Deck 17: Institutions, Policies, and Cross-Country Differences in Income and Growth

Question 1

Do we count on majority rule to protect civil liberties such as the right to free speech, freedom of the press, the right to assembly, and religious freedom Should we count on majority rule to protect economic rights like the freedom to trade, the freedom to compete in the business or occupation of one's choice, and the protection against the taking of one's property by others, including the government Discuss both of these questions.

Answer 1

The economic growth increases the productive capacity of an economy. This means that the country can produce more goods and services from the available resources. This means that the GDP of the economy increases. If the rate of growth of GDP is greater than the growth in population, the per capita income of the economy increases. This means income per person will be higher. The more income means better living, greater access to basic amenities of life like food, education health care. This implies higher living standard for the entire population.
The three major source of economic growth are: formation of new capital, investment in research and development for new technology and methods, and free trade. To reap the maximum benefit from these sources a country must have policies and institutions that supports economic freedom. Countries with higher economic freedom have experienced higher growth rate and income. A country to achieve higher economic freedom index must ensure to its citizen the freedom of choice, freedom to enter any market and exchange without any barrier, protection of property right and evenhanded enforcement of contract, stable money and prices, lower tax rate, free trade and free operation of market.
The political process of a country influences greatly the economic health of a country. The authoritarian political regime pursues the policies that best suits the interests of those in power. This sometimes generates unsounding policies and institutions. There is no rule that the majority will follow the policy that will ensure economic and social freedom. Moreover, it is seen that the elected majority often pursue the policy that benefits them at the expense of the minority. The democracy does not ensure economic freedom but the interest and the pressure to remain in power does. This means if economic growth is the major criteria for the elected government to retain power, it will automatically generates such policies and institutions which is consistence with economic freedom, otherwise they won't.

Question 2

Does a country have to be democratic in order to achieve economic freedom If a country is democratic, will it necessarily be economically free Why or why not

Answer 2

The economic growth increases the productive capacity of an economy. This means that the country can produce more goods and services from the available resources. This means that the GDP of the economy increases. If the rate of growth of GDP is greater than the growth in population, the per capita income of the economy increases. This means income per person will be higher. The more income means better living, greater access to basic amenities of life like food, education health care. This implies higher living standard for the entire population.
The three major source of economic growth are: formation of new capital, investment in research and development for new technology and methods, and free trade. To reap the maximum benefit from these sources a country must have policies and institutions that supports economic freedom. Countries with higher economic freedom have experienced higher growth rate and income. A country to achieve higher economic freedom index must ensure to its citizen the freedom of choice, freedom to enter any market and exchange without any barrier, protection of property right and evenhanded enforcement of contract, stable money and prices, lower tax rate, free trade and free operation of market.
The political process of a country influences greatly the economic health of a country. The authoritarian political regime pursues the policies that best suits the interests of those in power. This sometimes generates unsounding policies and institutions. There is no rule that the majority will follow the policy that will ensure economic and social freedom. It is seen that the elected majority often pursue the policy that benefits them at the expense of the minority. Moreover, if economic growth is the major criteria for the elected government to retain power, it will automatically generate such policies and institutions which is consistence with economic freedom, otherwise they won't. The democracy does not ensure economic freedom but the interest and the pressure to remain in power does.

Question 3

Why are income levels in the United States so high Is the United States prosperous because it is democratic Discuss.

Answer 3

The economic growth increases the productive capacity of an economy. This means that the country can produce more goods and services from the available resources. This means that the GDP of the economy increases. If the rate of growth of GDP is greater than the growth in population, the per capita income of the economy increases. This means income per person will be higher. The more income means better living, greater access to basic amenities of life like food, education health care. This implies higher living standard for the entire population.
The three major source of economic growth are: formation of new capital, investment in research and development for new technology and methods, and free trade. To reap the maximum benefit from these sources a country must have policies and institutions that supports economic freedom. Countries with higher economic freedom have experienced higher growth rate and income. A country to achieve higher economic freedom index must ensure to its citizen the freedom of choice, freedom to enter any market and exchange without any barrier, protection of property right and evenhanded enforcement of contract, stable money and prices, lower tax rate, free trade and free operation of market.
The political process of a country influences greatly the economic health of a country. The authoritarian political regime pursues the policies that best suits the interests of those in power. This sometimes generates unsounding policies and institutions. There is no rule that the majority will follow the policy that will ensure economic and social freedom. It is seen that the elected majority often pursue the policy that benefits them at the expense of the minority. Moreover, if economic growth is the major criteria for the elected government to retain power, it will automatically generate such policies and institutions which is consistence with economic freedom, otherwise they won't. The democracy does not ensure economic freedom but the interest and the pressure to remain in power does.
The US is the third freest country in the world. This is also the second richest country in the world. This richness of US does not happen because US is a democratic country. It is the result of the policies and institution that US follows and the political system that ensures the implementation of such policies that are more consistent with economic freedom and growth.

Question 4

Firms can choose where to establish a production facility. What are some of the major factors that will influence whether a firm will invest and produce in a country

Question 5

Even though workers in low-wage countries often seek to immigrate to higher-wage countries, the flow of investment toward many low-wage countries is small. Why is this so

Question 6

Why will political decentralization make it more difficult for governments to levy taxes and spend the revenues on things that provide citizens with little value relative to cost

Question 7

Name five countries with a high income per capita. Why do you think the income is so high in these countries How many of your high-income countries also ranked among the fastest-growing countries in the world since 1990

Question 8

Name five of the fastest-growing economies in the world since 1990. Why do you think these economies have grown so rapidly

Question 9

"The rich countries are getting richer, while the poor are getting poorer." Evaluate this statement.

Question 10

What conditions must be present for a country to achieve a high score on the Economic Freedom of the World (EFW) index

Question 11

Indicate five of the world's economies that are most free. How do the income levels and growth rates of freer economies compare with those that are less free

Question 12

What are the major sources of economic growth Why do some countries grow and achieve highincome levels while others stagnate in poverty What do you think can be done to change this situation

Question 13

Has the United States become more or less economically free during the past decade What impact will this have on the future economic growth of the United States

Question 14

If there were no high-income developed countries like those of Western Europe, North America, and Japan, would less-developed countries like Hong Kong, Singapore, South Korea, China, and India have been able to grow so rapidly in recent decades Explain.