ECON571 Development Economics
Textbook
Teaching in the course will be done mainly from journal articles drawn from the forefront of theoretical and applied research in development economics. The main textbook for the course is D Ray, Development Economics, Princeton UP, 1998. Use will also be made of: (i) C Jones, Introduction to Economic Growth, Norton, 1998;
Pre requisites
Students should have completed Microeconomic Theory 501 or II (or equivalent) and Macroeconomic Theory 502). Econometrics is also necessary given the strong applied forms of the course.
Intended Learning Outcomes
The course provides an introduction to selected issues in economic development including theory, evidence and policy.
By the end of the course the students should:
- Know existing theories and empirical evidence on economic growth and be able to identify growth-enhancing policies.
- Have a full understanding of how asymmetric information causes market failures and of how non market institutions can solve the associated incentive problems.
- Know the details of non-market institutions in the markets for land, credit, insurance and labor.
- Be able to read a standard professional paper, excluding the most technical parts.
- Be able to put together theory and empirical evidence to draw policy conclusions.
Exams
There will be one-hour exams during the semester and a three-hour, cumulative final exam. You must take the exams at the scheduled time. Permission to miss an exam must be obtained from the instructor. If you have university-excused permission to miss an exam you may schedule a make-up exam within 1 week of the missed exam.
Grades
In accordance with the KSU Graduate Catalog the following grade symbols and meanings are in use: A-excellent, B-good, C-average, D-barely passed, and F-failed. Grades will be based on the problem sets, research paper, exams, and the cumulative final exam. The final course grade will be broken down as follows:
- Reading and analysis, 30 points
- Exam 1, 30 points
- Final Exam, 40 points
The total number of points is 100. You must accumulate the following point totals in order to be assigned a letter grade: A-90 points, B-80, C-700, and F-below 60.
Course Materials and Coverage:
The main textbook for the course is Ray, D. (1998), Development Economics (Princeton University Press). During the course we will be covering a few readings in depth. Copies of required papers which are indicated by a (*) will be placed in Economic Secretary Office During the first part of the course we will analyze the determinants of economic growth, focusing on inequality and expectations. The course integrates theoretical and empirical aspects. Under each section we will explore different theories and focus on one or two relevant papers. Although a complete understanding of the technical aspects is not required, students are expected to master and be able to explain the intuition behind the results of the selected papers. Under almost every section we will derive testable implications from the theory, subject these to econometric testing, comment on the robustness of the results obtained and draw out policy conclusions. Most classes focus on a single applied paper for which an exercise which has this structure is set. Students are strongly encouraged to complete the exercise to the best of their ability before class as this is the best preparation for the exam questions. During class different students will be randomly chosen to provide their answers to different parts of each exercise and this will serve as the basis of class discussion. During the Second part of the course will focus around the themes of "Markets, Institutions and Welfare" and "Public Policy, Growth and Welfare". Failures in key markets such as those for land, labor, credit and insurance have far reaching implications both for productive efficiency and welfare. The story of economic development is, in many ways, one of how informal and formal institutions have evolved to fill the gaps left by these market failures. In this part of the course we want to study both how the institutional environment affects efficiency and welfare and how public policy can be designed to increase growth and reduce poverty. The course has a strong applied focus. Under each section we want to derive testable implications from the theory, subject these to econometric testing, comment on the robustness of the results obtained and draw out policy conclusions. Each class focuses on a single applied paper for which an exercise which has this structure is set. Students are strongly encouraged to complete the exercise to the best of their ability before class as this is the best preparation for the exam questions.
Lecture 1: Introduction: Facts about Development and Growth
*Ray, D. (1998) : Chapter 2.
Growth and Poverty (Assignment 1 )
*Dollar, D and A. Kraay (2000) "Growth Is Good for the Poor"
Lecture 2: Policies for Growth and The Quality of Institutions * Hall, R. and C. Jones (1999), "Why Do Some Countries Produce So Much More Output per
Worker than Others?" Quarterly Journal of Economics
*Isham, J. and D.Kaufman (1999), "The Forgotten Rationale for Policy Reform: The Productivity of Investment Projects", Quarterly Journal of Economics
ClInstitutional Quality and Shock Response (Assignment 2 )
* Rodrik,Dani (1998), 'Where did All the Growth Go? External Shocks, Social Conflict and Growth Collapses'
Lecture 3: Growth Theories I: the Harrod-Domar and the Solow models.
