Economics 663: The Macroeconomics of Development Professor Colin Bradford Spring 2002 Introduction: As this course begins, Argentina is experiencing major upheaval in the wake of the collapse of the currency board arrangement in place since 1991 raising major concerns in Latin America regarding the continuing viability of the model of market oriented democracies in confronting social unrest. Senior officials from Turkey are in Washington trying to work out an agreement with the IMF on economic policy questions in the wake of a currency crisis last summer. Reform in Russia seems to be on the back burner as policy priority shifts to foreign policy and defense issues. Eastern Europe is following a pattern of what Professor Mieke Meurs calls de-development where the speed of retrogression and decline is greater than the pace of progress. Africa, the last frontier of economic development, seems to be searching for new policies for development at the same time that the AIDS epidemic creates major destructive pressures. Just as the World Bank came to the conclusion that external support for development should be focused on countries with sound economic policies, September 11th seems to have demonstrated that weak states also need attention even if policy performance is low. UK Finance Minister Gordon Brown has called for a doubling of official development assistance to meet the Millennium Development Goals while the US administration seems skeptical that aid can work. After a long period in which the Washington Consensus was generally agreed to, these developments seem to call into question the prevailing paradigm and create a fluid climate of uncertainty and challenge. This course will examen the role of macroeconomics in development policy today, the contexts, the constraints and the challenges. Analytical techniques will be developed for use in research papers by students and perspectives on the usefulness of macroeconomic policy in meeting certain challenges will be presented and discussed. This is a research seminar. A major focus of the course is on the preparation of a thoughtful, analytical paper on country economic strategies and policies. The choice of country should reflect the student s professional career intentions. In the case of international students from the developing world or from transition economies, it is expected that the country of origin would be the country chosen for research. For others, the choice of country should enhance their career direction. The idea is that through the analysis, research and class discussion of the paper the student will develop analytical and policy perspectives which will serve them in professional challenges further on in their careers and provide them with influence and leverage on policy issues in their home countries or in their work on development policy issues internationally. The papers will consist of three parts. First, an analysis of the evolution of recent economic trends in the country which define the policy challenges for the future. Second, based on an economic projection methodology for extrapolating trends into the future as a function of expected performance of endogenous economic variables, alternative policy scenarios will be developed by each student in part II of the paper. Part III will contain
an evaluation of these alternative scenarios and a recommended policy path for each country by each student. The first part of the course will be focused on analytical tools and policy instruments so that students may proceed immediately to the begin their research papers. There will be two alternative methodologies presented for the projection of economic outcomes from alternative policy scenarios. One will be based on a simple national income accounting framework to provide a consistent set of economic relationships. The other will be based on the RIMSIM-X model of the World Bank which can be accessed on the web, down loaded and applied to specific developing countries. All students, even those not using RIMSIM-X in their papers, will be expected to understand the basic structure and properties of this model as well as the national income accounting framework. Research Paper Schedule: Deadline 1. Identification of Country of Research January 15/22 2. Identification of Policy Challenges for Each Country February 5 3. Preparation of Outline of Paper including the Methodology February 12 and Initial Bibliography 4. Drafting of Papers (7 weeks minimum) Feb 19- April 9 5. Presentation, Debate, and Discussion of Papers April 9 April 16 April 23 Hour Exam (Mid Term) March 5 No Final Exam Grading System: Class Participation 25% Mid Term Exam 25% Research Paper 50% Students must keep up with readings for discussion in class as they proceed with their research and paper writing. The University s policies on plagarism will be strictly adhered to and vigorously enforced. If you are unfamiliar with these policies, please see Professor Bradford immediately for clarification. See the recent attention to Steven Ambrose as an example of the seriousness of this issue.
