ECONOMIC DEVELOPMENT

Transcription

1 St. Lawrence University Dr. Robert A. Blewett Economics/African Studies Hepburn 217 Spring ECONOMIC DEVELOPMENT The Purpose of the Course. This is an upper-division examining the problems of less developed countries (LDC s). Although a variety of approaches to development economics will be studied, the analysis of new institutional economics will be emphasized. By the end of the semester, participants should be able to understand: (1) the economic diversity, as well as the diversity of development problems, among LDC's; (2) the conditions necessary or conducive to economic growth and the institutional hindrances to growth; (3) the economic implications of alternative development strategies and policies. Prerequisites. ECON 251, 252, and either ECON 200 or MATH 113 (or by permission). Office Hours. Posted office hours are Mondays and Wednesdays 10:00 to 11:30 a.m. and by appointment. I am usually around afternoons. Feel free to stop by for help, advice, or just to talk. If I am out, please a message and I will try to contact you. Nine Required Books. Books available in the Brewer Bookstore 1. Boo, Katherine (2014). Behind the beautiful forevers: life, death, and hope in a Mumbai undercity. ISBN: Karlan, Dean, & Appel, Jacob (2012). More than good intentions: improving the ways the world's poor borrow, save, farm, learn, and stay healthy. ISBN: Moran, Theodore H. (2012). Foreign direct investment and development: launching a second generation of policy research: avoiding the mistakes of the first, reevaluating policies for developed and developing countries. ISBN: Munk, Nina (2014). The idealist: Jeffrey Sachs and the quest to end poverty. ISBN: Free books available as pdf s and epub s on Sakai 5. Easterly, William. R. (2002). The elusive quest for growth: economists' adventures and misadventures in the tropics. 6. Nallari, Raj, & Griffith, Brenda (2011). Understanding growth and poverty: theory, policy, and empirics. 7. Taylor, J. Edward, & Lybbert, Travis J. (2015). Essentials of development economics, Second Edition. 8. Collier, Paul (2007). The bottom billion: why the poorest countries are failing and what can be done about it. [Also available in paperback at the Brewer Bookstore.] 9. Moran, Theodore H. (2006). Harnessing foreign direct investment for development: policies for developed and developing countries [only available as a pdf]. Other required and optional readings in the tentative course outline below (pp. 3-8) are on Sakai.

2 Economic Development Economics/African Studies Spring 2019 page 2 of 8 Course Evaluation and Policies. Students are responsible for course assignments and announcements posted on Sakai for this course, as well as messages sent to their campus addresses. Please check announcements regularly and well before class meetings. Please turn off cell phones, laptops, tablets, recorders, and other electronic devices during class and exams. During class use paper with pen and/or pencil to take notes. An exception may be when discussing a certain online resource or reading. There is no P/F option and the following will determine final course grades: Tests (45%) Essays (30%) e-responses (25%) There will be three tests given during the semester. Each test will consist of two essay questions selected by the instructor from a list study questions. The best four of these six essays, with the exception that at least one of the graded test essays from Test #3 must count, determine 45 percent of your final course grade. There will be no late tests given. A test missed, for any reason whatsoever, will have its essays dropped. Tests may be taken early except attendance at Test #3 at 6 p.m. on Wednesday 8 May is required The best two of three assigned essays account for 30 percent of the final course grade. These may be relatively short (three-to-five pages) or longer (five-to-twelve pages). The success of the course will depend heavily upon the contributions of each student. Students should come to class prepared and willing to contribute to the class discussion. Hence, evaluation of student e- Response essays, along with student participation, will determine 25 percent of the course grade. Final course grades may not strictly follow the four-point scale used calculated for the final course score course for grades above Below is the cut-off, or minimum scores for grades in each of the past six semesters. Scores do not round up for grades 3.25 and below. (For example, scores between 3.00 and are associated with a grade of 3.00.) Economics 336 Course Grade History Minimum Course Score Grade F'18 F'17 F'16 F'15 F'14 F'