* Ray, D. (1998) Chapter 3
:Testing the Solow Model (Assignment 2 )
*Mankiw N.G., Romer D. and D.Weil (1992): "A contribution to the Empirics of Economic Growth" Quarterly Journal of Economics.
Lecture 4: Growth Theories II: Human Capital, Technical Progress and Endogenous Growth
* Ray, D. (1998) Chapter 4
Measuring TFP Growth (Assignment 3 )
* Young, A. (1995): "The Tyranny of Numbers: Confronting the Statistical Realities of the East Asian Growth Experience", Quarterly Journal of Economics
Lecture 5:Inequality and Growth: Theories
* Ray, D. (1998) Chapter 6, 7(pp 220-241)
* Galor O. and J.Zeira (1993): "Income Distribution and Macroeconomics" Review of Economic Studies
Inequality and Growth: Empirical Evidence (Assignment 5 )
* Easterly W. and R. Levine (1997) "Africa's Growth Tragedy: Policies and Ethnic Divisions" The Quarterly Journal of Economics.
Lecture 6: History, Expectations and Development
* Ray, D. (1998) Chapter 5
*Murphy K, A.Shleifer and R.Vishny (1989): "Industrialisation and the Big Push" Journal of Political Economy
Coordination: Empirical Evidence (Assignment 6 )
*Bandiera,O and Rasul,I, (2003) "Social Networks and Technology Adoption in Northern Mozambique" mimeo LSE and the University of Chicago.
Lecture 7: Tenancy Contracts
*Ray, D. (1998) Chapter 12 pp.415-445
*Singh (1989) "Theories of Sharecropping" in Bardhan (ed) The Economic Theory of Agrarian Institutions -Clarendon
Tenancy Contracts: Empirical Evidence (Assignment 7 )
*Laffont,J J and Matoussi, M S (1995), "Moral Hazard, Financial Constraints and Sharecropping in El Oulja", in The Review of Economic Studies
Lecture 8: Rural Credit Markets
*Ray, D. (1998) Chapter 14 pp.530-561
Credit Markets: Empirical Evidence (Assignment 8 )
Banerjee and Duflo (2002) "Do Firms Want to Borrow More? Testing Credit Constraints Using a Directed Lending Program"
Lecture 9: Rural Labour Markets: Labour-Tying
*Ray, D. (1998) Chapter 13 pp. 504-524
*Eswaran M. and A. Kotwal (1985). "A theory of Two-Tiered Labour Markets in Agrarian Economies" American Economic Review
Labour (Assignment 9 )
* Foster A. and M. Rosenzweig (1996) "Comparative Advantage, Information and the Allocation of Workers to Tasks: Evidence from an Agricultural Labour Market" The Review of Economic Studies
Lecture 10: Social Capital: Informal vs. Formal Institutions
*Arnott R. and J.Stiglitz (1991): "Moral Hazard and Non-market institutions: Disfunctional Crowding-out or Peer Monitoring?" American Economic Review
*Banerjee A and A.Newman (1998): "Information, the Dual Economy, and Development", Review of Economic Studies
Narayan, D. and L. Pritchett (1997): "Cents and Sociability: Household Income and Social Capital in Rural Tanzania" World Bank working paper
Does Social Capital Matter? Evidence (Assignment 10 )
Knack S. and P.Keefer (1997) "Does Social Capital have an Economic Payoff? A Cross-Country Investigation" Quarterly Journal of Economics
Lecture 11. Property Rights
*Besley, Timothy and Robin Burgess, (2003), "Halving Global Poverty" Journal of Economic Perspectives, Summer 2003
*Daron Acemoglu, Simon Johnson, and James A. Robinson, (2001), "The Colonial Origins of Comparative Development: An Empirical Investigation" American Economic Review, 91, 1369-1401.