The Macroeconomics of Development Spring 2002 1. January 15: Introduction and Overview: Economic Development Thinking 1960-2002 IMF, OECD, United Nations, and World Bank (2000), 2000 A Better World for All: Progress towards the International Development Goals, London: Grundy & Northedge, www.paris21.org/betterworld. 2. January 22: Analytical Tools for Policy Analysis: The Three Gap Model Pierre Richard Agenor and Peter J. Montiel (1996), Development Macroeconomics, Princeton: Princeton University Press, chapter twelve, Models of Stabilization and Growth, pp. 421-441. Colin I. Bradford, Jr. (1989), Industrial Prospects for Central America: A Macroeconomic Approach for Central America and the International Community for the Future (1987-1992), In William Ascher and Ann Hubbard (eds), Central American Recovery and Development: A Task Force Report to the International Commission for Central American Recovery and Development, Durham: Duke University Press, pp. 154-180. Be sure to understand Appendix II, pp. 167-180. 3. January 29: The World Bank s RIMSIM Model and Critiques World Bank RIMSIM Model, worldbank.org; World Bank, Development Economics, Development Data Group, Exercise Guide: Macroeconomic Management: New Methods and Current Policy Issues, February 1998. William Easterly, World Bank Paper on the ICOR Millennium Institute Model 4. February 5: Analytical and Policy Constraints on Macroeconomic Policy (A) John Williamson (1997), the Washington Consensus Revisited, in Louis Emmerij (ed) (1997), Economic and Social Development into the XXI Century, Washington: Inter-American Development Bank, pp. 48-61. (B) William H. Branson (1995), Macroeconomic Policy in Carl Jayarajah and William Branson, Structural and Sectoral Adjustment, Washington: World Bank (OED), pp. 115-132. (C) Robert Blecker (1999),Taming Global Finance, EPI, pp. 39-66. (D) William Easterly (2001), chapter 3, Solow s Surprise: Investment is Not the Key to Growth, in The Elusive Quest for Growth: Economists Adventures and Midadventures in the Tropics, Cambridge and London: MIT Press, pp. 47-69.
5. February 12: Growth, Poverty and Inequality All: Nancy Birdsall and Augusto de lat Torre (May 2000), Economic Reform in Unequal Latin American Societies, Commission sponsored by the Carnegie Endowment for International Peace and the Inter-American Dialogue. (A) Michael Roemer and Mary Kay Gugerty (April 1997), Does Economic Growth Reduce Poverty?, Cambridge: Harvard Institute for International Development, mimeo. (B) Nancy Birdsall, David Ross, and Richard Sabot (1995), Inequality and Growth Reconsidered: Lessons from East Asia, Washington: World Bank, World Bank Economic Review,Vol. 9, No. 3, pp. 477-508, esp. pp. 483-491. (C) World Bank (2001), World Development Report 2000/2001: Attacking Poverty, chapter 3, Growth, Inequality and Poverty, pp. 45-59. (D) Inter-American Development Bank (1998), Introduction: Facing Up to Inequality, and chapter 1, Magnitude of Inequalities, in Facing Up to Inequality in Latin America, Economic and Social Progress in Latin America 1998-1999 Report, pp. 1-7 and ll-29. (E) World Bank (2001), op. cit., Overview: Attacking Poverty: Opportunity, Empowerment and Security and chapter 1 The Nature and Evolution of Poverty, pp. 1-12 and 15-29. (F) World Bank (2001), op. cit., chapter 2, Causes of Poverty and a Framework for Action and chapter 11, Reforming Development Cooperation to Attack Poverty, pp. 31-41 and 189-204. 6. February 19: Macroeconomics and Health (A) World Health Organization, Commission on Macroeconomics and Health, Macroeconomics and Health: Investing in Health for Economic Development, Mimeo, September 23 Draft. Different chapters. (B) Inter-American Development Bank (2000), Latin America at the Turn of a New Century, chapter 1 in Development Beyond Economics, Economic and Social Progress in Latin America 2000 Report, Washington: IDB and Baltimore: Johns Hopkins University Press, pp. 1-36. 7. February 26: Macroeconomics and the Environment