3 Economic Development Economics/African Studies Spring 2019 page 3 of 8 Tentative Course Outline and Readings (required book AUTHORS capitalized). I. INTRODUCTION: BASIC FACTS AND CONCEPTS A. What is Economic Development? 1. Why care? 2. Economic growth v. economic development. 3. Are poor countries different? 4. Thinking big and thinking small. EASTERLY, Part I: Ch. 1 plus Intermezzo (pp 1-19). NALLARI & GRIFFITH, Introduction (pp. 1-12). COLLIER, Ch. 1 (pp. 1-13). B. Good Intentions Are Not Enough: RCT s and Thinking Small. 1. Who wants to take a test? 2. Methods to evaluate polices. 3. Using RCT s in development. 4. RCT case studies. KARLAN & APPEL, Ch. 1, and Ch. 2 (pp. 1-38). KARLAN & APPEL, Ch. 12 (pp ). KARLAN & APPEL: Chapters 3 through 11 will be assigned for student presentation. Optional: John B. Taylor, "Chapter 5: Accountability at the World Bank and Beyond" Global Financial Warriors (W.W. Norton, 2007), pp Optional video: TED, Esther Duflo: Social experiments to fight poverty (Feb 2010, 17 min.). C. Measuring Income and Output 1. Circular flow of income and output. 2. GDP, value added, and expenditure aggregates. 3. What are the shortcomings; what is missing? 4. Useful details: GDP, GNP, GNI, PPP. 5. Basic accounting identities/relationships. 6. Useful/not-so-useful macro data for development. NALLARI & GRIFFITH, Ch. 2 (pp ). D. Measuring Human Development 1. Why is it better to be poor in some countries than in others? 2. Social indicators of development. 3. The Human Development Index (HDI). TAYLOR & LYBBERT, Ch. 6 (pp ). Angus Deaton, The Great Escape: A Review of Robert Fogel's The Escape from Hunger and Premature Death, " Journal of Economic Literature, 44 (March 2006): E. Measuring Poverty 1. What is poverty? 2. Relative and absolute poverty levels. 3. Summary statistics of poverty. 4. Multidimensional Poverty Index (MPI). 5. Which poverty statistic is best? NALLARI & GRIFFITH, Ch. 1 (pp ). F. UNDP, FAQ s - Multidimensional Poverty Index (MPI); 1. What is inequality and should we care? 2. Summary statistics of inequality. 3. Calculating the Gini coefficient. TAYLOR & LYBBERT, Ch. 5 up to p. 122 (pp ; skip rest of chapter).

4 Economic Development Economics/African Studies Spring 2019 page 4 of 8 G. Poverty, Inequality, and Growth Relationships 1. Poverty and economic growth. 2. Inequality and economic growth. Growth is Good The Economist 27 May 2000 (2p.). NALLARI & GRIFFITH, Ch. 3 (pp ). David Dollar, Growth and Income of the Poor, blog post, Brookings Institute, 25 October p. Video: Hans Rosling, New insights on poverty and life around the world (TED Talks, 26 June 2007), Optional: David Dollar & Aart Kray, "Growth is Good for the Poor" Development Research Group, the World Bank, March 2001 (original version), 50p. II. CLASSICAL ECONOMIC GROWTH THEORY WITH EXTENSIONS. A. The Classical Growth Model 1. Essentials of the model: factor accumulation. 2. Convergence and other implications. B. The Saving Trap: Aid for Investment 1. Review the K-fetish. 2. Paradox of growth and the saving trap 3. Harrod-Domar Model. 4. Saving-to-investment-to-growth links. 5. Aid-to-investment-to-growth links. EASTERLY, Ch. 2 plus Intermezzo (pp ). William Easterly, "The Ghost of Financing Gap: How the Harrod-Domar Model Still Haunts Development Practices" (1999). C. The Neo-Classical/Solow Model 1. Formalizing the Classical Model. 2. Solow s model. 3. Growth implications of Solow s model. 4. The growth equation. 5. Conditional convergence. 6. Transitional v. sustained growth. TAYLOR & LYBBERT, Ch. 7 up to p. 187 (pp ; skip rest of chapter). EASTERLY, Ch. 3 plus Intermezzo (pp ). D. Education 1. Education-to-human capital-to-growth links. 2. Where did all the education go? 3. Incentives on the demand side. 4. Incentives on supply side. EASTERLY, Ch. 4 plus Intermezzo (pp ). Ricardo Hausmann, "The Education Myth" Project Syndicate, 31 May 2015, 4p. E. Population 1. The downside to population growth. 2. The demographic transition. 3. The economics of fertility and demand 4. The supply of birth control methods. 5. Is population growth necessarily bad? EASTERLY, Ch. 5 plus Intermezzo (pp ). David Malakoff, "Are More People Necessarily Bad?" Science 333 (29 July 2011):

