SOCIAL ANALYSIS 60 - WEALTH AND POVERTY IN THE WORLD ECONOMY Syllabus, Fall 2001 Undergraduate Core Course. Final Version

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1 SOCIAL ANALYSIS 60 - WEALTH AND POVERTY IN THE WORLD ECONOMY Syllabus, Fall 2001 Undergraduate Core Course Prof. Jeffrey D. Sachs One Eliot Building, # 413 Kennedy School of Government jeffrey_sachs@harvard.edu Final Version Class meets: Monday, Wednesday, 9:00 10:00 am & a weekly section to be arranged Room: Harvard Hall, Room 104 Lectures will be on Mondays and Wednesdays, with sections either on Thursdays or Fridays. Sections will be critical at the start of the course for teaching details of introductory economic growth theory. Later in the course, sections will provide an opportunity for students to discuss the course reading. Course Requirements: M, October 15: Problem set (on models of economic growth) 10% W, October 24: Midterm examination 10% M, November 5: Paper (5 pages) 10% W, December 12: Final paper (10-15 pages) 25% W, Jan. 23 (Tentative): Final Exam 25% Section: Attendance and Participation 20% Assistants: Head Teaching Fellow: Macartan Humphreys, One Eliot Building, # 312 mnhumphr@fas.harvard.edu Teaching Fellows: Ijeoma Akunyili ijeoma_akunyili@ksg02.harvard.edu Michael Baumgartner michael_baumgartner@ksg02.harvard.edu Manuel Chavez manuel_chavez@ksg02.harvard.edu Sumaira Chowdhury sumaira_chowdhury@ksg02.harvard.edu Jose Orihuela jose_orihuela@ksg02.harvard.edu

2 READING MATERIALS (Books and Sourcebook are available on reserve at Lamont and Hilles Libraries) Required Reading Books available for purchase at the Harvard COOP: Easterlin, Richard (1998) Growth Triumphant: The 21 st Century in Historical Perspective. University of Michigan Press Iliffe, John (1995). Africans: The History of a Continent. Cambridge University Press Landes, David. (1998). The Wealth and Poverty of Nations. New York: W.W. Norton & Co. Maddison, Angus (1995), Monitoring the World Economy, Development Centre Studies, Organization for Economic Cooperation and Development: Paris Available for purchase at the Office of Sourcebook Publications, Basement, Science Center. Sourcebook contains journal articles not found in the required books. UNIT I. INTRODUCTION W September 12 & M September 17, Patterns of Economic Development History Of Modern Economic Growth: World population; World GDP differentiation across regions and patterns of cross-country inequalities; Rates of economic growth in different epochs (Leaders and followers, geographical patterns of development). Structural Change in Economic Development: GDP; Sectoral allocation; Division of labor and specialization, including finance. Constraints on Economic Growth: Health, Education, Demography; Political change; Economic institutions and business environment. Maddison, Angus (1995), Monitoring the World Economy, , Chapters 1-2. W September 19, Main Questions of Economic Development The History Of Economic Development: Why did modern economic growth emerge only in the 19th Century? What is the relationship between population growth and economic growth? The Geography Of Development: Why is economic growth so concentrated in Europe and European offshoots? Is this the result of historical accident, first-mover advantage, geography, accident? Is economic growth now spreading to all regions of the world? What are the engines of economic growth? Accumulation, division of labor, scale, innovation and diffusion. What are the roles of culture and social stratification in economic development? Religion and economic organization;

3 Gender roles and inequalities; Ethnicity and social divisions. What is the role of politics and political institutions in Economic Development? National; International. What is the role of economic institutions in economic development? Is modern economic growth a phenomenon of modern capitalism? Do the rich countries exploit the poor, or do the poor benefit from the rich through diffusion of technology and inflows of capital? Are there special policies for "catching up growth" for laggard economies? (e.g. infant-industry protection, or special policies for technological diffusion, etc.). Towards a framework of comparative analysis: Physical geography - climate, topography, disease ecology, agriculture, trade proximity; Resource endowments - levels and distribution of human and physical resources; Economic institutions; Political institutions; Socio-cultural patterns - gender relations, religion, social stratification; International relations: politics, military, social. Maddison, Angus (1995), Monitoring the World Economy, , Chapter 3. Sachs, Jeffrey "Notes on a New Sociology of Economic Development" in Harrison and Huntington, Culture Matters, pp Mancur, Olson Jr (1996) Big Bills Left on the Sidewalk, Journal of Economic Perspectives, 10 (2): Landes, David. Why Are We So Rich and They So Poor? AEA Papers and Proceedings, 80(2) May 1990, Abramovitz, Moses. (1986) Catching Up, Forging Ahead, and Falling Behind, Journal of Economic History, 46 (2): UNIT II. THEORIES OF ECONOMIC GROWTH M September 24, A Framework for Studying Economic Growth: Part 1 The idea of an aggregate production function; Capital accumulation and technological change as two forces of economic growth; A dynamic model of the economy. Handout: Class Notes on an A-K Model of Capital Accumulation W September 26, A Framework for Studying Economic Growth: Part 2 The Solow Growth Model; Decomposing the Sources of Economic Growth; Technological Change in the Solow Growth Model Mankiw, Gregory, Principles of Economics, Production and Growth, Chapter 24, pp

