The regular feature of the What-if Econ newsletter will be back with a new schedule from September 2021 as I will be returning from my summer (/writing) break. Till then, engage yourself in this bonus newsletter.
In this edition, as I approach a year of when I first started to write on my website, I revisit one of my earlier pieces titled ‘The Barriers to Economic Growth and Development.’ Next, book notes from Dani Rodrick’s Economics Rules and rethinking the need for social security.
The Barriers to Economic Growth and Development
An answer to why development seems unachievable, or rather slowly achievable, lies in the aspects of the nature of the political economy.
In this piece, I had addressed the key four barriers to economic development. These are primarily socio-political issues such as political unwillingness, corruption, focus on the wrong objectives, and a gap and lag between policy formulation and implementation.
This article first appeared on the What-if Economics website on October 12, 2020. To read the full article, click on the link below.
Economics Rules by Dani Rodrick
“Suppose, Ricardo wrote, it takes the labor of 80 workers to produce a given amount of wine in Portugal, and the labor of 90 workers to produce a given amount of cloth. In England, it takes 120 and 100 workers, respectively, to produce the same quantities of the two goods. Note that Portugal is more efficient than England in both cloth and wine. Nevertheless, Ricardo showed that Portugal would benefit by exporting wine to England and importing cloth in exchange. This way, Portugal could “obtain more cloth from England, than she could produce by diverting a portion of her capital from the cultivation of vines to the manufacture of cloth.” What generates the gains from trade is comparative advantage, not absolute advantage. A country benefits by exporting what it produces relatively less badly and importing what it produces relatively less well.”
Comparative advantage, a theory covered under the undergraduate courses of International Economics, is explained in the above excerpt from the book Economics Rules. The book, in general, talks about the perfections and fallacies of economics and leaves the reader with Twenty Commandments for Economists and Non-Economists.
As complex as it makes trade flows, globalization provides developing nations with an opportunity, an incentive to export “what it produces relatively less badly” than its developed counterparts. From cloth manufactured in Bangladesh to electronics assembled and parts created in India and China, the developing world has taken advantage of comparative advantage in the globalized era.
What are we Thinking?
The Need for Social Security: Does it work as it intended to?
The impact of social security varies from context to context. For most OECD and high-income countries, social security does not cover all the post-retirement expenses for most people; it provides a respite to the middle-class and low-salaried employees due to its progressive nature. In developed countries, especially the United States, social security has been proved beneficial to women and other marginalized segments.
On the other hand, in countries like India, social security schemes exclude a larger share of informal or unorganized sectors, employing as many as 80% of the working population. Thus, social security fails to secure the most vulnerable in developing countries and the Global South.
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To read my previous blogs, visit my website, What-if Economics.