5 Economic Development Economics/African Studies Spring 2019 page 5 of 8 III. NEW GROWTH THEORY AND INCREASING RETURNS A. Review Solow Model and Diminishing Returns and Limits to Growth 1. Implications of the Solow Model. 2. Problems with explaining actual growth rates. B. Endogenous Technological Change 1. Objects gap v. ideas gap. 2. Simple models of technological change. TAYLOR & LYBBERT, pp C. Leaks, Matches, and Traps 1. Increasing returns to ideas. 2. Incentives for spread of ideas adopt ideas 3. Traps and other limitations to adopting ideas. EASTERLY, Ch. 8 (pp ). D. Creative Destruction 1. Power of Ideas. 2. Incentives to innovate. 3. Creative Destruction and incentives to destroy capital. EASTERLY, Ch. 9 (pp ). IV. POVERTY TRAPS A. The Conflict Trap 1. The usual suspects behind the conflict trap. 2. Evidence rears its ugly head. 3. Reversing the causality. 4. Factors driving the trap. COLLIER, Ch. 2 (pp ). B. The Natural Resource/Extractive Industries Trap 1. The Dutch Disease. 2. Extractive industries and technology growth. 3. Rent seeking. 4. Better off without natural resources? "The Curse of Oil: The Paradox of Plenty" The Economist, 20 December 2005, 4p. COLLIER, Ch. 3, "The Natural Resource Trap" (pp ). C. The Geography Trap 1. A tropical health trap? 2. Ocean beaches are nice; ports are better. 3. Crossing borders. 4. Encouraging positive spillovers. COLLIER, Ch. 4, "Landlocked with Bad Neighbors" (pp ). Ricardo Hausmann, "Prisoners of Geography," Foreign Policy 122 (January/February 2001): R.A. Blewett, "Development and the Shire-Zambezi Waterway" (February 2011), 1p. D. The Bad Governance/Corruption Trap 1. Failing states, rent seeking, and corruption. 2. Varieties of corruption. 3. Reducing corruption at the margin. COLLIER, Ch. 5, "Bad Governance in a Small Country" (pp ). EASTERLY, Ch. 12 plus Intermezzo (pp ).

6 Economic Development Economics/African Studies Spring 2019 page 6 of 8 V. INSTITUTIONS A. Introduction 1. What does institution mean? 2. Examples. 3. Institutions and growth. 4. Institutional creation. TAYLOR & LYBBERT, Ch. 4 (pp ). Dani Rodrik and Arvind Subramanian, "The Primacy of Institutions (and What This Does and Does Not Mean)" Finance & Development (June 2003) pp NALLARI & GRIFFITH, Ch. 10 Institutions and Growth (pp ). B. Cases 1. China. 2. Middle East. 3. India. Yasheng Huang, "How Did China Take Off?" Journal of Economic Perspectives 26 (Fall 2012): Timur. Kuran, "Why the Middle East is Economically Underdeveloped: Historical Mechanisms of Institutional Stagnation." Journal of Economic Perspectives, 18 (Summer 2004): A. Sharma and B. Mukherji, "Bad Roads, Red Tape, Thugs Slow Wal-Mart in India" Wall Street Journal, 11 January 2013 (4p.) C. Market Institutions and the Economics of Contracts. 1. Development and complexity. 2. Transactions costs. 3. Risk and Insurance. 4. Financial development and growth. TAYLOR & LYBBERT, Ch. 11 (pp ). D. Microfinance: Loans and Saving 1. Credit, Insurance and risk sharing. 2. The essential costs of credit. 3. Why credit markets fail and why they sometimes work. 4. Work arounds. 5. The missing-market traps. Joost de Laat, "Financial Development and Economic Growth," Chapter 2 in Microfinance Institutions (St. Lawrence University, honors thesis, 1998). 11p. Joost de Laat, "Why Credit Markets Fail the Poor," Chapter 3 in Microfinance Institutions (St. Lawrence University, honors thesis, 1998), 8p. TAYLOR & LYBBERT, Ch. 12 (pp ). E. Entrepreneurship and the Informal Sector 1. What is the informal sector? 2. Is the informal productive and/or efficient. 3. Proto-capitalism or just another work around? 4. Entrepreneurship requires institutions. NALLARI & GRIFFITH, pp (in Ch. 18). Optional Rafael LaPorta and Andrei Shleifer. Informality and Development Journal of Economic Perspectives 28 (Summer 2014): Optional: Lisa Daniels, Factors That Influence the Expansion of the Microenterprise Sector: Results from Three National Surveys in Zimbabwe, Journal of International Development 15 (2003):

