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Chapter 8 Economic Development and Culture

Group 7. Chapter 8 Economic Development and Culture. Sherel Barcenas Garret Brooks Jamie Duke Katy King Amanda Knapp Sarah Olson Ryan Patterson Luke Ryan. Introduction. Background of Global Economic Development 5 Paradoxes: Trade, Democracy, and Open and Free Markets

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Chapter 8 Economic Development and Culture

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  1. Group 7 Chapter 8Economic Development and Culture Sherel Barcenas Garret Brooks Jamie Duke Katy King Amanda Knapp Sarah Olson Ryan Patterson Luke Ryan

  2. Introduction • Background of Global Economic Development • 5 Paradoxes: • Trade, Democracy, and Open and Free Markets • Culture and Change

  3. Background • Economic development is critical to globalization • Controversy • Split paradoxes into 2 categories: • Trade, democracy, and open and free markets • Culture and change

  4. Theory of Comparative Advantage • David Ricardo • 19th century • the ability of a person or a country to produce a particular good or service at a lower marginal and opportunity cost • Economic development from: • Land • Labor • Capital • Theory in question: • Multinational corporations moving home countries • Doing more business and hiring more people outside their home country

  5. Theory of Mercantilism • Before Ricardo, was mercantilism • Supported by colonialism • Strict government regulation of economy • Accumulation of wealth from resources • Development of manufacturing and agriculture • Establish foreign trading monopolies • Wealth went to home country, not colony • Lead to independence movements, wars, and creation of self-sufficient countries in the New World

  6. Colonialism

  7. From Developing to Developed • Economic model for development: • Early stages • Explosive growth • Maturity • Decline (not always) • Rate of development increasing rapidly

  8. Factors Leading to Economic Growth • Natural resources • Climate • Good geographical position • Religious-based culture • Strong institutions- banks, police, courts • Clusters of industries • Mix of characteristics for success varies

  9. Issues of Export-Driven Trade • Trading partners at disadvantage • Population size vs. rate of economic development • Level playing field? • To grow requires more resources, thus increasing the world price • National budget deficits • Decrease in skilled labor

  10. Immiseration • Phenomenon stating that “a national economy can suffer dramatically even while growing through accumulating capital or improving productivity” • Producing more could saturate market • Decrease demand • Decrease price • Weaken exporting nation’s profits

  11. The “Shoe Event Horizon” http://www.csua.berkeley.edu/~dxu/econ/shoe.html

  12. Solution? • Diversification of products produced • However, not always the case • Competition can lower price as well

  13. Funding for Economic Development • European Union • Provides funds to newly admitted nations • Taxes lend money for next admitted nation • World Bank and International Monetary Fund (IMF) • Some funds not successful • Corruption • Mismanagement • Rivalries between people

  14. Ranking Nations • Ranking of economic development potential: • Degree of corruption as perceived by international executives • Degree of trust between citizens and public institutions • Police, courts, etc

  15. Poverty Reduction • Many organizations state poverty reduction as their mission • However, much of world funds go to nations without will or ability to reduce poverty • George Lodge and Craig Wilson suggest MultiNational Corporations (MNCs) create an organization where they would invest in developing nations and use the profits to invest in other developing nations

  16. Poverty in the World • According to World Bank: • Nearly half world population- $2 a day or less • 1/6 world population- less than $1 a day • Poverty fallen from 2/3 of developing nations to ½ of population between 1981 and 2001

  17. World Trade Organization (WTO) • 149 of 220 nations in the world are members • Tariffs lowered • Many global issues to be addressed • Provides framework to dissolve disputes

  18. Paradox 8.1 Are democracy and free markets antithetical to each other?

  19. Democracy and Free Market • Amy Chua • Communism to Capitalism • Ethnically similar majority • Lack of business and economic experience • Dependence on minority group

  20. Paradox Examples • Indonesia • Russia • Malaysia

  21. Developing Nations • Open markets with low tariffs • Inequalities increase • No policy suggestions

  22. Paradox 8.2 • Does trust increase trade among nations? Does increased trade lead to conflict and war among nations?

  23. Does Trust Increase Trade Among Nations? • Nations prefer trading with similar cultures • Canada’s largest trading partner is US. • Being Geographically close lowers transaction cost and risk

  24. Luigi Guiso, Paola Sapienza, Luigi Zingales • Researched surveys in the EU focusing on trusting nationalities • Germans most trusted • Italians rank lower • Germans trust British more than French

  25. Variables to predict the amount of trade between EU nations • Cultural Trust • Religion • History of war • Genetic differences • Increase in trust for any variable between two nations associated with a 30% rise in trade

  26. Does Trade Increase Peace? • U.S. trade with China, India and other developing nations • Historical record is mixed • United States and Great Britain • Great Britain and Germany • Dr. Katherine Barbieri found increased trade is associated with higher incidence of war

  27. Culture and Change • “Change” usually consist of moving from a traditional way of life to modernized way • Individuals accept change if they can see the benefits from it

  28. Paradox 8.3 • Are institutions more important than culture for explaining economic development?

  29. Institutions vs. Culture • Institution: an established corporation or corporation (www.merriem-webster.com) • Court of law, police system, government, etc. • Culture: the act of developing the intellectual and moral faculties (www.merriam-webster.com) • Beliefs, behavior, knowledge, etc.