(A) James Gustave Speth (2001), The Cascading of Environmental Consequences: Are We Running Out of Time?, University Committee on Environment, Distinguished Environment Lecture, Kennedy School of Government, Harvard University, April 11, 2001; Yale University Reunion, June, 2001. (B) David Reed (1996), Structural Adjustment, the Environment, and Sustainable Development, Executive Summary, World Wildlife Fund, London: Earthscan Publications, pp. 1-22. (C) Eileen Claussen and Lisa McNeilly (1998), Equity and Global Climat Change: The Complex Elements of Global Fairness, Washington: Pew Center on global Climate Change, pp. 1-36, see esp. Appendices, pp. 23-36. (D) J. Baird Callicott (2001), Multicultural Environmental Ethics, in Daedalus, Journal of the American Academy of Arts and Sciences, Fall 2001, Religion and Ecology: Can The Climate Change?, Vol. 130, Number 4, pp. 77-97. (E) World Bank (2000), Toward an Environment Strategy for the World Bank Group, A Progress Report and Discussion Draft, 38 pages. 8. March 5: The East Asian Model: Alternative Interpretations **Hour Exam** Colin I. Bradford, Jr. (1994), From Trade-Driven Growth to Growth-Driven Trade: Reappraising the East Asian Development Experience, Paris: OECD Development Centre; also in Enzo Grilli and Dominick Salvatore (eds) (1994), Economic Development: Handbook of Comparative Economic Policies, Volume 4, Westport: Greenwood Press, pp. 389-419. Dani Rodrik (1999), chapter 3, Investment Strategies, pp. 44-65, in The New Global Economy and Developing Countries: Making Openness Work, Washington: Overseas Development Council. SPRING BREAK-- NO CLASS MARCH 12 9. March 19: Currency Regimes and Currency Crises (A) Mexico: Sebastian Edwards and Miguel A. Savastano, The Mexican Peso in the Aftermath of the 1994 Currency Crises, in Paul Krugman (ed) (2000), Currency Crises, Chicago and London: The University of Chicago Press, pp. 183-240. (B) Asia: Steven Radelet and Jeffrey Sachs, The Onset of the East Asian Financial Crisis, in Paul Krugman (2000), op. cit., pp. 105-161.
(C) Malaysia: Ethan Kaplan (2002), Why Did the Malaysian Capital Controls Work?, American Economic Association Annual Meetings website, Atlanta, January 5, 8:00 AM. (D) Argentina and (E) Turkey: read the daily newspapers and refer to imf.org and worldbank.org. 10. March 26: The Role of the International Community and External Factors (A) World Bank (1998), Assessing Aid: What Works, What Doesn t Work, and Why, Oxford: Oxford University Press. (David Dollar) (B) William Easterly (2001), Aid for Investment, chapter 2, in The Elusive Quest for Growth: Economists Adventures and Misadventures in the Tropics, Cambridge and London, MIT Press, pp. 23-44. (C) Colin I. Bradford, Jr. (2002), The Millennium Development Goals as Metrics for Development and De-Development, paper for an Association of Social Economics panel at the AEA meetings in Atlanta, January 5, 2002. 11. April 2: Policy Reforms and the Policy Reform Process (A) Jorge Dominguez (1997), Technopols: Ideas and Leaders in Freeing Politics and Markets in Latin America in the 1990s in Jorge I. Dominguez (ed) (1997), Technopols: Freeing Politics and Markets in Latin America in the 1990s, University Park: The Pennsylvania State University Press, pp. 1-48. (B) John Williamson (1994), In Search of a Manual for Technopols, in John Williamson (ed), The Political Economy of Policy Reform, Washington: Institute for International Economics, pp. 11-34. (C) Joao Paulo dos Reis Velloso (1994), Governance, the Transition to Modernity, and Civil Society, in Colin I. Bradford, Jr. (ed) (1994), Redefining the State in Latin America, Paris: OECD, pp. 123-131. (D) Amartya Sen (1999), Development as Freedom, New York: Anchor Books, pp. 3-53. *** *** *** *** Office Hours 222 Roper Hall: Tuesdays Wednesdays Thursdays Other Times 2:00 until 5:00 PM (With Appointment*) 5:00 until 6:30 PM (Drop-by) 2:30 until 4:00 PM (With Appointment*) By Appointment* *Please schedule appointments in advance by calling Glen Arnold at 202-885-3772.