100 Rigorous Questions on

Development Economics
Target Audience: IIT JAM Economics, GATE Economics, UGC NET, and Advanced
Undergraduate/Graduate Students.

Section I: Theories of Economic Growth (Questions 1–

20)
1. Consider a Solow-Swan model with a production function Y = K^\alpha L^{1-\alpha}. The
savings rate is s, depreciation is \delta, and population growth is n.
● Derive the expression for the steady-state capital per worker (k^*).
● Prove that the elasticity of steady-state output per worker (y^*) with respect to the savings
rate (s) is \frac{\alpha}{1-\alpha}.
2. In the Harrod-Domar growth model, assume a fixed capital-output ratio (v) and a savings rate
(s).
● Define the Warranted Rate of Growth (g_w).
● Mathematically demonstrate the "Knife-Edge" instability problem if the actual growth rate
deviates from g_w.
3. Suppose an economy is described by the Solow model. If the production function changes
from Cobb-Douglas to Leontief (Fixed Proportions) Y = \min\{AK, BL\}, under what condition will
the economy exhibit sustained positive per capita growth without technological progress?
4. Golden Rule Level of Capital: Maximize consumption per worker c^* in the steady state of a
Solow model.
● Show that at the Golden Rule level, the marginal product of capital (MPK) equals the sum
of population growth and depreciation (n + \delta).
5. Consider the Ramsey-Cass-Koopmans model.
● Write down the Hamiltonian for the social planner's problem maximizing \int_{0}^{\infty}
e^{-\rho t} \frac{c(t)^{1-\theta}}{1-\theta} dt subject to \dot{k} = f(k) - c - (n+\delta)k.
● Derive the Euler equation describing the optimal consumption path.
6. In an Endogenous Growth Model of the "AK" type where Y = AK:
● Derive the growth rate of capital stock.
● Why does this model not predict convergence between rich and poor countries?
7. Convergence: Distinguish between Absolute Convergence and Conditional
Convergence.
● If the regression equation is \frac{1}{T} \ln(\frac{y_{i,T}}{y_{i,0}}) = \alpha + \beta \
ln(y_{i,0}) + \epsilon_i, what sign must \beta have for convergence to hold?
8. Consider a Romer model with "Learning by Doing". The firm-level production function is Y_i =
A(K) K_i^\alpha L_i^{1-\alpha}, where A(K) = \bar{K}^\phi represents the external effect of
aggregate capital.
● For what value of \phi does this model exhibit constant returns to scale at the social level,
allowing for endogenous growth?
9. Solow Residual: Given Y = A(t) K^\alpha L^{1-\alpha}, derive the equation for "Growth
Accounting" that isolates Total Factor Productivity (TFP) growth.
10. Assume a technological production function Y = K^\alpha (AL)^{1-\alpha} (Harrod-Neutral). *
Prove that along the balanced growth path, the capital-output ratio is constant while the real
wage grows at the rate of technological progress (g).
11. In the context of the Solow model, explain the concept of Dynamic Inefficiency. * If the
interest rate r is strictly less than the growth rate of the economy g (r < g), is the economy
dynamically efficient? Prove using the Golden Rule logic.
12. Poverty Traps in Growth: * Mathematically construct a scenario using an S-shaped
savings function s(k) where a Solow model exhibits multiple equilibria. Identify the stable and
unstable equilibria.
13. Compare the steady-state growth rate of output per worker in the Solow model vs. the AK
model. Which parameters affect the long-run growth rate in each?
14. O-Ring Theory (Kremer): * Suppose production requires n tasks, each performed by a
worker of skill q_i \in (0,1]. The production function is Y = \prod_{i=1}^n q_i. * Prove that in
equilibrium, high-skill workers will match with other high-skill workers (positive assortative
matching).
15. In the Lucas (1988) model of human capital, production is Y = K^\beta (u h L)^{1-\beta} and
human capital accumulation is \dot{h} = \delta (1-u) h. * Derive the steady-state growth rate
depends on the time allocated to education (1-u).
16. Galor-Zeira Model: * Explain how imperfections in credit markets coupled with
indivisibilities in human capital investment can lead to persistent income inequality and low
growth.
17. Consider a Solow model where population growth is endogenous: n(y). If n(y) is low at low
income, high at medium income, and low at high income (Malthusian transition), illustrate
graphically how a "Malthusian Trap" is generated.
18. Conditional Convergence Speed: In the Solow model near the steady state, the speed of
convergence \lambda is approximately (1-\alpha)(n+g+\delta). Explain the intuition behind (1-\
alpha).
19. Explain the Big Push Model (Rosenstein-Rodan) using a payoff matrix for two firms. Show
how coordination failure leads to a Pareto-inferior Nash Equilibrium.
20. Schumpeterian Growth (Aghion-Howitt): * Explain the concept of "Creative Destruction"
mathematically. How does the arrival rate of innovation affect the value of incumbent firms?