  30. Institutions • Provide the structure for life at work and outside of work • Need to be trustworthy or people will try to go around the systems • Join groups that also avoid systems (legal, police, tax) • Mafia created in Italy • Douglas North wins Nobel Prize, shows trustworthy institutions critical for economic development

  31. Rise and Decline of Nations • Mancer Olson (1982) • Work showed that when amounts of interest groups increase in a country, national prosperity decreases • This occurrence is not only in the United States

  32. Rise and Decline of Nations • Interest groups • Helpful because their existence helps accomplish essential functions (creating diverse views and distribution of their activities, points of view) • Harmful because they can hurt economic growth by drawing the attention of a nation away from good solutions • Citizens of the country will see all institutions as dishonest

  33. The Mystery of Capital • Written by Hernando de Soto (2000) • Capital: in Medieval Latin means “cattle”; symbolizes sources of wealth beyond the meat that can/will become food • It’s difficult, even impossible to create capital without initial capital

  34. Creating change • Powerful interest groups declare property rights on settlers living on public land • Create capital by using little cities or “shantytowns” created by residents • San Francisco Solano test • Chinese government enforcing ownership of countryside to create factories, modern cities

  35. Tan and Peng Study (1990s) • Studied three groups of entrepreneurs • Native Chinese working in China • Chinese Americans • White, Anglo-Saxon Americans • Hypothesis: If culture were more important than institutions, the Chinese in mainland China and Chinese Americans would tend to be significantly different in attitudes from their Anglo-Saxon counterparts.

  36. Tan and Peng Study • Findings: similarities were actually between the Anglo-Saxon and Chinese Americans. • The native Chinese and Chinese Americans were not that similar • Conclusion: Institutions are more important than culture, supporting Douglas North’s original idea

  37. Turkey: early 1900s • President Ataturk wanted to separate culture and institutions • Changed Turkey from a theocratic, Muslim nation to secular nation • Separated by: • Closed religious schools and lodges • Used the Roman alphabet and Western calendar • Used European codes of law instead of Islamic

  38. Institution vs. Culture • Both are important and relevant, each case depends on which is more important • China’s development leans towards giving culture more importance • Turkey appears to make institutions more relevant

  39. Paradox 8.4 • Do economic development and globalization lead to individualism?

  40. Affects of Economic Development • Individualism • Considers one self separate from group • Collectivism • Decisions are made in GROUPS best interest

  41. Hofstede’s Cultural Dimensions • Power Distance • Level of societal acceptance of equality/inequality • Individualism • Degree of interdependence within society • Uncertainty Avoidance • Extent to which members of society feel threatened by unknown/ambiguous situations • Masculinity/ Femininity • Masculinity- Importance on “being the best” • Femininity-importance on “liking what you do”

  42. Nigeria vs Italy

  43. Hofstede’s5th Dimension • Long Term Orientation • Countries are considered short term oriented or future oriented • Emphasizes • Persistence • Ordering relationship status • Behaving in accordance to order • Stressing thrift • Having sense of shame

  44. Conclusion from Hofstede • Values of economic growth differ by nation • Different religions have “Confucian” values • Nations are Individualistic and Collectivistic at different time periods • Hofstede’s model proved in the short run • Individualism occurs as economies grow • What matters is a society that encourages individualism and emphasizes contributions to society

  45. Paradox 8.5 • Why do citizens vote for and accept stationary bandits as political leaders? • Stationary bandit-Political leader that resides in the community he eventually weakens or sometimes destroys.

  46. Mancur Olson • Argued that a "roving bandit" (under anarchy) has an incentive only to steal and destroy, whilst a "stationary bandit" (a tyrant) has an incentive to encourage a degree of economic success, since he will expect to be in power long enough to take a share of it

  47. Genghis Khan • Roving bandit during the 13th century • Founder and emperor of Mongol Empire • Conquered most of Central Asia and China

  48. Mao Tse-tung • Political leader of communist China • Influence lasted 40 years • Guerrilla warfare • Long March • 50 million Chinese died due to collectivization and thoughtless government policies

  49. Adolf Hitler • German politician and leader of the Nazi Party • Treaty of Versailles • WWII • Franklin D. Roosevelt • April 30, 1945 Hitler committed suicide

  50. Joseph Stalin • Leader of Russia • Introduced taxation system • The 5 year plan • Actions during and after WWII

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