Paul Castañeda Dower office pdower(at)nes.ru Ekaterina Zhuravskaya office ezhuravskaya(at)nes.ru Office hours by appointment

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1 New Economic School Winter 2012 Topics in Development Economics Professors: Summary Paul Castañeda Dower office pdower(at)nes.ru Ekaterina Zhuravskaya office ezhuravskaya(at)nes.ru Office hours by appointment Why are some countries rich and other countries poor? Why have some poor countries managed to catch up with rich countries within one generation s lifetime, and others lag behind for centuries? Which policies promote growth and development around the world? As Nobel Prize winner Robert Lucas put it: The consequences for human welfare involved in questions like these are simply staggering: Once one starts to think about them, it is hard to think about anything else. This course takes a largely positive approach to study (selected) topics in development economics with a special emphasis on microeconomic aspects of economic development and, particularly, empirical methods used in modern research in development. 1 The course topics and readings are listed below. There is no textbook in this course. The main readings for the course are comprised of the assigned papers. There are four books, however, which help putting the papers (taught in class) in perspective: - Ray,Debraj. Development Economics, Princeton University Press Easterly, William. Elusive Quest for Growth. Economists Adventures and Misadventures in the Tropics. MIT Press Easterly, William. The White Man s Burden: Why the West s Efforts to Aid the Rest Have Done So Much Ill and So Little Good. Penguin Press Ch. 2-3 in: Deaton, Angus. The Analysis of Household Surveys. John Hopkins, Ray is a textbook focusing on the theory of economic development. Easterly s books provide a rich-with-concrete-examples complement to Ray. Deaton s is 1 No half-semester course can cover all the issues relevant for economic development. Students are advised to take other courses in NES program especially the Political Economics course taught by Professors Sonin and Zhuravskaya. The Topics in Development Economics and Political Economics are designed to complement each other. In particular, Political Economics course discusses corruption, economic and political institutions, and the impact of ethnic divisions.

2 necessary for understanding empirical methods used in papers that we will study. Grading The course grade will be based on two problem sets (40%) and one essay (60%). The essay should have five pages of text (12 point font, double interval). Figures and tables illustrating the argument should be put in appendix with each table and graph on a separate sheet. The essay should be an in-depth study of an economic development policy episode in a particular country. The essay should contain a critical analysis of the applicability of the development economics research to this particular development episode in the respective country. Students should get an approval of the essay topic with professors by the end of the second week of the course. (Note that this means that you should start thinking about the topic right away.) A good initial source of topics is Rodrik D., ed. In Search of Prosperity: Analytic Narratives on Economic Growth. Princeton: Princeton University Press, 2003 or the country studies in the Global Development Network s Global Research Projects In addition, papers published by the Bureau for Research and Economic Analysis of Development ( is a nice source of inspiration. Both Easterly s books will also be very helpful in search for topics. The essay is due in class on the last day of class. No late essays will be accepted. There will be two home assignments, the first due at the end of the 5th week and the second due at the end of the 7th week. Essay deliverables are comprised of three things: 1) the topic due on Friday the 4 th week (to be approved by professors); 2) one page summary/abstract due on Friday of the 5 th week; and 3) the essay itself due at the end of the exam week. All assignments for the essay should be uploaded to my.nes.ru (and will not be accepted by ). The number of lectures assigned to each topic is approximate and may be adjusted in the course of the semester. The texts complement rather than substitute the lectures. Lecture 1. [PD] Introduction: Basic facts about development and underdevelopment. Overview of the course. Ray, Ch. 1-2 Easterly, Ch. 1 Lecture 2. [PD] Growth: theory and evidence. Ray, Ch. 3-5 Easterly, Ch. 2-3, 8-9 Banerjee and Duflo (2004) Growth Theory through the Lens of Development Economics

