440.623 Development Microeconomics This course analyzes the constraints on households and policy makers in developing countries using econometric tools. Empirical micro-economic studies of behavior and policy outcomes under different types of market failures are drawn upon. It also aims at understanding the empirical tools economists use to analyze these constraints. The understanding of the micro economic foundations of several development problems will be used to discuss policy choices and outcomes in different contexts. We will rely on empirical microeconomic studies to study behavior under different types of market failures and to evaluate the impacts of policy interventions. Topics include inter alia inequality, fertility, education, health, poverty, nutrition, and failures in land, labor, credit and insurance markets. Prerequisites: 440.601 Microeconomic Theory and Policy; and 440.606 Econometrics. Dr. Ruth Vargas Hill Class hours: Monday 6.00pm 8.45 pm Office hours: by appointment r.v.hill@cgiar.org Requirements: There will be two individual written assignments, one group presentation and a final exam. Students are also expected to do the required readings before each class and actively participate in class discussion. Guiding questions for the readings will be distributed the week prior to class, and all students are expected to be prepared to answer those questions in class, and actively contribute to the related discussions. Writing assignments (30% of grade): There will be two individual written assignments. Each assignment will be 15% of the grade and they will be due at the beginning of class 4, and the beginning of class 10. Group presentation (20% grade): Analysis and presentation of an evaluation of a development project. Each group will be assigned a topic and due date will be noon of the day the topic is covered in class. Class participation (10% grade) Final exam (40% grade): The in class exam will take place on the scheduled date. Absences from the exam are allowed only for validated medical reasons. Scheduling conflicts with exam dates must be cleared with the instructor 3 weeks in advance of the scheduled date at the latest. Any rescheduled exams must be taken earlier than the scheduled exam.
Readings Required texts: There are two required texts for this class: 1. Pranab Bardan and Christopher Udry, 1999, Development Microeconomics, Oxford University Press. 2. Ray, Debraj, 1998, Development Economics, Princeton University Press, Princeton. Other required readings for each class are listed in the outline below. They are conceptual and empirical papers available on the ERES website or on reserve. Recommended: For those who have not read Amartya s Sen Development as Freedom (1999, Anchor Books, New York) it is recommended additional reading, particularly for class 2. Additional recommended readings for each week will be given out the week prior to class. Course Outline and required readings Class 1: Introduction: the microeconomics of convergence and poverty traps Ray, chapter 1 (Introduction), chapter 2 (Economic Development: Overview), chapter 3 (Economic Growth). Partha Dasgupta, Poverty Traps: Exploring the Complexity of Causation in Joachim von Braun, Ruth Vargas Hill, and Rajul Pandya-Lorch (ed) "The Poorest and the Hungry: Assessments, Analyses, and Actions". Costas Azariadis and John Stachurski. 2005. Poverty traps in Philippe Aghion and Steven Durlauf, eds. The Handbook of Economic Growth, Elsevier. Class 2: Measuring poverty and inequality and policy approaches Ray, chapter 6 (Economic Inequality) and chapter 8 (Poverty and Undernutrition). Bardhan and Udry, chapter 11 (Poverty alleviation: Efficiency and equity issues), chapter 10(Human Capital and Income Distribution). Martin Ravallion. 2006. Transfers and Safety Nets in Poor Countries: Revisiting the Trade offs and Policy Options, in Banerjee, Benabou and Mookherjee (eds.), Understanding Poverty, Oxford University Press, Oxford. David Lindauer and Lant Pritchett. 2002. What s the Big Idea? The third generation of policies for economic growth, Economia. 3(1), pp 1 28. Class 3: Empirical policy evaluation Martin Ravallion. 2001. The Mystery of the Vanishing Benefits: An Introduction to Impact Evaluation
Angus Deaton. 2010. Instruments, Randomization and Learning about Economic Development. Journal of Economic Literature 48: 424 455 Esther Duflo. 2005. Field Experiments in Development Economics. BREAD Policy Paper 12. Esther Duflo and Raghabendra Chattopadhyay, 2004, Women as Policy-Makers: Evidence from a India-wide Randomized Policy Experiment, Econometrica, 72(5): 1409-43., World Bank Economic Review, 15: 115-140. Class 4: Household Economics Bardhan and Udry, chapter 2 (Household Economics) Christopher Barrett. 1996. On Price Risk and the Inverse Farm Size Productivity Relationship. Journal of Development Economics 51. Hanan Jacoby. 