POL SCI 231 THE WEALTH AND POVERTY OF NATIONS: PROSPERITY AND DISTRIBUTION IN THE LONG RUN Spring 2016

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1 THE WEALTH AND POVERTY OF NATIONS: PROSPERITY AND DISTRIBUTION IN THE LONG RUN Spring 2016 Instructor: Prof. Pablo Beramendi Class Time and Location: Tuesday: pm. Social Sciences Building 136. Office Hours: Wednesdays 2-4 pm, or by appointment. Teaching Assistants: Aslı Cansunar Office Hours: Wed, 10:30-11:30 am or by appointment Anh Do Office hours: Tu, 1-2 pm or by appointment Course Description Why are some countries wealthier than others? Why do some nations get stuck in poverty and others manage to scape it? What is the relationship between distribution and development? Under what conditions are countries capable of combining equality and growth? Are these conditions sustainable? To address these questions this class introduces the fundamental theoretical and empirical advances in political economy in recent decades. The approach is comparative, historical, and analytical. We pursue the understanding of a number of theoretical problems (e.g. how do endowments, political institutions or inequality matter to understand countries long run development), study the theoretical solutions proposed to address them, and assess, partially, how far they take us to understand more specific questions across space and time, including the early industrialization of Britain, how poverty traps work, the reasons why Islamic societies fell behind, or the challenges faced by Western democracies today to maintain their current levels of welfare. The material in this course is genuinely inter-disciplinary and combines readings from economics, political science, and history. In discussing the ability of the field to approach the questions above we also pay attention to both theoretical and methodological advances, in particular to the integration of micro and macro level perspectives on development and distribution. Textbook There is no textbook for this class. Materials will be available electronically either through the library or through Sakai. In the few instances in which we will discuss large sections of a text (Banerjee and Duflo s Poor Economics, Rodrik s Globalization Paradox or Allen s Global Economic History) I recommend you purchase the relevant titles. SCHEDULE & READINGS All readings marked * are required and it is best to go through them ahead of class. There are many technically complex papers. Please focus more on the logic, the key intuitions, and the empirical evidence in the papers, and spend less time on the more technical formulations

2 of the arguments. All readings will either be available online through the library or posted in Sakai ahead of time. 1. The Basics 1.1. Overview. Key Questions and Concepts. Plan of the Course (January 19th) (*) A. Smith Wealth of Nations (selection; pdf available on Sakai) (*) Marx, K. The Communist Manifesto (pdf available on Sakai) (*) Schumpeter, J. The Process of Creative Destruction in Capitalism, Socialism, Democracy (pdf available on Sakai) (*) A. Gerschenkron Economic Backwardness in Historical Perspective, selections (pdf available on Sakai) (*) Amartya Sen (1999) Development as Freedom, Anchor Books, chapters 1-3 (*) Abhijit Banerjee and Esther Duflo (2006). The Economic Lives of the Poor, Journal of Economic Perspectives, 21(1), Prosperity and Distribution in the Long Run: Patterns and Puzzles. Basic Notions of Measurement. Limitations of basic models of growth (January 26th) (*) David N Weil Economic Growth, selections (pdf available on Sakai). (*) Robert Allen Global Economic History: A Very Short introduction. Oxford University Press. (*) Thomas Piketty, Capital in the XXI Century, Harvard University Press. (pdf of selections available in Sakai) (*) Branko Milanovic and Christoph Lakner), Global Income Distribution: From the Fall of the Berlin Wall to the Great Recession, World Bank Economic Review, published 12 August 2015 (*) Branko Milanovic Global Inequality of Opportunity: How Much of our Income is Determined by Where We Live, Review of Economics and Statistics (May 2015). Some Additional Sources of Interest: Angus Maddison The World Economy: A Millennial Perspective Paris, OECD. Foster, J. (2013) A Unified Approach to Measurement Poverty and Inequality, The World Bank, (LINK) Frank Cowell (2000) Measurement of Inequality in Atkinson and Bourguignon (eds) Handbook of Income Distribution, Elsevier. A. Brandolini and T. Smeeding Inequality Patterns in Western Democracies P. Beramendi and C. Anderson (eds) Democracy, Inequality, and Representation. Russell Sage Foundation. 2

