1. We have discussed FDI in the lecture. Letâ€™s see a bit more of details.

(1) What is the difference between direct investment and portfolio investment?

(2) What is the difference between â€œgreenfieldâ€ and â€œbrownfieldâ€ direct investment?

(3) The relationship between FDI and development is a complicated one. How can FDI contribute to
economic growth and development? How can it hinder growth and development?

(4) How can developing countries attract FDI?

2. Imagine a Harrod-Domar setup. Suppose that Growlandiaâ€™s capital-output ratio (v) is 5, and the domestic savings rate (s) is 15%, of which 12% is private savings and 3% is government savings. Depreciation = 1%. Initially there is no source of foreign savings. Furthermore, GDP in 2015 in Growlandia is $15 billion, and population is 7 million.

(1) The government in Growlandia manages to increase government savings to 5% of GDP by increasing taxes, although this causes private savings to fall to 11%. What would be the growth rate of GDP in this scenario?

(2) Give an example or reason of how increased government savings could cause private savings to fall.

(3) Suppose furthermore (i.e. in addition to what happens in (2)) the country received foreign aid in the amount of 5% of GDP. Foreign aid is targeted only for investment purposes- so it works to increase savings rate, but foreign aid causes domestic savings to fall to 14% of GDP. What would be the growth rate of GDP in this scenario? Why would foreign aid cause domestic savings to fall?

3. Answer the following questions.

(1) What are the two empirical regularities that characterize the structural transformation regarding agriculture and non-agriculture sectors?

(2) What are the reasons that the staple crop sector remains non-tradable in a lot of underdeveloped regions? Gains in staple crop productivity increase the aggregate food supply and reduce food prices. Consider the neo-classical model framework, how could this contribute to the structural transformation from the agricultural sector to the industrial sector?

(3) Foreign aid in agriculture used to an important component of official development assistance. However, it declined sharply over the past few decades. What are the potential reasons? What do you think can be done to increase foreign aid for agricultural development (this is an open question, your answers do not need to be based on materials in this chapter)?

1. We have discussed FDI in the lecture. Letâ€™s see a bit more of...