3 Casell, Francesco, Accounting for Cross-Country Income Differences, in Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 9, pages , Elsevier. Kremer, M., "The O-Ring Theory of Economic Development" Quarterly Journal of Economics, 108 (3), pp , Basu, Susanto and David N. Weil, "Appropriate Technology and Growth," Quarterly Journal of Economics, 113 (4), pp November Kremer, M., "Population Growth and Technological Change: 1,000,000 B.C. to 1990," Quarterly Journal of Economics, 108 (3), pp August Bloom, David, and Jeffrey Sachs. (1998). Geography, Demography, and Economic Growth in Africa, Brookings Papers on Economic Activity, 2, * Mankiw, N. Gregory, David Romer, and David Weil. (1992). A Contribution to the Empirics of Economic Growth, Quarterly Journal of Economics, 107, Levine, Ross, and David Renelt. (1992). A Sensitivity Analysis of Cross- Country Growth Regressions, American Economic Review, 82, Easterly, William and Ross Levine, It s Not Factor Accumulation: Stylized Facts and Growth Models, World Bank Economic Review, 15, no. 2, (2001). Lecture 3. [PD] Poverty Traps: theory and evidence Banerjee, A, "A Simple Model of Herd Behavior," Quarterly Journal of Economics, 107 (3), pp Ray, Debraj. Aspirations, Poverty and Economic Change, in A. Banerjee, R. Bénabou and D. Mookherjee (eds), What Have We Learnt About Poverty, Oxford University Press (2006). Ray, Debraj and A. Adsera. History and Coordination Failure Journal of Economic Growth 3, (1998). Foster A.D. and M.R. Rosenzweig, "Learning by Doing and Learning from Others: Human Capital and Technical Change in Agriculture," Journal of Political Economy, 103 (6), pp , Easterly, W. Reliving the 50s: the Big Push, Poverty Traps, and Takeoffs in Economic Development, Journal of Economic Growth, 11, no.2, (December 2006): Lecture 4. [PD] Institutions and Development *Acemoglu, D., Johnson, S., Robinson, J., (2001). "The colonial origins of comparative development: An empirical investigation", American Economic

4 Review, 91: Banerjee, A., Iyer, L. (2002). "History, Institutions and Economic Performance: The Legacy of Colonial Land Tenure Systems in India," American Economic Review, Vol. 95(4), pp Glaeser, E., La Porta, R., Lopez-de-Silanes, F., and Shleifer, A. (2004). "Do Institutions Cause Growth?" Journal of Economic Growth, 9: Iyer, Lakshmi. "Direct versus Indirect Colonial Rule in India: Long-term Consequences," The Review of Economics and Statistics (forthcoming). Knack, S., Keefer, P. (1995). "Institutions and Economic Performance: Cross- Country Tests Using Alternative Measures," Economics and Politics, 7: La Porta, R., Lopez-de-Silanes, F., Shleifer, A., Vishny, R. (1999). "The Quality of Government", Journal of Law, Economics and Organization, 15: Albouy, David (2005). The Colonial Origins of Comparative Development: An Investigation of the Settler Mortality Data, NBER WP No Acemoglu, Daron, Johnson, Simon, Robinson, James A, and, Yared, Pierre (2009). "Reevaluating the Modernization Hypothesis," Journal of Monetary Economics, 56(8), Lecture 5. [PD] Land Reform. Ray, Ch * Shaban, Radwan (1987) "Testing between Competing Models of Sharecropping," Journal of Political Economy, Vol. 95 (5), pp * Banerjee, Abhijit, Paul Gertler and Maitresh Ghatak (2002), "Empowerment and Efficiency: Tenancy Reform in West Bengal," Journal of Political Economy, Vol. 110 (2), pp * Field, Erica (2003), "Entitled to Work: Urban Property Rights and Labor Supply in Peru," Mimeo, Harvard, July. Goldstein, Marcus and Chris Udry (2004), "Gender, Power and Agricultural Investment in Ghana", mimeo, Yale University. * Banerjee, Abhijit (2000) "Prospects and Strategies for Land Reforms," in B. Pleskovic and J. Stiglitz (eds), Annual World Bank Conference on Development Economics Washington, DC: World Bank, pp Besley T.and Burgess R. (2000) "LAND REFORM, POVERTY REDUCTION, AND GROWTH: EVIDENCE FROM INDIA." The Quarterly Journal of Economics. Besley, T. (1995). "Property rights and investment incentives: Theory and evidence from Ghana." Journal of Political Economy, vol. 103,