Section II: Inequality and Poverty Measurement

(Questions 21–40)
21. Lorenz Curve: * The Lorenz curve for country A is L(p) = p^2 and for country B is L(p) =
p^3, where p is the cumulative proportion of population. * Which country is more unequal?
Prove by comparing their Gini coefficients.
22. Calculate the Gini Coefficient if the Lorenz Curve is given by L(p) = \frac{e^p - 1}{e - 1} for
p \in [0,1].
23. Kuznets Ratio: Define the Kuznets ratio as the share of income of the richest 20% divided
by the share of the poorest 40%. Calculate this ratio for a Lorenz curve L(p) = p^2.
24. Axioms of Inequality Measures: * Define the Pigou-Dalton Transfer Principle. * Does
the range (Max income - Min income) satisfy this principle? Explain why or why not.
25. Headcount Ratio: * In a population of 5 individuals with incomes \{2, 4, 6, 8, 10\} and a
poverty line z=5, calculate the Headcount Ratio (H).
26. Poverty Gap Index (PG): * Using the data from Q25, calculate the Poverty Gap Index.
Interpret the result.
27. Squared Poverty Gap (FGT Index with \alpha=2): * Calculate the FGT-2 index for the data
in Q25. Why is this preferred over the Poverty Gap Index for measuring severity?
28. Prove that the Gini coefficient is exactly equal to half of the relative mean difference.
29. Generalized Lorenz Dominance: * If Lorenz Curve L_A(p) is everywhere above L_B(p),
but mean income \mu_B > \mu_A, can we unambiguously say which country has higher social
welfare? (Refer to Atkinson’s Theorem).
30. Theil Index: * Is the Theil Index decomposable into "within-group" and "between-group"
inequality? Write down the formula for the Theil T index.
31. Suppose the income distribution follows a Pareto distribution with PDF f(y) = \frac{\alpha
y_m^\alpha}{y^{\alpha+1}} for y \ge y_m. * Derive the mean income. Under what condition on \
alpha does the mean exist?
32. Kuznets Inverted-U Hypothesis: * Mathematically, if inequality I is a function of per capita
income y as I = \alpha + \beta y - \gamma y^2, what are the signs of \beta and \gamma for the
hypothesis to hold?
33. Calculate the Gini coefficient for a perfectly equal society and a perfectly unequal society
(one person holds all wealth).
34. Sen’s Welfare Index: * Define Sen’s Welfare Index W = \mu(1 - G). * If a country grows by
5% in mean income (\mu) but the Gini (G) increases from 0.3 to 0.4, does welfare increase or
decrease?
35. Explain the property of Scale Invariance (Homogeneity of degree 0) in inequality
measurement. Does multiplying everyone's income by \lambda > 0 change the Gini coefficient?
36. Poverty Axioms: * Explain the Monotonicity Axiom and the Transfer Axiom in the
context of poverty measurement. Which FGT measure satisfies both?
37. Human Development Index (HDI): * Given the dimensional indices I_{Health} = 0.8,
I_{Education} = 0.7, I_{Income} = 0.6. * Calculate the HDI using the geometric mean formula.
How does this differ from the old arithmetic mean method?
38. Gender Inequality Index (GII): * What are the three dimensions included in the GII? Briefly
explain how "labour market participation" is measured in GII.
39. If the Lorenz curves of two countries cross, how can we rank them? Explain using the
concept of the Atkinson Index with varying inequality aversion parameters (\epsilon).
40. Multidimensional Poverty Index (MPI): * How is the "censored deprivation score"
calculated for a household?

