Brazil has a population of about 200 million, with about 145 million over the age of 15. Of these, an estimated 25 percent, or 35 million people, are functionally illiterate. The typical literate individual reads only about two nonacademic books per year, which is less than half the number read by the typical literate U.S. or European resident. Answer the following questions solely from the perspective of new growth theory:
A. Which of the following best explains the implications of Brazil’s literacy and reading rates for its growth prospects in light of the key tenets of new growth theory?
a. Since it has been demonstrated that technological advancement and not human capital is the key determinant of economic growth, Brazil’s literacy and reading rates should not affect its potential economic growth rate.
b. Since technologically advanced physical capital is necessary for economic growth, Brazil’s literacy and reading rates suggests its economic growth rate will be lower because there are not enough skilled workers to operate sophisticated machinery.
c. Since the development of human capital is an important determinant of economic growth, Brazil’s literacy and reading rates suggests its potential economic growth rate is lower.
d. Since economic growth is driven by international trade in technology and capital, if Brazil opens its borders, its literacy and reading rates will improve as the country experiences economic growth.
B. What types of policies might Brazil implement to improve its growth prospects?
a. I should implement a policy to acquire technology from other countries. It can do this by either licensing technology or through reverse engineering.
b. It should implement an open trade policy that focuses on exporting commodities in exchange for technologically advanced physical capital.
c. It should implement programs narrowly focused on promoting a higher literacy rate and broadly focused on a greater average educational attainment by its residents.
d. It should implement a policy to set up government sponsored research and development centers staffed with foreign scientists and engineers.