5 Lectures 6-7. [PD] Credit, Savings and Insurance. Ray, Ch. 14 Aleem, Irfan (1990), "Imperfect Information, Screening and the Costs of Informal lending: A Study of a Rural Credit Market in Pakistan", World Bank Economic Review, 4 (3), Banerjee, Abhijit (2004) "Contracting Constraints, Credit Markets, and Economic Development," in M. Dewatripoint, L. Hansen and S. Turnovsky, eds. Advances in Economics and Econometrics: Theory and Applications, Eight World Congress of the Econometric Society, Volume III. Cambridge University Press, pp click here for pre-published version * Banerjee, Abhijit and Kaivan Munshi (2004), "How Efficiently is Capital Allocated? Evidence from the Knitted Garment Industry in Tirupur," Review of Economic Studies, Vol. 71(1), * Burgess, Robin And Rohini Pande(2003), "Do Rural Banks Matter? Evidence from the Indian Social Banking Experiment," mimeo, Yale. Morduch, Jonathan (1999), "The Microfinance Promise," Journal of Economic Literature, Vol. 37 (4), pp * Bertrand, Marianne, Dean Karlan Sendhil Mullainathan, Eldar Shafir and Jonathan Zinman How Much Does Psychology Matter? A Field Experiment in the Consumer Credit Market (January, 2005) Karlan, Dean and Jon Zinman (2005), Observing Unobservables: Identifying Information Asymmetries with Consumer Credit Field Experiment, mimeo Yale University Karlan, Dean (2002), "Social Capital and Group Banking," mimeo, Princeton Banerjee, Abhijit and Andrew Newmann (1993), "Occupational Choice and the Process of Development," Journal of Political Economy, 101(2), pp Pitt, Mark M. and Shahidur R. Khandker (1998) "The Impact of Group-Based Credit Programs on Poor Households in Bangladesh: Does the Gender of Participants Matter?" Journal of Political Economy Morduch, Jonathan (1998) "Does Microfinance Really Help the Poor? New Evidence from Flagship Programs in Bangladesh", mimeo. Banerjee, Abhijit V., and Esther Duflo (2004) "Do Firms Want to Borrow More? Testing Credit Constraints Using a Directed Lending Program", mimeo. Besley, Timothy, Stephen Coate, and Glenn Loury "Rotating Savings and Credit Associations, Credit Markets and Efficiency", Review of Economic Studies, 61(4), Lecture 8. [PD] Poverty. * Deaton, Angus. (2005). Measuring Poverty in a Growing World (or Measuring Growth in a Poor World), Review of Economics and Statistics, 87(1), 1-19.