4 M October 1, Technological Change Types of technological change; The contribution of technological change to economic development; Models of technological change; Technology as a social phenomenon ( ideas beget ideas, and standing on the shoulders of giants ) Handout: Class Notes on a Model of Technological Change Easterlin, Richard (1998) Growth Triumphant: The 21 st Century in Historical Perspective. Chapter 2. Mokyr, Joel The Lever of Riches: Technical Creativity and Economic Progress, Chapters 7-10, Nelson, Richard, The Sources of Economic Growth, Capitalism as an Engine of Progress, Ch. 2, pp W October 3, Capitalism and The Division of Labor Capitalism as a social system; Max Weber on the roots of capitalism; Adam Smith on the roots of capitalism; Economic, social, and political aspects of capitalism: is one of these factors preeminent? Smith, Adam, The Wealth of Nations, Book 1 Chapters 1-3, pp Rosenberg, Nathan and L.E. Birdzell (1986), How the West Grew Rich: The Economic Transformation and the Industrial World. Chapter 5, pp M October 8, NO CLASS (Columbus Day) W October 10, Geography and Development Geographical factors in Europe's emergence; Temperature versus tropical development: when two ecological zones meet (the Columbian exchange); Diffusion of technologies across ecozones; economics of agglomeration; The role of the coast and international trade; Urbanization and development. Sachs, Jeffrey, (2000), Tropical Underdevelopment, Center for International Development Working Paper Series (57), Harvard University. Also (

5 Sachs, Jeffrey, Andrew Mellinger, and John Gallup, The Geography of Poverty and Wealth, Scientific American, March 2001, pp UNIT III. HISTORY OF MODERN ECONOMIC DEVELOPMENT M October 15, The Industrial Revolution in Western Europe, The technological breakthroughs and their interrelations; The rise of modern capitalism; The demographic explosion; The spread of modern capitalism in Western and Eastern Europe; The spread of free trade (Cobden-Chevalier, Repeal of the Corn Laws, Zollvercin); The end of serfdom; The exceptional case of Russia. Due: Problem set (on models of economic growth) Landes, David, The Wealth and Poverty of Nations, Chapters W October 17, Europe and the World: the emergence of a global economy in the 19th Century. The rise of colonial rule; The rise of defensive reform; Temperate-tropical interactions. M October 22, Japan and China in Response to the West The Meiji Restoration; Why did Japan succeed? Climate, technology, strategy, cultural and social cohesion in Japanese economic development. The primacy of politics; Economics of a closed society; China's response to the pressures of modernization in the 19th Century. Beasley, W.G., The Japanese Experience, Ch. 11 and Ch. 12, pp Landes, David, The Wealth and Poverty of Nations, Chapters Fairbank, J.K., China: A New History, Chapter 8, "The Paradox of Growth without Development," pp W October 24, Midterm Exam M October 29, Africa's Economic Weakness and the Colonial Period Africa's geographical condition; The problems of tropical development; Health: malaria, typanosomiasis etc.; Agriculture: tropical agriculture (rainforest, wet-dry tropics); Geographical remoteness and trade; The Colonial onslaught; Colonial powers and African ecology; Colonial political economy; Colonial rule and African institutional development: politics and economics; Colonial rule and human capital accumulation.

6 Iliffe, John. Africans: The History of a Continent. Cambridge University Press, Chapters 7-10, pp Bloom, David, and Jeffrey Sachs, "Geography, Demography, and Economic Growth in Africa" Brookings Paper on Economic Activity, 1998: (2): Washington DC: Brookings Institute. Also (www2.cid.harvard.edu/cidpapers/brookafr.pdf). W October 31, The Americas Natural resource exploitation in economic development; Demographic change after the Colombian exchange; Colonization, slavery, and resource exploitation; Social and economic inequalities; Boom-bust cycles. Engerman, Stanley and Kenneth Sokoloff, "Factor Endowments, Institutions and Differential Paths of Growth Among New World Economies: A View from Economic Historians of the United States," NBER Working Paper Series, (Historical Paper No. 66): Geography and Economic Development of Latin America, Development Beyond Economics, Edited by Daniel B. Martin, pp Inter-American Development Bank, Annual Report Also ( Landes, David. The Wealth and Poverty of Nations, Chapter 20. M November 5, The Emergence of Global Capitalism, Gold standard, trade policy; Colonial rule; Technological advances: health, transport, communications, electrification; Economics of scale; International technological diffusion; International institutions. Due: Paper (5 pages) W November 7, The Crisis of Global Capitalism, European civil war; The rise of bolshevism; The great depression; The collapse of trade. Keynes, John Maynard, The Economic Consequences of the Peace, Chapters 1-2, pp M November 12: NO CLASSES (Veterans Day)