3 Nancy Birdsall, Nora Lustig et al. 2011:?Declining Inequality in Latin America: Some Economics, Some Politics (LINK) Irwin Garfinkel, Lee Rainwater, Timothy Smeeding 2010 Wealth and Welfare States, Oxford University Press (chapters 3 & 4) OECD Reports (for rich countries, available on line with their associated datasets): Divided We Stand: Why Inequality Keeps Rising (2011) Growing Unequal? Income Distribution and Poverty in OECD Countries (2008) Atkinson, Anthony B., Thomas Piketty and Emmanuel Saez (2011). Top Incomes in the Long Run of History Journal of Economic Literature, 49(1), pp Atkinson, Anthony B. and Thomas Piketty (2007). Top Incomes over the Twentieth Century: A Contrast between Continental European and English-Speaking Countries (Volume 1). Oxford: Oxford University Press, 585 pp. Atkinson, Anthony B. and Thomas Piketty (2010). Top Incomes over the Twentieth Century: A Global Perspective (Volume 2). Oxford: Oxford University Press. Also, very useful: The World Top Income Datasets (LINK) Pritchett, Lant Divergence, Big Time, The Journal of Economic Perspectives 11 (3):3-17. Maxim Pinkovskiy and Xavier Sala-i-Martin (2010) African Poverty is Falling...Much Faster than You Think! B. Milanovic 2011 The Haves and the Have Nots. Basic Books (pdf available on Sakai) Xavier Sala-i-Martin 2002: The World Distribution of Income: Falling Poverty and? Convergence, Period, Quarterly Journal of Economics, Vol. 121, No. 2: , May 2006 B. Milanovic 2005 Worlds Apart. Measuring International and Global Inequality, Princeton University Press (selections, pdf available on Sakai) 2. Theories and Mechanisms 2.1. Geography and Endowments ( February 2nd ) SUBMIT GROUP LISTS (*) Jeffrey Herbst (2000). States and Power in Africa: Comparative Lessons in Authority and Control. Princeton: Princeton University Press. (chapter 1 pdf available on Sakai) (*) David Landes (1999). The Wealth and Poverty of Nations: Why Some Are So Rich and Some So Poor. (chapters 1&2 pdf available on Sakai) (*) Dell M, Jones B, Olken B. Temperature Shocks and Economic Growth: Evidence from the Last Half Century. American Economic Journal: Macroeconomics. 2012;4(3):

4 (*) Krugman Paul Geography and Trade (selections pdf available in Sakai) Jared Diamond (1997). Guns, Germs, and Steel. New York: W.W. Norton & Co. (in particular chapter 4, pdf available on Sakai) M. Humphreys, J. Sachs, J. Stiglitz (eds.) Escaping the Resource Curse (selections, pdf available in Sakai) Nathan Nunn and Diego Puga (2009) Ruggedness: The Blessing of Bad Geography in Africa Review of Economics and Statistics. 2012;94(1): Institutions: Short and Long Run Effects (February 9th, February 16th ) (*) North, D. C., J. J. Wallis, and Barry Weingast A conceptual framework for interpreting recorded human history, National Bureau of Economic Research (*)Stanley Engerman and Kenneth Sokoloff Economic Development in the Americas Since 1500: Endowments and Institutions (selections pdf available on Sakai) (*) Landes, D. S. (2006). Why Europe and the West? Why Not China? Journal of Economic Perspectives 20(2): (*) Galiani, Sebastian and Ernesto Schargrodsky 2010 Property Rights for the Poor: Effects of Land Titling Journal of Public Economics 94.9: (*) Berkowitz and Clay The Evolution of a Nation, Princeton, Princeton University Press. (*)Was Weber Right? Review, The Role of Urban Autonomy in Europe s Rise American Political Science Daron Acemoglu, Simon Johnson, and James Robinson. (2005). Institutions as a fundamental cause of long-run growth. Handbook of Economic Growth 1: (selections, pdf available on Sakai) Acemoglu, D Johnson S and J. Robinson 2002 Reversals of Fortune: Geography and Institutions in the Making of the Modern World Economy Quarterly Journal of Economics Nunn, N The Importance of History for Economic Development, Annual Review of Economics, 1: (helpful review, recommended) Timothy Besley and Maitreesh Ghatak, Property Rights and Economic Development. In Dani Rodrik and Mark Rosenzweig, editors: Handbook of Development Economics, Vol. 5, The Netherlands: North-Holland, 2010, pp Rodrik, D., A. Subramanian, et al. (2004). Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development Journal of Economic Growth 9(2): David Stasavage What Democracy Does (and Doesn t Do) for Basic Services: School Fees, School Inputs, and African Elections (With Robin Harding) Journal of Politics,