6 * Banerjee, Abhijit, and Esther Duflo The Economic Lives of the Poor, Journal of Economic Perspectives. Volume 21, Number 1, Winter 2007, pp Deaton, Angus Measuring poverty. In Understanding Poverty, (ed.) Abhijit Banerjee, Roland Benabou, and Dilip Mookherjee. Oxford University Press. Lectures [EZ] Human Capital Education. Ray, Ch. 3-5 Easterly, Ch. 4 Krueger, Alan and Mikael Lindahl. (2001). Education for Growth: Why and For Whom? Journal of Economic Literature, 39 (4), * Duflo, Esther and Michael Kremer (2003) "Use of Randomization in the Evaluation of Development Effectiveness," mimeo, MIT-Harvard. Forthcoming in, Proceedings of the Conference on Evaluating Development Effectiveness, July 15-16, 2003, World Bank Operations Evaluation Department (OED) Washington, D.C. Banerjee, Abhijit, Shawn Cole, Esther Duflo and Leigh Linden (2003) "Remedying Education: Evidence from Two Randomized Experiments in India," mimeo, MIT * Duflo, Esther (2001), "Schooling and Labor Market Consequences of School Construction in Indonesia: Evidence from an Unusual Policy Experiment" American Economic Review, Vol. 91 (4), pp * Angrist, Joshua and Victor Lavy (1999), "Using Maimonides' Rule to Estimate the Effect of Class Size on Scholastic Achievement," Quarterly Journal of Economics, Vol 114 (2), pp Strauss, John and Duncan Thomas (1995), Chapter 3 in "Human Resources: Empirical Modeling of Household and Family Decisions." In Behrman, Jere and T.N. Srinivasan, eds., Handbook of Development Economics, Volume 3. Amsterdam: North Holland, pp Lectures [EZ] Human Capital - Nutrition and Health. Ray, Ch. 8 Easterly, Ch. 5 Deaton, Ch. 4.1 Duflo, Esther, Abhijit Banerjee and Angus Deaton (2004) "Wealth, health, and health services in rural Rajasthan," forthcoming in the American Economic Review Papers and Proceedings, 2004 Subramanian, Shankar and Angus Deaton (1996), "The Demand for Food and Calories," Journal of Political Economy, Vol. 104 (1), pp * Miguel, Edward and Michael Kremer (2004) "Worms: Identifying Impacts on Education and Health in the Presence of Treatment Externalities", Econometrica, 72 (1),

7 * Douglas Almond, Is the 1918 Influenza Pandemic Over? Long-term Effects of In Utero Influenza Exposure in the Post-1940 U.S. Population, Gustavo J. Bobonis, Edward Miguel, and Charu Puri Sharma, Iron Deficiency Anemia and School Participation, Michael Kremer, "Pharmaceuticals and the Developing World," Journal of Economic Perspectives 16(4), Fall * Young, Alwyn. (2005). The Gift of Dying: The Tragedy of AIDS and the Welfare of Future African Generations, Quarterly Journal of Economics, 120(2), Strauss, John and Duncan Thomas (1995), Chapter 2 in "Human Resources: Empirical Modeling of Household and Family Decisions." In Behrman, Jere and T.N. Srinivasan, eds., Handbook of Development Economics, Volume 3. Amsterdam: North Holland, pp Acemoglu, Daron and Simon Johnson (2006), "Disease and Development: The Effect of Life Expectancy on Economic Growth," mimeo, MIT. Kaspar Richter (2006), "The Well-Being of the Elderly and Wage Arrears in Russia," Journal of European Economic Association, Vol. 4, No. 1, Pages Lecture 13. [EZ] Gender, Family, Household Behavior. Ray, Ch. 9 Deaton, Ch. 4.2 Paul J. Gertler and Simone Boyce, An Experiment in Incentive-Based Welfare: The Impact of PROGESA on Health in Mexico, * Qian, Nancy (2004) "Missing Women and the Price of Tea in China: The Effect of Income on Sex Ratios," mimeo, MIT. * Duflo, Esther (2003), "Grandmothers and Granddaughters: Old Age Pension and Intra-household Allocation in South Africa," World Bank Economic Review, Vol. 17 (1), pp Udry, Christopher (1996), "Gender, Agricultural Production, and the Theory of the Household," Journal of Political Economy, Vol. 104 (5), pp * Duflo, Esther and Christopher Udry (2001), "Intrahousehold Resource Allocation in Côte d'ivoire: Social Norms, Separate Accounts and Consumption Choices," NBER WP #10498, also BREAD WP016. Bertrand, M., S. Mullainathan and D. Miller "Public policy and extended families: Evidence from pensions in South Africa." World Bank Economic Review, 17.1:27-50.

8 Rose, Elaina (1999) "Consumption smoothing and access female mortality in rural India," Review of Economics and Statistics, 81(1), Lecture 14. [EZ] TBA