House Data
GDP per Capita (2018) from Gapminder; Political Freedom Score from Freedom House Data
Among the major things, macroeconomists care about:
Economic growth (rising GDP)
A large working population (low unemployment rate)
Stable purchasing power (low inflation rate)
The three most common macroeconomic measures of an economy's performance
Wealth (in)equality
Health outcomes
Life quality/satisfaction
Environmental quality
Political stability
Low corruption
Human and civil rights (especially for minority groups)
Y=C+I+G+NX
Gross National Income (GNI)1: market value of all final goods and services produced by resources owned by a country's citizens both at home and abroad
Comparing GDP to GNP shows how much a nation's citizens' wealth comes from domestic vs. international sources
1 This used to be called Gross National Product (GNP).
GDP per capita is a measure of income per person1: GDP per capita=Gross Domestic ProductPopulation
A better measure of how the "average" person is doing in a country
1 Capita means person.
The World Bank defines as of 1 July 2018 countries as being:
Income level | GNI per capita |
---|---|
High income | >12,055 |
Upper-middle income | 3,896−12,055 |
Middle income | 996−3,895 |
Low income | ≤995 |
To compare GDP across countries that use different currencies (e.g. Pounds, Euros, Yen, Yuan), we need a common denominator by using an exchange rate between currencies
Exchange Rates express the amount of one currency needed to convert to 1 unit of another
To compare GDP across countries that use different currencies (e.g. Pounds, Euros, Yen, Yuan), we need a common denominator by using an exchange rate between currencies
Exchange Rates express the amount of one currency needed to convert to 1 unit of another
Example: 0.88 EUR:1 USD0.78 GBP:1 USD1.30 CAD:1 USD
Other Country's GDP in USD=Other Country's GDP in Local CurrencyExchange Rate for 1 USD
Example: Great Britain's GDP in 2018 is £2.307 trillion GBP. One USD ($) exchanges for 0.88 pounds sterling (£). Calculate British GDP in US Dollars.
Britain's GDP in USD=£2.307 trillion£0.88/$1 =$2.622 trillion
e.g. whether you buy using Dollars in US or Euros in EU, you should get the same amount of goods on average
Example: Suppose a sweater in the U.S. costs 50 USD.
Suppose the exchange rate is 100 YEN: 1 USD
Then the price of the same sweater in Japan should be 5000 YEN
Otherwise, an arbitrage opportunity!
Ah, but transaction costs!
Example: A haircut of similar quality in Norway is $65, $5 in Mexico, and $1 in India
Economists often use the Geary-Khamis dollar, aka the "international dollar" as the standard hypothetical unit
Again, main purpose is to make accurate comparisons of measures such as GDP per capita across countries
Several ways we can talk about how a measure changes over time, from time t1→t2
Difference (Δ): the difference between the value at time t1 and time t2 Δt=t2−t1
Several ways we can talk about how a measure changes over time, from time t1→t2
Difference (Δ): the difference between the value at time t1 and time t2 Δt=t2−t1
Relative Difference: the difference expressed in terms of the original value Δtt1=t2−t1t1 this becomes a proportion (a decimal)
%Δ=Δtt1×100%=t2−t1t1×100%
Example: A country's GDP is $100bn in 2019, and $120bn in 2020. Calculate the country's GDP growth rate for 2020:
=72GDP Growth Rate
* Different people use other numbers, like 70. The point is more to make mental calculations easily rather than accurately.
Example:
Example:
If our economy is growing at 2% per year, the economy doubles in 722=36 years
If our economy is growing at 3% per year, the economy doubles in 723=24 years
Example:
If our economy is growing at 2% per year, the economy doubles in 722=36 years
If our economy is growing at 3% per year, the economy doubles in 723=24 years
If our economy is growing at 4% per year, the economy doubles in 724=18 years
Example:
If our economy is growing at 2% per year, the economy doubles in 722=36 years
If our economy is growing at 3% per year, the economy doubles in 723=24 years
If our economy is growing at 4% per year, the economy doubles in 724=18 years
If our economy is growing at 6% per year, the economy doubles in 726=12 years
Growth rates are unbelievably important!
It makes all the difference in the world if we grow at 2% vs. 3% per year
More importantly, growth compounds!
Example: Suppose 2 countries start with the same GDP of $1 Trillion
Country B grows at 4% per year
After 72 years:
GDP is a good but (like every other measure) an imperfect measure for social welfare and standard of living
Things NOT included in GDP:
GDP by definition cannot measure the shadow economy or the "informal sector"
A major component of developing countries' economies
Staggering numbers, % of recorded GDP:
Schneider, Friedrich and Dominik H. Enste, 2000, "Shadow Economies: Sizes, Causes, and Consequences," Journal of Economic Literature 37(1): 77-114
Don't just think crime, drugs, and human trafficking!
For various reasons, many citizens of many countries do not have access to legal markets for goods and services
Resort to informal economies and black markets to exchange goods and services
A typical grocery store in Vilnius, Soviet-controlled Lithuania, 1990
The list of scarce items is practically endless. They are not permanently out of stock, but their appearance is unpredictable...Leningrad can be overstocked with cross-country skis and yet go several months without soap for washing dishes. In the Armenian capital of Yerevan, I found an ample supply of accordians but local people complained that they had gone for weeks without ordinary kitchen spoons or tea samovars. I knew a Moscow family that spent a frantic month hunting for a child’s potty while radios were a glut on the market...
In an economy of chronic shortages and carefully parceled-out privileges, blat is an essential lubricant of life. The more rank and power one has, the more blat one normally has ... each has access to things or services that are hard to get and that other people want or need.
Consumers: The Art of Queuing, in The Russians
Smith, Hedrick, 1976, The Russians
Smith, Hedrick, 1976, The Russians
Again, GDP is a flawed measure
But remember, economists always ask, "compared to what?"
You will see later on that variation in GDP between countries and over time strongly explain variation in other measures we care about