Question

5. Economic growth and public policy

Suppose an American buys stock issued by an Argentinian corporation. The Argentinian firm uses the proceeds from the sale to build a new office complex.

This is an example of foreign investment in Argentina.

Which of the following policies are consistent with the goal of increasing productivity and growth in developing countries? Check all that apply.

Protecting property rights and enforce contracts.

Imposing restrictions on foreign ownership of domestic capital.

Pursuing inward-oriented policies.

Increasing taxes on income from savings.

In less developed countries, what does the brain drain refer to?

Rapid population growth that lowers the stock of capital per worker

The emigration of highly skilled workers to rich countries

Rapid population growth that increases the burden on the educational system

Lower productivity due to a malnourished workforce

Answer 1

Question 1

Protecting property rights and contracts. Property rights refers to an individual's control over their own resources like capital. The resources should not be acquired wrongly by other people. The ability to enforce contracts is also important.

Option 2 is wrong because foreign direct investment is important for development because it promotes transfer of technology and knowledge.

Option 3 is wrong because inward-oriented policies like protecting industries or workers does not help. Free trade is crucial to promote productivity of workers.

Option 4 is wrong because savings promote investment.

Questin 2

Option 2 is correct. It is the immigration of highly skilled workers to foreign countries.