Section III: Dual Economy Models and Migration

(Questions 41–60)
41. Lewis Model: * Define Surplus Labor. What is the Marginal Product of Labor (MPL) in the
traditional sector during the surplus labor phase?
42. In the Lewis model, distinguish between the Lewis Turning Point and the
commercialization point where agricultural wages begin to rise.
43. Harris-Todaro Model: * Let w_u be the formal urban wage (fixed), w_a be the agricultural
wage, and L_u and L_r be the urban and rural labor force respectively. Let E_u be the number
of urban jobs. * Write the migration equilibrium condition.
44. In the Harris-Todaro framework, prove that creating more urban jobs can actually increase
the level of urban unemployment (The Todaro Paradox).
45. Fei-Ranis Model: * How does the Fei-Ranis model differ from the Lewis model regarding
the marginal product of labor in agriculture after the surplus labor is exhausted?
46. Consider a Harris-Todaro model. If w_u = 2 w_a, what is the equilibrium probability of
finding a job in the urban sector?
47. Disguised Unemployment: * Graphically illustrate disguised unemployment using a Total
Product curve where the slope becomes zero.
48. In a dual economy, if the industrial sector maximizes profit, the condition is MPL_I = w. If the
agricultural sector shares output, the condition is w = AP_L (Average Product). * Discuss the
inefficiency implied by MPL_I = AP_L.
49. Informal Sector: * incorporate an informal urban sector into the Harris-Todaro model. How
does the equilibrium condition change?
50. Rural-Urban Migration: * If migration costs C are introduced into the Harris-Todaro model,
derive the new equilibrium wage differential.
51. Terms of Trade in Dual Economy: * If the industrial sector expands, what happens to the
internal terms of trade (price of food relative to industrial goods) in the "Ricardo-Lewis"
framework?
52. Balanced vs. Unbalanced Growth: * Contrast Hirschman’s Unbalanced Growth strategy
(linkages) with Nurkse’s Balanced Growth theory.
53. Linkages: * Define Backward Linkage and Forward Linkage. * Which type of industry
(e.g., steel vs. textiles) typically has higher total linkage effects?
54. Structural Change: * According to the Chenery-Syrquin study, what is the typical trajectory
of the share of agriculture in GDP as per capita income rises?
55. Jorgenson’s Model: * Unlike Lewis, Jorgenson assumes the MPL in agriculture is never
zero. How does this assumption alter the condition for industrial growth?
56. Wage Rigidity: * Why is w_u assumed fixed above equilibrium in the Harris-Todaro model?
(Cite institutional factors).
57. Brain Drain: * Analyze the welfare impact of high-skill migration on the source country.
Under what conditions might a "Brain Gain" occur?
58. Gravity Model of Migration: * Write a simple functional form predicting migration M_{ij}
between location i and j based on population sizes and distance.
59. Nutritional Wage (Leibenstein): * Explain the "Efficiency Wage" hypothesis in agriculture.
Why might a landlord pay a wage higher than the market-clearing level?
60. Graph the relationship between Wage and Work Effort in the Efficiency Wage model (Solow
condition). Show that the optimal wage occurs where the elasticity of effort with respect to wage
is 1.

Section IV: Land, Labor, and Credit Markets

(Questions 61–75)
61. Sharecropping (Marshallian Inefficiency): * Assume a tenant keeps share \alpha of
output Y(L). The cost of labor is w. * Show that the tenant equates \alpha MPL = w, whereas the
social optimum is MPL = w. Illustrate the deadweight loss.
62. Cheung’s Theory of Sharecropping: * If the landlord can monitor labor effort perfectly and
sets the contract terms (share and land size), does the inefficiency persist?
63. Interlinked Markets: * Explain how a landlord who is also a moneylender might exploit a
tenant more effectively than two separate agents. (Interlinking credit and land markets).
64. Credit Rationing (Stiglitz-Weiss): * Explain why raising interest rates to clear the credit
market might lead to Adverse Selection. * Why might banks ration credit rather than raise
rates?
65. Moral Hazard in Credit: * Show how high interest rates might induce borrowers to choose
riskier projects (lower probability of success, higher return if successful).
66. Microfinance & Group Lending: * Explain the mechanism of Joint Liability. How does it
solve the monitoring problem?
67. Inverse Farm Size-Productivity Relationship: * Empirical data often shows small farms
are more productive per acre than large farms. Provide a labor-market explanation (Dual labor
cost theory).
68. Permanent Income Hypothesis (Friedman) in LDCs: * Why might the marginal propensity
to consume out of transitory income be higher in poor agrarian economies compared to
developed ones (liquidity constraints)?
69. Precautionary Savings: * How does risk aversion combined with income volatility affect the
savings rate of poor households?
70. Rotating Savings and Credit Associations (ROSCAs): * Describe the structure of a
ROSCA. Is it a savings instrument, a credit instrument, or both?
71. Land Reform: * Contrast the economic effects of "Land to the Tiller" policies vs. Tenancy
Reform (fixing rent ceilings).
72. Usurious Interest Rates: * Using the "Lender's Risk Hypothesis", explain why informal
interest rates in rural areas are extremely high.
73. Fragmented Capital Markets: * Why is the marginal product of capital not equalized across
firms in developing countries? (McKinnon-Shaw hypothesis).
74. Financial Repression: * Define financial repression (interest rate ceilings). How does it
affect the quantity and quality of investment?
75. Strategic Default: * In the context of sovereign debt or microfinance, what is strategic
default?

