Economics 731a Economic Development I

Economics 731a Economic Development I Chris Udry Fall 2000 Phone: 491-8235 Yale University udry@yale.edu http://www.econ.yale.edu/~udry The goal of this course is to explore the application of microeconomic analysis to issues of development in poor countries. The focus of this course is the study of household behavior and the analysis of rural institutions. The course will cover the neoclassical agricultural household model and criticisms of that model, the structure of rural factor markets (concentrating on the effects of risk and information problems), general equilibrium analyses of village economies, household savings and investment (especially in education), issues of health and nutrition, technological innovation and project evaluation. The companion course (Economics 731) covers more general growth and general equilibrium models of development. This course presumes knowledge of development economics at an undergraduate level. Students should have knowledge of the structural characteristics of developing countries, and be familiar with the traditional models of development economics (basic growth theory and dual economy models). In addition, I will assume that you have taken the first-year graduate sequences in microeconomics and econometrics. Course Requirements: 1. This course is focused on reading and understanding the current literature on the empirical microeconomics of development. I expect you to do all of the required reading and to participate in class discussion. In addition, there will be a series of problems sets. 2. Each student will present one or two of the assigned readings, and lead class discussion on that reading. 3. Finally, a research paper is required. This requirement can be met in one of two ways: (1) replication of the empirical results of an approved paper in development economics; or (2) an applied (theoretical, empirical, or both) paper with original research. We will use several chapters of Bardhan and Udry, Development Microeconomics (referred to in the syllabus as BU), so I have ordered it as a text. I have also ordered Deaton, The Analysis of Household Surveys: A Microeconometric Approach to Development Policy. It s an extremely useful reference, and we ll use a couple of the chapters. The books are ordered through the Yale Bookstore.

Further Background References: Debraj Ray, Development Economics. We will not use it for the course, but it is the best undergraduate text in development economics. He provides excellent non-technical explanations of many of the issues we will study. Dasgupta, Partha. 1993. An Inquiry into Well-Being and Destitution. New York: Oxford. Basu, K. 1997. Analytical Development Economics. Cambridge: MIT Press. Deaton, Angus. 1993. "Data and Econometric Tools for Development Economics," in Handbook of Development Economics, Vol. III. 1. The Neoclassical Agricultural Household Model A. The Standard Model BU, Chapters 1 & 2. Benjamin, D. 1992. "Household Composition, Labor Markets and Labor Demand: Testing for Separation in Agricultural Household Models." Econometrica. Fafchamps, Marcel. 1993. "Sequential Labor Decisions under Uncertainty: An Estimable Household Model of West African Farmers." Econometrica. 61:1173-98. Deaton, Angus and Christina Paxson. 1998. Economies of Scale, Household Size and the Demand for Food. Journal of Political Economy. 106/5, pp. 897-930. Singh, I., L. Squire, and J. Strauss. 1986. Agricultural Household Models: Extensions, Applications, and Policy. Baltimore: Johns Hopkins. Chapters 1-2. Udry, Christopher. 1999. Efficiency and Market Structure: Testing for Profit Maximization in African Agriculture, in Ranis and Raut, eds. 1999. Trade, Growth and Development: Essays in Honor of T.N. Srinivasan, Amsterdam: Elsevier Science. Benjamin, Dwayne. 1995. "Can Unobserved Land Quality Explain the Inverse Productivity Relationship?" Journal of Development Economics, 46/1:51-84. Bliss, C. and N. Stern. 1982. Palunpur: Studies in the Economy of an Indian Village. New York: Oxford University. 2