5 2.3. Distribution, Conflict, and Violence (February 23rd, March 1st) (*) Nancy Birdsall 2007 Income Distribution: Effects on Growth and Development. CGD-Wp (pdf available on Sakai) (*) C. Boix 2008 Economic Roots of Civil Wars and Revolutions in the Contemporary World World Politics 60: (*) C. Boix 2015 Political Order and Inequality, Cambridge, Cambridge University Press (pdf available in Sakai) (*) W. Easterly 2007 Inequality does cause Underdevelopment Journal of Development Economics 84: (*) Goldstone, J. A. (2008). Pathways to State Failure. Conflict Management and Peace Science 25(4): (*) Collier, Paul, and Anke Hoeffler. Greed and grievance in civil war. Oxford Economic Papers 56.4 (2004): (*) J. Habyarimana et al Why does ethnic diversity undermine public good provision? American Political Science Review 101: (*)Blaydes, L., & Paik, C. (2015). The Impact of Holy Land Crusades on State Formation: War Mobilization, Trade Integration, and Political Development in Medieval Europe. Working paper, Stanford University. (LINK) Pillars of Prosperity: The Political Economics of Develop- Besley, Timothy, and Torsten Persson. ment Clusters. C. Boix and S. Stokes 2003 Endogenous Democratization World Politics Paul Collier War, Guns, and Votes, London, The Botleyhead MIDTERM - IN CLASS EXAM (March 8th) SPRING BREAK (March 11th-21st) Case Studies Case Study I: Why did Britain/the West Industrialize first? (March 22nd) (*) Allen, Robert The British Industrial Revolution in Global Perspective (selections, pdf available in Sakai) (*) D. North and B. Weingast Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in XVII Century England Journal of Economic History, 49, 4 (*) S. Pincus and J. Robinson (2011) What Really Happened during the Glorious Revolution? 5

6 Mimeo (pdf available in Sakai) (*) A. Greif M. Iyigu and S. Diego Risks, Institutions, and Growth: Why England and not China? (pdf available on Sakai) D. Stasavage 2003 Public Debt and the Birth of the Democratic State. E. Hobsbawn Industry and Empire The New Press Case Study II: Why Did the Islam Fall Behind? (March 29th) (*) T. Kuran 1997 Islam and Development: An Old Puzzle Revisited Journal of Institutional and Theoretical Economics 153: (*) T. Kuran The Long Divergence. Princeton, Princeton University Press. (selections, pdf available on Sakai) (*) L. Blaydes and E. Chaney 2012 The Feudal Revolution and Europe?s Rise: Institutional Divergence in the Christian and Muslim Worlds before 1500 CE American Political Science Review (*) C. Binzel and Jean Paul Carvahlo 2013 Education, Social Mobility, and Religious Movements: A Theory of Islamic Revival in Egypt Mimeo UC Irvine E. Chaney. Tolerance, Religious Competition and the Rise and Fall of Muslim Science Harvard, Working Paper Case Study III: Late Development (i) Poverty Traps : Can they be escaped? (April 1st) (*) Banerjee and Duflo 2011 Poor Economics, Norton (selections) (*) Krishna, A. One Illness Away, Oxford, Oxford University Press (selections, pdf available on Sakai) (*) P.Keefer Democracy, Credibility, Clientelism. The World Bank (pdf available on Sakai) (*) Bates, R. et al 2007: Lost Decades: Post Independence Performance in Latin America and Africa Journal of Economic History (*)William Easterly (2008). Can the West Save Africa? Journal of Economic Literature. (*) Khwaja, A. I (2009) Can Good Projects Succeed in Bad Communities? Journal of Public Economics 7-8: R. Rajan and L Zingales 2006 The Persistence of Underdevelopment: Institutions, Human Capital or Constituencies? NBER working paper (available online) 6