Section V: Population, Human Capital, and Health

(Questions 76–85)
76. Demographic Transition: * Sketch the three stages of demographic transition. What
happens to birth rates and death rates in Stage 2?
77. Microeconomic Theory of Fertility (Becker): * Explain the "Quality-Quantity Trade-off". If
the return to education rises, what happens to the optimal number of children?
78. Hidden Momentum of Population Growth: * Why does population continue to grow for
decades even after fertility rates drop to replacement levels?
79. Child Labor: * Use the Basu-Van Model (Luxury Axiom and Substitution Axiom) to
show that banning child labor can be Pareto improving if the economy is in a "bad equilibrium".
80. Returns to Education: * Write down the Mincerian Wage Equation. * Interpret the
coefficient on "Years of Schooling".
81. Health as Human Capital: * Discuss the linkage between early childhood nutrition
(stunting) and long-term labor productivity.
82. Missing Women (Amartya Sen): * Define the concept. What economic factors contribute to
skewed sex ratios in developing countries?
83. Preston Curve: * Describe the relationship between Life Expectancy and Per Capita
Income. Is it linear?
84. Epidemiological Transition: * How does the disease burden shift as a country develops
(Infectious vs. Chronic diseases)?
85. Social Returns vs. Private Returns: * Typically, are social returns higher for Primary
Education or Higher Education in LDCs? Why?

Section VI: Trade, Policy, and Environment (Questions

86–100)
86. Prebisch-Singer Hypothesis: * Why might the Terms of Trade for primary commodity
exporters decline over time? (Income elasticity of demand argument).
87. Import Substitution Industrialization (ISI): * Explain the "Infant Industry Argument". *
What are the static and dynamic costs associated with protectionism under ISI?
88. Effective Rate of Protection (ERP): * If the tariff on the final good is 20% and the tariff on
imported inputs is 0%, is the ERP on value-added greater than, equal to, or less than 20%?
Prove it.
89. Dutch Disease: * Explain the mechanism by which a natural resource boom leads to
deindustrialization in the tradable manufacturing sector.
90. Immiserizing Growth (Bhagwati): * Under what conditions can export-led growth lead to a
reduction in national welfare?
91. Shadow Prices: * In project evaluation, why do we use shadow prices instead of market
prices? * If there is high unemployment, is the shadow wage rate higher or lower than the
market wage?
92. Social Discount Rate: * Why might the social discount rate be lower than the private
market interest rate for long-term development projects?
93. Environmental Kuznets Curve (EKC): * Graph the hypothesized relationship between
Environmental Degradation and GDP per capita.
94. Tragedy of the Commons: * Derive the Nash Equilibrium usage of a common grazing land
vs. the Social Optimum.
95. Coase Theorem in Development: * Why might the Coase Theorem fail to solve externality
problems in LDCs? (Transaction costs, property rights).
96. Foreign Aid: * Explain the "Two-Gap Model" (Chenery and Strout). What are the two gaps?
* Condition: I - S = M - X.
97. Debt Overhang: * How does a large existing debt burden discourage new domestic
investment? (The Debt Laffer Curve).
98. Conditionality: * Discuss the typical conditions attached to IMF/World Bank loans
(Structural Adjustment Programs).
99. Impossible Trinity (Mundell-Fleming): * Can a developing country simultaneously
maintain a fixed exchange rate, free capital movement, and independent monetary policy?
100. Randomized Control Trials (RCTs): * Why are RCTs considered the "Gold Standard" for
impact evaluation in development economics? * Define Average Treatment Effect (ATE).