Jacoby, Hanan. 1993. "Shadow Wages and Peasant Family Labour Supply: An Econometric Application to the Peruvian Sierra." Review of Economic Studies, 60, 903-921. Pitt, Mark and Mark Rosenzweig. 1986. "Agricultural Prices, Food Consumption and the Health and Productivity of Indonesian Farmers," in Singh, Squire, Strauss, eds. Hill, P. 1970. "Ghanaian Capitalist Cocoa Farmers," in Hill, ed. Studies in Rural Capitalism in West Africa. Cambridge: Cambridge Univ., pp. 21-30. B. Models of Distribution within the Household Deaton, Chapter 4.2 Dreze, Jean and Amartya Sen. 1989. Hunger and Public Action. Oxford: Oxford University, pp 50-61. Pitt, M., M. Rosenzweig and MD. Nazmul Hassan. 1990. "Productivity, Health and Inequality in the Intrahousehold Distribution of Food in Low-Income Countries." American Economic Review. 80/5. Morduch, Jonathan and Hal Stern. 1997. Using Mixture Models to Detect Sex Bias in Health Outcomes in Bangladesh. Journal of Econometrics. 77/1 (March), pp259-76. Rose, Elaina. 1996. Gender Bias, Credit Constraints and Time Allocation in Rural India. Manuscript: University of Washington. Deaton, Angus. 1989. "Looking for Boy-Girl Discrimination in Household Expenditure Data." World Bank Economic Review. 3/1. Deaton, Angus, Javier Ruiz-Castillo and Duncan Thomas. 1989. "The Influence of Household Composition on Household Expenditure Patterns: Theory and Spanish Evidence." Journal of Political Economy. 97. Dey, Jennie. 1993. "Gender Asymmetries in Intrahousehold Resource Allocation in Sub- Saharan Africa: Some Policy Implications for Land and Labor Productivity," in Haddad et al. Haddad, Lawrence and Thomas Reardon. 1993. "Gender Bias in the Allocation of Resources within Household in Burkina Faso: A Disaggregated Outlay Equivalent Analysis." Journal of Development Studies. 3

Sen, Amartya. 1989. "Women's Survival as a Development Problem." Bulletin of the American Academy of Arts and Sciences. Subramanian, S. and A. Deaton. 1991. "Gender Effects in Indian Consumption Patterns." Sarvekshana. 14. C. A Critique from Anthropology Guyer, J. 1981. "Household and Community in African Studies." African Studies Review, 24. Shipton, P. 1989. Bitter Money: Cultural Economy and Some African Meanings of Forbidden Commodities, read pp. 1-15, skim 16-27, read 28-59, skim 60-83. Donham, D. 1990. History, Power and Ideology: Central Issues in Marxism and Anthropology. New York: Cambridge University Press. pp. 19-50. D. A Critique from Economics: The Household is an Inappropriate Unit of Analysis. Thomas, D. 1990. "Intra-Household Resource Allocation: An Inferential Approach." Journal of Human Resources. Browning, Martin and Pierre-Andre Chiappori. 1998. Efficient Intra-Household Allocations: A General Characterization and Empirical Tests. Econometrica 66/6 (November): 1241-1278. Udry, Christopher. 1996. "Gender, Agricultural Productivity and the Theory of the Household." JPE. Dercon, Stephan and Pramila Krishnan. 2000. In Sickness and in Health: Risk Sharing within Households in Ethiopia. JPE. Apps, Patricia and Ray Rees. 1997. Collective Labor Supply and Household Production. JPE 105/1: 178-190 Pierre-Andre Chiappori, Introducing Household Production in Collective Models of Labor Supply, JPE.105/1: 191-209. Folbre, N. 1984. "Household Production in the Philippians: A Non-Neoclassical Approach." EDCC. 32. McElroy, M. and M. Horney. 1981. "Nash-Bargained Household Decisions: Towards a Generalization of the Theory of Demand." International Economic Review. 22/2. 4

Bergstrom, Theodore. 1996. "A Survey of Theories of the Family."in Rosenzweig and Stark, eds. Handbook of Population Economics. Chiappori, Pierre-Andre. 1988. "Rational Household Labor Supply." Econometrica. 56:63-89. Chiappori, Pierre-Andre. 1992. "Collective Labor Supply and Welfare." Journal of Political Economy. 100:437-67. Haddad, Lawrence, John Hoddinott and Harold Alderman, eds. Manuscript. Intrahousehold Resource Allocation in Developing Countries: Methods, Models and Policy. Haddad, L. and R. Kanbur. 1994. "Are Better Off Households More Unequal or Less Unequal?" Oxford Economic Papers. Hoddinott, John and Lawrence Haddad. 1995. Does Female Income Share Influence Household Expenditures? Evidence from Cote d'ivoire. Oxford Bulletin of Economics and Statistics. Jones, Christine. 1986. "Intra-Household Bargaining in Response to the Introduction of New Crops: A Case Study from North Cameroon," in Joyce Lewinger Moock, ed. Understanding Africa's Rural Households and Farming Systems. Boulder: Westview. Schultz, T. Paul. 1991. "Testing the Neoclassical Model of Family Labor Supply and Fertility." Journal of Human Resources. 15/4. Thomas, Duncan and Chien-Liang Chen. 1994. "Income Shares and Shares of Income: Empirical Tests of Models of Household Resource Allocations." RAND Labor and Population Working Paper 94-08. von Braun, Joachim and Patrick Webb. 1989. "The Impact of New Crop Technology on the Agricultural Division of Labor in a West African Setting." Economic Development and Cultural Change. 2. The Structure of Rural Labor Markets. BU, chapters 3, 4, 5. Strauss, John and Duncan Thomas. 1995. Human Resources: Empirical Modeling of Household and Family Decisions, in Behrman and Srinivasan, eds. Handbook of Development Economics, Volume III. Read section 3. 5