1994. Shadow Wages and Peasant Family Labor Supply: An Econometric Application to the Peruvian Sierra. Review of Economics Studies 60. Chiappori, Pierre-Andre & Haddad, Lawrence & Hoddinott, John & Kanbur, Ravi, 1993. "Unitary versus collective models of the household : time to shift the burden of proof?," Policy Research Working Paper Series 1217, The World Bank. Pitt, Mark M., Shahidur R. Khandker and Jennifer Cartwright, 2003, Does Micro Credit Empower Women? Evidence from Bangladesh World Bank Policy Research Working Paper 2998. Class 5: Markets: transaction costs, asymmetric information and collusion Ray, chapter 11 (Markets in Agriculture) Bardhan and Udry, chapter 9 (interlinkages) Fafchamps, M. and Minten, B. (2001). Property Rights in a Flea Market Economy, Economic Development and Cultural Change, 49(2):229-268. Key, Nigel, Sadoulet, Elisabeth and de Janvry, Alain, 2000. "Transactions Costs and Agricultural Household Supply Response," American Journal of Agricultural Economics, 82(2): 245-59. Fafchamps, Marcel and Hill, Ruth Vargas. 2008. Price Transmission and Trader Entry in Domestic Commodity Markets. Economic Development and Cultural Change 56(4). Mishra, A. 1994. Clientalization and Fragmentation in Backward Agriculture: Forward Induction and Entry Deterrence. Journal of Development Economics, 54. Class 6: Labor markets and migration
Ray, chapter 13 (Labor) and chapter 10 (Rural and Urban) Bardhan and Udry, chapter 4 (Labor) Vines, D., and Zeitlin, A. 2010 Dual economies in S. N. Durlauf and L. E. Blume, Eds The New Palgrave: A Dictionary of Economics, 2nd ed., Macmillan, London. Yang, Dean, 2008, International Migration, Human Capital, and Entrepreneurship: Evidence from Philippine Migrants Exchange Rate Shocks, The Economic Journal, Vol. 118, April 2008, pp. 591 630. Class 7: Education Case, Anne, 2006. The Primacy of Education, Banerjee, Benabou and Mookherjee (eds.), Understanding Poverty, Oxford University Press, Oxford. Duflo, Esther, 2004, The Medium Run Effects of Educational Expansion: Evidence from a Large School Construction Program in Indonesia, Journal of Development Economics, 74(1): 163 97. Schultz, Paul T., 2004, School subsidies for the poor: evaluating the Mexican Progresa poverty program, Journal of Development Economics, 74(1): 199 250. Class 8: Health and Nutrition John Strauss, and Duncan Thomas, 1998, Health, Nutrition, and Economic Development, Journal of Economic Literature, 36(2): 766-817. Gertler and Boyce, 2001, An Experiment in Incentive-Based Welfare: The Impact of Progresa on Health in Mexico, mimeo, University of California at Berkeley. Michael Kremer and Edward Miguel, 2004, The Illusion of Sustainability, Quarterly Journal of Economics, 112(3), 1007-1065 Jishnu Das, and Jeffrey Hammer, 2007, Money for Nothing: The Dire Straits of Medical Practice in Delhi, India, Journal of Development Economics, 83(1): 1-36. Michael Kremer, 2002, Pharmaceuticals and the Developing World, Journal of Economic Perspectives, 16(4), 67 80. Class 9: No class, time allocated to self study to complete the second written assignment Class 10: Land Markets Bardhan and Udry, chapter 6 (land)
Banerjee, Abhijit, Paul Gertler and Maitreesh Ghatak, 2002, Empowerment and Efficiency: The Economics of a Tenancy Reform, The Journal of Political Economy, 110(2): 239 280. Deininger, Klaus, 2003, Land Policies for Growth and Poverty Reduction, World Bank Policy Research Report, Executive Summary, xvii xlvi. Class 11: Credit markets and savings Bardhan and Udry, chapter 7 (credit) Murdoch, Jonathan, 1999, The Microfinance Promise, Journal of Economic Literature, 37(4): 1569 1614. Burgess, Robin and Rohini Pande, 2005, Can Rural Banks Reduce Poverty? Evidence from the Indian Social Banking Experiment, American Economic Review, Karlan, Dean S., 2007, Social Connections and Group Banking, Economic Journal, 117, pp. F52 F84. Class 12: Insurance, Risk and Vulnerability Bardhan and Udry, chapter 8 (risk and insurance) Robert Jensen 2000, Agricultural Volatility and Investments in Children, American Economic Review, 90(2): 399 404. Stefan Dercon, Income Risk, Coping Strategies, and Safety Nets, World Bank Research Observer 17, no. 2 (2002) Jonathan Morduch, Between the State and the Market: Can Informal Insurance Patch the Safety Net? World Bank Research Observer 14, no. 2 (2002): 187 207. Xavier. Giné, Robert Townsend, and J. Vickery, Patterns of Rainfall Insurance Participation in Rural India, World Bank Economic Review 22, no. 3 (2008). Class 13: Technology adoption Bardhan and Udry, Chapter 12 (Technological Progress And Learning) Andrew Foster and Mark Rosenzweig. 1995. Learning by Doing and Learning from Others: Human Capital and Technological Change in Agriculture. Journal of Political Economy 103. Tavneet Suri. 2006. Selection and Comparative Advantage in Technology Adoption Economic Growth Center Discussion Paper No. 944, Yale University Bandiera, O and Rasul, I. 2006. Social Networks and Technology Adoption in Northern Mozambique. Economic Journal 116, 514: 869 902.
Munshi, K. 2004. Social Learning in a Heterogeneous Population: Technology Diffusion in the Indian Green Revolution. Journal of Development Economics 73, 1: 185 213. Class 14: Final Exam