7 W November 14, The Tripartite World, The restoration of trade among the first world countries; Economic performance of the socialist economies; Styles of the state-led development in the "third world" economies. Evidence on trade and growth; Import substitution policy and macroeconomic performance; Export orientation and growth; The underlying linkages of trade policies and growth. Sachs, Jeffrey and Andrew Warner, "Economic Reform and the Process of Global Integration, Brookings Papers on Economic Activity, No. 1, pp Lee, Radelet, and Sachs (1997) "Economic Growth and Transformation," Emerging Asia, Asian Development Bank, Manila, Ch. 2, pp W November 19, The Age of Globalization: Present The meanings of globalization: trade, finance, production, and institutions; Technology and globalization; International institutions, global governance, and the process of economic globalization Sachs, Jeffrey, "International Economics: Unlocking the Mysteries of Globalization," Foreign Policy, Spring 1998, pp Ricupero, Rubens, Foreign Direct Investment and the Challenge of Development, World Investment Report UNCTAD, United Nations: New York, pp Rodrik, Dani, "Has Globalization Gone to Far?" Institute for International Economics, March 1997, pp. xi-108. W November 21, NO CLASSES UNIT IV. CURRENT DEBATES IN ECONOMIC DEVELOPMENT M November 26, Health, Demography, and Economic Development The myriad linkages from health to development; The possibility of a "health trap" in economic development; The Case of Malaria. The demographic transition and its significance for economic development; Quality-quantity tradeoff in human capital investment in children; Population growth and macroeconomic development; Population growth and environmental stress; Explaining differential patterns of fertility behavior; mortality; gender relations; urbanization; education; family planning practices; financial market development Sachs, Jeffrey, Interim Report of the Chairman of the Commission on Macroeconomics and Health, WHO, 2000, pp

8 Bloom and Williamson, "Demographic Transition and Economic Miracles in Emerging Asia," World Bank Economic Review, 12(3) Sept 1998, pp Caldwell, John, "Fertility in Sub-Saharan Africa: Status and Prospects," Population and Development Review, 20(1) May 2001, pp Easterlin, Richard, Growth Triumphant, Chapter 6, "Nature and Causes of Mortality Revolution" pp , Chapter 7, "Malthus Revisited: The Economic Impact of Rapid Population Growth" pp W November 28, Social Stratification and Economic Development Are economic and social inequality barriers to economic development, and if so, through which channels: political instability, human capital accumulation, low saving and investment? Which kinds of social inequalities have the most profound effects on economic development, and why? Ethnicity; Gender; Class (and other economic inequalities); Geographical. Collier, Paul, "The Political Economy of Ethnicity," in Annual World Bank Conference on Development Economics, 1998, pp World Bank (May 22, 2000), Engendering Development: Consultation Draft, Overview, pp 1-21 ( on website only. "Removing Social Barriers and Building Social Institutions," World Bank Development Report 2000, Chapter 7, pp Also ( M December 3, Environment and Economic Development Growth and resource use; Population pressures; Intensification of agriculture; The possibilities of ecological collapse; The Environmental Kuznets curve; Long-term climate change; Water crisis Deforestation. Panayotou, Theodore. Population and Environment. CID Working Paper 54(2), July 2000, pp ( Panayotou, Theodore. Economic Growth and the Environment. CID Working Paper 56(4), July 2000, pp Also ( People and Ecosystems: The Fraying Web of Life, World Resources Institute , Summary, pp (

9 W December 5, Politics, Law and Economic Development Globalization and the Rule of Law; Democracy and Development Sachs, Jeffrey, "Globalization and the Rule of Law," remarks to the 1998 gathering of the Yale Law School, October 15, 1998, pp Karatnycky, Adrian, "A Century of Progress," Freedom House Survey of Freedom, pp Also ( Barro, Robert, "Democracy and Growth," Journal of Economic Growth 1:1-27, M December 10, The Debates Over Foreign Aid How large is foreign aid? Is foreign aid effective? When is foreign aid needed? Dollar, David and Lant Pritchett (1998), Assessing Aid: What Works, What Doesn t, and Why?, World Bank, 1998 ( Development Assistance Committee, OECD, Partnership for Poverty Reduction: From Commitment to Implementation, ( on website only. Sachs, Jeffrey, Helping the World s Poorest, The Economist, August 14, W December 12, Global Governance and Economic Development Do we need international economic institutions such as the IMF, World Bank, WTO, and other United Nations agencies? Is Globalization fair to the poorest countries? How can international institutions be improved, in terms of efficiency, equity, and democratization? Due: Final paper (10-15 pages) Annan, Kofi, We the Peoples: The Role of the United Nations in the 21 st Century, The Secretary- General s Statement, Sept. 2000, pp 1-7. Executive Summary, We the Peoples: The Role of the United Nations in the 21 st Century, The Declaration of the Millennium Summit, September 2000, pp 1-6.