Question

Imagine you're named an Economic Advisor to the president of a very poor and backward country (Sandokistan).   The President asks your advice on where they should use their very limited resources so that they can help escape the poverty trap. Should they invest in existing, traditional tools (think tractors, computers, known manufacturing techniques) or should they invest in cutting edge research where they might become a market leader? Please explain why you selected the option you did.   Conversely, why didn't you select the other option? How does the option picked fit with the theory learned this chapter?

Note: In a world of trade offs, you can pick only one. I won't accept an answer that says they are both important.

The theory names

The Solow Model and catching-up Growth

the investment rate and conditional convergence

New ideas and cutting-edge growth

the economics of ideas

the future of economic growth

Answer 1

Since the question mentions that the resources are very limited, the President should concentrate on coming up with new techniques in order to come out of the poverty trap. This is because, the traditional tools(like tractors, computers, etc.) have not proved to be beneficial to the economy until now, and this is the reason why the economy is going through the vicious circle of poverty, whereas using new technique would help improve already existing efficiencies in the economy, lead to introduction of new capacities, and thus create new opportunities.