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Econ 3004

Fall 2008
HW#1 ANSWER KEY
(Please provide brief answers of about 50-100 words for each question)
1. Given its level of income per capita, the Arab world is doing poorly in HDI
measures. Discuss.
ANSWER:
a. This is a point made in the AHDR, which has argued that the ME as a
whole has a higher per capita income relative to its level of education and
life expectancy. HDI in MENA is not low compared to all developing
countries but it is low for its income group. The data used are the
components of the HDI. One important reason for this discrepancy is oil.
Patriarchy may be another reason because it discourages female education.
b. Quoting AHDR or getting more specific, such as with women’s
empowerment, is useful because it shows that you have read the piece
rather than make it up on your own.

2. List three countries in the ME which have in terms of per capita income the
highest, the median, and the lowest levels. Which measure of income per capita
is most suitable for comparison across countries, and why? How would your list
be different if instead of per capita income you had HDI? You must refer to the
Arab Human Development Report 2000 and WDI data to answer this question.
ANSWER:

a. Depending on which you take you will get different results. For 2001,
PPP$, Israel was on top, now it is UAE. The median country (50% below
it) is Lebanon at PPP$4170 (or Iran at PPP$6000), and Yemen is the
poorest at about PPP$800, Djibouti is also a good choice except that most
people think of it as an African rather than MENA country.
b. For the broader concept of development, you should consider other HDI
variables, such as life expectancy and education. WDI data is essential—
bravo to those who did that!

3. Issawi (ch 3) concludes that in the 16th century there were fewer mills per capita
than in 11th century England. What does this observation tell us about the
economic history of the Middle East?
ANSWER: This little piece of evidence underscores the increasing importance of
innovations and investments on a small scale, which required safety of private
property, and which ME lacked because it was under the Ottoman Empire which did
not allow accumulation of wealth by private individuals. European mills were mostly
operated by private interests. The inhospitable economic organization in the Ottoman
and Safavid (Iranian) societies, characterized by lack of protection for private
property and a dominant and arbitrary government, stifled private enterprise. (Recall
Issawi: “what is good at stages A and B …”)
It also explains why ME agriculture, which in centuries earlier was more advanced
than Europe, fell behind: lack of investment and innovation.

4. The Middle East was one of the great centers of military and economic power
before 12th century. List and explain the key factors cited in Issawi that caused it
to fall behind afterwards.
ANSWER:

In the early phase, before 12th century, geography was favorable for the development
of an agricultural surplus in the ME. Later, when industrial surplus, innovation, and
trade became more important, ME lost its geographic advantage. Also, centralization
of power, which promoted certain types of investments—roads, irrigation, weapons,
etc.—in the early period, became a liability for promotion of industrial enterprise.

5. Summarize how Issawi compares Middle East with Japan and Russia.
ANSWER:
a. Agriculture in Japan improved steadily through innovation. Handicraft
was protected from western competition far longer than ME. ME adopted
western consumption habits but not production; Japanese did the reverse.
Government played a more useful role in economic development in Japan
than ME.
b. Russia and ME were more similar at the start of 19th century. Strong
government for a long period of time but gave private enterprise more
scope. More intellectual progress, first printing press in 1553, ME
governments did not like printed books that would educate the masses!

6. “Middle Eastern governments refrained from interfering with many aspects of


society, notably law.” (Issawi, ch 1) Was this a good or a bad thing? Does Issawi
think that Middle Eastern governments were in general in support of laissez faire?
ANSWER:
a. This is an example of lack of interference which is a bad thing. Laws that
protect private property and enforce contracts are public goods, and only
governments can provide it. In Europe, beginning with industrialization,
the center of social organization shifts from governments to markets. The
authority of the government changes from the general to the specific—
dealing mainly areas in which markets fail to do a good job—defense,
legal and economic infrastructure.
b. No, ME governments did not believe in laissez faire. They wanted control
of the surplus to prevent rivals from emerging.

7. The disagreement between the Iranian government and the Anglo-Iranian oil
company was about profit sharing. Discuss.
This is about the crisis of the early 1950s. Yes and no. Profit-sharing was at
the beginning not offered to Iran and when it was, it was perhaps too late. By
the 1930s Iranians had realized that the agreement signed by the Qajar king in
1901 was unfair and unworkable, but there was no effective mechanism for
renegotiation. Furthermore, “a market for concessions” did not exit at the
time, so the notion of a “fair” contract could not be compared to what the
market would offer. The distribution of profits from oil had to be divided up
by political power and negotiation. Also, in Iran the question of fair share
form oil got mixed up with political reform (limiting the power of the Shah).
Increasingly, Iranians were interested in simply cutting all links with the
British off because they thought the British would interfere in Iran’s internal
affairs and not help them in constitutional reform. The 50-50 agreement did
not address these issues and was not even seriously on the table.

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