7 Lant Pritchett, Michael Woolcock and Matt Andrews Capability Traps: The Mechanisms of Persistent Implementation Failure, Background paper for the 2011 World Development Report on Development, Conflict and Fragile States. William Easterly (2001) The Elusive Quest for Growth, The MIT Press William Easterly (2006). The White Man s Burden, Penguin Books (ii) State Directed Development: China as a Case Study. (April 9th) (*) B. Naughton The Chinese Economy (selections available in sakai) (*) D. Bell The China Model: Political Meritocracy and the Limits of Democracy (selections available in sakai) (*) Lu, X., & Landry, P. F. (2014). Show Me the Money: Interjurisdiction Political Competition and Fiscal Extraction in China. American Political Science Review, 108(03), (*) James Khun, Do Land Revenue Windfalls create a Political Resource Course? Evidence from China Case Study IV: Can the Circle be Squared? Equality and Growth under Democracy (April 16th) (*) D. Rodrik 2011 The Globalization Paradox (selections) (*) Beramendi, P Constrained Partisanship and Economic Outcomes (pdf available on Sakai) in The Politics of Advanced Capitalism (selections, pdf available on Sakai) (*) Beramendi P., S. Hausermann, H. Kitschelt, H.P. Kriesi The Politics of Advanced Capitalism (selections, pdf available on Sakai) (*) Benabou, Roland 2000 Unequal Societies: Income Distribution and the Social Contract American Economic Review, 90, 1. OECD Reports (for rich countries, available on line with their associated datasets): Divided We Stand: Why Inequality Keeps Rising (2011) Growing Unequal? Income Distribution and Poverty in OECD Countries (2008) Gosta Esping Andersen, 1990, The Three Worlds of Welfare Capitalism, Princeton, Princeton University Press 2.7. FINAL GROUP REPORTS PRESENTATIONS (April 23rd) FINAL EXAM : Saturday May 7th, 2 pm

8 COURSE REQUIREMENTS Your grade in this class will reflect a weighted average of the following items: 1. Midterm in class exam, to take place on MARCH 8TH 2016 (20%). 2. Book Review Essay (2000 words max), due on MARCH 8TH Book is to be chosen from the list below. Guidelines on how to perform the review will be provided in class. (15%) 3. POLICY CHALLENGE (30%)// GROUP COMPETITION. REPORTS ARE DUE ON APRIL 22ND IN WRITING AND WILL BE PRESENTED IN CLASS ON APRIL 26TH. See guidelines below 4. Final Exam to be held on Saturday May 7th 2016 from 2 to 5 pm. The exam will consist of several essay questions where you will be asked to discuss, relate, and elaborate on several themes/readings in the class. The goal is to assess your understanding of the material and your ability to use it analytically. (35%) Each of these requirements will be graded on a scale and weighted according to the criteria above. Final grades will reflect the following scale: >94: A 90-94: A :B :B :B :C :C :D <60:F EXTRA CREDIT! In addition to these graded assignments, students enrolled in POLSCI 231 are strongly encouraged to participate in the political science experimental subject pool. Students will need to participate in up to 3 hours of Political Science Research Pool (PSRP) studies over the course of the semester to receive a maximum of 3% extra credit toward their final grade (1% per hour of participation). More information about this option is available at: If you wish to participate, you can register at: Description of Group Competitions The group competition consists of a project designed to offer solutions to the problems outlined below. You will be organized into groups of 6-8 and will choose one of the two key questions to devote your project to (or you may be assigned a topic if the choices are not balanced). Each group will submit a word double-spaced briefing memo. At the conclusion of the semester, each group will give a minute presentation detailing the development and results of your project. The winner of each topic will be determined by class vote. Students doing education will vote to chose the winner on those doing water; students doing water will vote to choose the winners on those doing education. The winner will receive additional 5 points on the project and a gift card. The last day of class students will also be asked to complete a short survey grading the contribution to the project by each of the members. Free riders will receive a penalty 8

