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Chapter 22: Problem 8

(Related to the Apply the Concept on page 742) Economist Charles Kenny of the Center for Global Development has argued: The process technologies-institutions like laws and inventory management systems that appear central to raising incomes per capita flow less like water and more like bricks. But ideas and inventions \(-\) the importance of [education] and vaccines for DPT - really might flow more easily across borders and over distances. If Kenny is correct, what are the implications of these facts for the ability of low-income countries to rapidly increase their rates of growth of real GDP per capita in the decades ahead? What are the implications for the ability of these countries to increase their standards of living? Briefly explain.

Short Answer

Expert verified
Kenny's argument implies that low-income countries may face challenges in rapidly increasing their real GDP per capita growth rates if they struggle to adopt process technologies and institutional systems. However, their standard of living can still improve significantly through the adoption of important ideas and inventions, such as education and vaccines.

Step by step solution

01

Understand Kenny's Argument

Charles Kenny argues that process technologies-institutions, such as laws and inventory management systems, do not flow as easily across borders as ideas and inventions. In other words, it's difficult for low-income countries to adopt these institutional factors from high-income countries, while it's easier for them to adopt ideas and inventions like the importance of education and vaccines.
02

Implications for Growth of Real GDP per Capita

The ability for low-income countries to rapidly increase their growth rates of real GDP per capita depends heavily on their ability to integrate and use not just new inventions, but also the institutional systems of more advanced economies. If they can only adopt ideas and inventions but struggle to adopt institutional systems, it could limit the speed at which they can grow their real GDP per capita. However, the adoption of important ideas and inventions like vaccines and the emphasis on education can also significantly contribute to their economic growth.
03

Implications for Standard of Living

The standard of living in low-income countries can potentially improve even if they struggle with the integration of process technologies and systems. The easy flow of ideas and inventions can lead to improvements in areas like health and education, which are essential components of living standards. Hence, even if Kenny is correct and low-income countries find it difficult to integrate institutional systems, it does not necessarily mean they cannot improve their standards of living. As long as they can take advantage of important ideas and inventions, significant improvements can be made.

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