7 Economic Development Economics/African Studies Spring 2019 page 7 of 8 VI. TECHNOLOGY TRANSFER AND GLOBALIZATION A. Globalization and Trade: An Overview. 1. What is globalization? 2. Accounting of trade. 3. Comparative advantage. 4. Trade and growth; objects and ideas. NALLARI & GRIFFITH, pp TAYLOR & LYBBERT, Ch. 11 (pp ). M. Ridley, "Why Some Islanders Build Better Crab Traps" Wall Street Journal, 10/02/10 C4. "Bananas: Expelled from Eden" The Economist, 18 December 1997, 4p. Optional Video: "Matt Ridley: When Ideas Have Sex" TEDGlobal 2010: B. Clusters, Value Chains, MNC s 1. Clusters and agglomeration economies. 2. Global supply (value) chains. 3. Why do MNC s exist? Michael E. Porter, "Clusters and the New Economics of Competition" Harvard Business Review (November/December 1998), pp Joan Magretta, "Fast, Global, and Entrepreneurial: Supply Chain Management Hong Kong Style," Harvard Business Review (September/October 1998), pp Bruce Kogut, "International Business: The New Bottom Line" Foreign Policy (Spring 1998), pp C. Do FDI Flows Help or Hinder Growth? (Yes!) 1. ISI and structural transformation. 2. Export-led structural transformation. 3. Weighing the pros and cons. TAYLOR & LYBBERT, pp MORAN (2011), Ch. 1, Introduction (pp. 1-8). MORAN (2011), Ch. 4, FDI in Manufacturing and Assembly (pp ). MORAN (2011), Ch. 6, Reconsidering the Debate on FDI Crowding Out or Crowding In Domestic Investment (pp ). MORAN (2011), Ch. 7, FDI, Host-Country Growth, and Structural Transformation (pp ). MORAN (2011), Ch. 10, Lessons and Conclusions (pp ). Optional: MORAN (2006). Chapters 1, 2, and 5 (pp. 6-74, ). D. Globalization and Marginalization. 1. The agglomeration (clusters) trap. 2. Other issues limiting trade and capital flows. 3. Developed country policies. COLLIER, Ch. 6, (pp ). COLLIER, Ch. 10, (pp ). VII. OTHER TOPICS A. Agriculture 1. How is agriculture different in low-income countries? 2. Marketing boards and the exploitation of farmers. 3. The agricultural household model. TAYLOR & LYBBERT, Ch. 9 (pp ). Optional: NALLARI & GRIFFITH, Ch. 14 (pp ).

8 Economic Development Economics/African Studies Spring 2019 page 8 of 8 B. Immigration and Remittances 1. Importance of remittances to low-income countries. 2. Exporting labor rather than domestic production. 3. Costs and benefits. Drew DeSilver, Remittances from abroad are major economic assets for some developing countries, FACTANK blog, Pew Research Center, 29 January 2018: Taylor & Lybbert, pp C. The Foreign Aid Debate 1. Rationales for aid. 2. Types of aid. 3. Increased financial flows buy imports. 4. Incentives, traps, and aid. NALLARI & GRIFFITH, Ch. 7 (pp ). COLLIER, Ch. 7 (pp ). Jeffrey Sachs, The End of Poverty: An Exclusive Book Excerpt Time 14 March 2005, 11p. VIII. WHAT WORKS? A. Economic Growth Basics Review 1. Thinking big and thinking small 2. Traps, Institutions, and more traps. B. EPZ s, the Shenzhen, and Other China Models. 1. Does growth require being clones of Denmark? 2. What are EPZ s and SEZ s? 3. Importing institutions of China and Denmark. Paul Romer, "Technologies, rules, and progress: The case for charter cities," Center for Global Development Essay (March 2010), Washington, DC: Center for Global Development, 13p. (Hint: replace charter cities with EPZ s). Optional: Liu Kaiming, The Shenzhen Miracle Chinese Economy 40 (May 2007): Optional: R.A. Blewett, Contrasting the China Model with the China Miracle: Are Charter Cities China s Growth Legacy? (2011), 8p. C. Takeaways from the Authors. TAYLOR & LYBBERT, Ch. 14 (pp ). NALLARI & GRIFFITH, Conclusion (pp ). COLLIER, Ch. 11 (pp ). EASTERLY, Ch. 14 (pp ).