9 1. Topic 1: Education All public schools in North Carolina got letter grades from A-F from the State Board of Education in early Eighty percent of the grades are based on how students performed on standardized tests. Twenty percent of the grades are tied to how much academic growth students showed while enrolled at the school. Out of 56 total schools in Durham County, three were not graded. 53, here s the breakdown: Among the remaining A = 2 (JD Clement Early College HS & Middle College HS at Durham Tech) B = 5 C = 17 D = 19 F = 10 (Eastway ES, Eno Valley ES, DPS Hospital School, Shepard MS, Fayetteville St ES, Lowe s Grove MS, Merrick-Moore ES, Neal MS, CC Spaulding ES, WG Pearson ES) About 29 percent of schools got a D or F. Schools where a majority of students fall below the poverty line overwhelmingly got Ds and Fs. There are substantial performance differences among public schools in the state of North Carolina (LINK). Suppose you are a trusted advisor to Governor Pat McCrory who would like to fix this problem. Please prepare a briefing memo for him outlining the key issues, suggesting several solutions and weighing the costs and benefits of each. The memo should take the form of a word double-spaced brief for the governor. In particular, it should address the following questions: (a) What is the problem? Explain the significance of the problem. (b) What do you think is the root cause of this problem? What policies have you identified to fix this problem (at least 3)? (c) What criteria would you recommend for evaluating the desirability of alternative policies? (d) How would you evaluate the alternative policies in terms of your stated criteria? (e) What is your concluding policy recommendation, including suggestions for implementation? Useful sources: Data: (LINK) US News and World Report: Durham Public Schools (LINK) 2. Topic 2: Sanitized Water Half of the world s hospital beds are filled with people suffering from illnesses that are linked to poor water and sanitation conditions. 1 out of every 5 deaths under the age of 5 worldwide is due to a water-related disease. Clean and safe water is essential to healthy living. However, according to an analysis of federal data (LINK), more than 20 percent of the United States water treatment systems have violated key provisions of the Safe Drinking Water Act over the last five years. 9

10 That law requires communities to deliver safe tap water to local residents. However, over the last decade, the water provided to more than 49 million people has contained illegal concentrations of chemicals like arsenic or radioactive substances like uranium, as well as dangerous bacteria often found in sewage. In some instances, drinking water violations were one-time events, and probably posed little risk. However, records show that for hundreds of other systems, illegal contamination persisted for years. Suppose you are employees of an Environmental Consulting firm who are hired by the US government to solve this problem. Please prepare a briefing memo outlining the key issues, suggesting several solutions and weighing the costs and benefits of each. The memo should take the form of a word double-spaced brief for the US government. In particular, it should address the following questions: (a) What is the problem? Explain the significance of the problem. (b) What do you think is the root cause of this problem? What policies have you identified to fix this problem (at least 3)? (c) What criteria would you recommend for evaluating the desirability of alternative policies? (d) How would you evaluate the alternative policies in terms of your stated criteria? (e) What is your concluding policy recommendation, including suggestions for implementation? Useful sources: Map : (LINK) Data by county: (LINK) Data by county - Drinking water: (LINK) More data: (LINK) Infant mortality data by state - exact number of deaths for years : (LINK) List of Books Banerjee, Abhijit Vinayak; Roland Benabou and Dilip Mookherjee Understanding Poverty. Banerjee,Abhijit and Esther Duflo Poor Economics. Deaton, Angus The Great Escape: Health, Wealth and the Origins of Inequality. Diamond, Jared Gun, Germs and Steel Easterly, William The Elusive Quest for Growth: Economists Adventures and Misadventures in the Tropics. Krugman. Paul Geography and Trade. North, Douglas Institutions, Institutional Change and Economic Performance. Ostrom, Elinor Governing the Commons. 10

11 Rodrik, Dani One Economics, Many Recipes: Globalization, Institutions, and Economic Growth. Sen, Amartya Poverty and Famines. Sen, Amartya Development as Freedom. Sunstein, Cass and Richard H. Thaler Nudge: Improving Decisions about Health, Wealth, and Happiness. POLICY I will follow Duke University s procedures to establish whether absences from any event related to this class are justified (e.g. illness, sport events) and merit ad hoc arrangements. Other than in the very restrictive cases contemplated by the university, make up exams are not an option. I will also follow Duke University s policy in any event of plagiarism and academic dishonesty. Grade complaints: You have the right to dispute a grade if you disagree with it. You must do so in writing, no more than 3 working days after we have returned the exam to you. Upon receiving your appeal, I will re-grade the entire exam. Note that as I re-evaluate the exam, I may realize that while we were too strict with some answers, we were too generous with others. Your overall grade may go up, but it may also go down. Finally, turning in late assignments (book review, project) is not acceptable unless previously agreed with me. All late assignments will be downgraded by one letter grade for every day they are late. In other words, an A turns to B the first day, B becomes C after two days, and so forth. 11