Exam #2: Thursday, November 12, 2009

Part I: Short Answer Questions (40%): This part of the exam will involve five short-answer questions (out of a choice of six) designed to be answered in about 5 sentences each or the equivalent. Some questions might have multiple parts. To prepare for this part of the exam, review class notes and assigned readings making sure that you have a good understanding of the major concepts, events, and analysis of those concepts and events as discussed in class and in the readings. To help you prepare, here is a list of key terms that you should make sure you understand.

neo-Marxism structuralism dependency theory forward linkages backward linkages dual economy elastic vs, inelastic demand import substitution industrialization (ISI) Group of 77 (G-77) New International Economic Order (NIEO) generalized system of preferences (GSP) international commodity agreements (ICAs) Washington Consensus export-led growth Asian tigers BRIC countries NAFTA Washington Consensus "ladder of development" poverty trap overseas development assistance (ODA) 2002 Monterrey Consensus Millennium Development Goals Millennium Challenge Account

planners vs. searchers LDC debt crisis debt service ratios petrodollars structural adjustment debt-equity swaps emerging markets portfolio investment electronic herd capital controls capital flight home vs. host government offensive FDI defensive FDI product cycle theory transfer pricing the "obsolescing bargain" race to the bottom intra-firm trade performance requirements outsourcing offshoring export processing zones

Part II: Essay (60%): The exam will include TWO of the following questions from which you will then select ONE and write an essay. The exam will be closed book, and all essays must be completed in class on the day of the exam without benefit of notes of any kind. The best grades will be reserved for essays that: a) demonstrate substantial familiarity with both in-class material and the assigned reading, and b) effectively combine generalizations with the details and evidence needed to support those generalizations.

1. While liberal economists argue that the path to development for developing countries is trade openness and integration into the global trading system, critics of this view suggest that trade openness will not produce economic development. Write an essay in which you: a) summarize the arguments and evidence that liberals would emphasize on this issue, b) summarize the arguments and evidence that lead others to be more skeptical of the trade-growth linkage, and c) if you were the president of a developing country, would you pursue a policy of trade openness or not? Defend your position. Readings that will be especially helpful in answering this question include Spero ch. 7 and Oatley ch. 11.

2. While advocates of foreign aid see it as the solution to the challenges of economic development and global poverty, others are much more skeptical about the contribution of aid to those goals. Write an essay in which you: a) discuss the role that advocates see foreign aid playing in the fight against underdevelopment and poverty, b) discuss the shortcomings of foreign aid emphasized by critics of the aid approach, and c) if you were the president of a developing country, to what extent would you emphasize foreign aid as a path to development? Are there specific types and approaches to aid that you might want to emphasize? Readings that will be especially helpful in answering this question include Spero ch. 6 and Spero ch. 12.

3. Less-developed host countries often have an ambivalent attitude toward MNCs. Though often harshly critical of MNCs, they usually tolerate them and even compete to attract MNC investment in the local economy. Write an essay in which you: a) discuss the factors that lead host countries to seek MNC investment, b) discuss the factors that lead those same developing countries to be critical of the role of MNCs in their countries, and c) if you were the president of a developing country, would you encourage MNC investment in your economy? What, if anything, could you do to maximize the benefits and minimize the costs of FDI in your economy? Readings that will be especially helpful in answering this question include Spero ch. 8 and Oatley chs. 6 & 7.