*Besley, T. (1998) "Investment Incentives and Property Rights" entry in Peter Newman (ed) The new Palgrave Dictionary of Economics and the Law (London : Macmillan)
*Ray, D. (1998) : Chapter 11. Property Rights
*Besley, T. (1995): "Property rights and investment incentives: theory and evidence from Ghana", Journal of Political Economy.
Lecture 12: Labour
*Dreze, J. and Mukherjee, A. (1991): "Labour Contracts in Rural India: Theory and Evidence" in S. Chakravarty (ed) The Balance between Industry and Agriculture in Economic Development (New York: McMillan)
*Ray, D. (1998) Chapter 13 Labor
*Strauss, J. (1986): "Does Better Nutrition Raise Farm Productivity" Journal of Political Economy 94 (2).
Lecture 13: Credit
*Besley, T. (1995): "How do Market Failures Justify Interventions in Rural Credit Markets" World Bank Research Observer 9 (1).
*Morduch, J. (1999): "The Microfinance Promise" Journal of Economic Literature, 37(4), 1569-1614.
*Ray, D. (1998) Chapter 14
*Burgess, Robin and Rohini Pande, (2004), "Can Rural Banks Reduce Poverty? Evidence from the Indian Social Banking Experiment" forthcoming American Economic Review. Credit (Updated!)
Lecture 14: Insurance
*Deaton, A. (1997) Chapter 6.
*Ray, D. (1998): Chapter 15.
Class 4: Insurance
*Udry, C. (1991) : "Credit markets in Northern Nigeria: Credit as Insurance in a Rural Economy", World Bank Economic Review, Vol 4, No. 3, 251-269.
Lecture
5: Intrahousehold Allocation
*Deaton (1997) Chapter 4.
Class 5: Intrahousehold Allocation
*Burgess, R.S.L. and Zhuang, J. (2003): "Modernisation and Son Preference" mimeo LSE. . Lecture 6: Income and Nutrition
*Deaton (1997) Chapter 4.
Class 6: Income and Nutrition
*Subramanian, S. and Deaton, A. (1996): "The Demand for Food and Calories" Journal of Political Economy 104 (1).
Lecture 17: Institutional Reform: Property Rights (PDF)
*Banerjee, A.V., P. Gertler and M. Ghatak (2002): "Empowerment and Efficiency: Tenancy Reform in West Bengal", Journal of Political Economy, 110 (2).
*Lin, J. (1992): "Rural Reforms and Agricultural Growth in China" American Economic Review 82 (1).
Class 7: Institutional Reform: Property Rights
*Lin, J. (1992): "Rural Reforms and Agricultural Growth in China" American Economic Review 82 (1).
Lecture 18: Institutional Reform: Land Reform (PDF)
*Ray, D. (1998) Chapter 12.
Class 8: Institutional Reform: Land Reform
*Besley, T. and Burgess, R. (2000): "Land Reform, Poverty and Growth: Evidence from India". Quarterly Journal of Economics
Lecture 9: Insititutional Reform: Regulation
*Djankov, Simeon, Rafael La Porta, Florencio Lopez-De-Silanes and Andrei Shleifer, (2002), "The Regulation of Entry" Quarterly Journal of Economics, 117 (1), 1 -- 37.
*Besley, Timothy and Robin Burgess, (2004) "Can Labor Regulation Hinder Economic Performance? Evidence from India" Quarterly Journal of Economics 119(1)
Class 9: Insititutional Reform: Regulation
*Djankov, Simeon, Rafael La Porta, Florencio Lopez-De-Silanes and Andrei Shleifer, (2002), "The Regulation of Entry" Quarterly Journal of Economics, 117 (1), 1 -- 37.
Lecture 20: Media and Public Policy
*Djankov, Simeon, Carolee McLiesh, Tatiana Nenova and Andrei Shleifer, (2003) "Who Owns the Media?" Journal of Law and Economics, 46: 341-382.
*Besley, T. and Burgess, R. (2002) "The Political Economy of Government Responsiveness: Theory and Evidence from India" Quarterly Journal of Economics, 117 (4).
Class 10: Media and Public Policy
*Besley, T. and Burgess, R. (2002) "The Political Economy of Government Responsiveness: Theory and Evidence from India" Quarterly Journal of Economics, 117 (4).
Assignments