A. Education and Wages/Income Behrman, Jere, Andrew Foster, Mark Rosenzweig, and Prem Vashishtha. 1999. Women s Schooling, Home Teaching and Economic Growth. JPE. Duflo, Esther. 1998. Schooling and Labor Market Consequences of School Construction in Indonesia: Evidence from an Unusual Policy Experiment. Manuscript: MIT Lam, David and Robert Schoeni. 1993. "Effects of Family Background on Earnings and Returns to Schooling: Evidence from Brazil." Journal of Political Economy. 101:710-740. Newman, John and Paul Gertler. 1994. "Family Productivity, Labor Supply and Welfare in a Low Income Country." Journal of Human Resources 29(4): 989-1026 van der Gaag, Jacques and Wim Vijverberg. 1988, "A Switching Regression Model of Wage Determinants in the Public and Private Sectors of a Developing Country." Review of Economics and Statistics. 70:244-252. Vijverberg, Wim. 1990. "Dual Selection Criteria with Multiple Alternatives: Migration, Work Status and Wages." Manuscript: UT-Dallas. Vijverberg, Wim. 1993. "Educational Investments and Returns for Women and Men in Cote d'ivoire." Journal of Human Resources. 28:933-974. Boissiere, Maurice, John Knight and Richard Sabot. 1985. "Earnings, Schooling, Ability and Cognitive Skills." American Economic Review. 75:1016-1030. Glewwe, Paul. 1994. The Economics of School Quality Investments in Developing Countries: An Empirical Study of Ghana. Manuscript: World Bank. Behrman, Jere and Anil Deololikar. 1993. "Unobserved Household and Community Heterogeneity and the Labor Market Impact of Schooling: A Case Study for Indonesia." Economic Development and Cultural Change. 41:461-488. Smith, James. 1991. "Labor Markets and Economic Development in Malaysia," in T. Paul Schultz, ed. Research in Population Economics, Vol. 7. Greenwich: JAI Press. Bardhan, P. 1983. "Labor_tying in a Poor Agrarian Economy: A Theoretical and Empirical Analysis." QJE. 98. Eswaran, M. and A. Kotwal. 1985. "A Theory of Two-Tier Labor Markets in Agrarian Economies." American Economic Review, 75. (Covered in D-25-1) 6

Dutta, B., D. Ray, and K. Sungupta. 1989. "Contracts with Eviction in Infinitely Repeated Principal-Agent Relationships," in Bardhan, ed. B. Information Foster, Andrew and Mark Rosenzweig. 1996. "Comparative Advantage, Information and the Allocation of Workers to Tasks: Evidence from an Agricultural Labor Market." Review of Economic Studies. 63/3 (July), 347-74. Foster, Andrew and Mark Rosenzweig. 1994. "A Test for Moral Hazard in the Labor Market: Contractual Arrangements, Effort, and Health." Review of Economics and Statistics. 76:2, 213-227. Lanjouw, Jean Olson. 1998. Information and the Operation of Markets: Tests Based on a General Equilibrium Model of Land Leasing in India. Journal of Development Economics. Shaban, R. 1987. "Testing Between Competing Models of Sharecropping." Journal of Political Economy, 95/5. Foster, A. and M. Rosenzweig. 1993. "Information, Learning and Wage Rates in Low- Income Rural Areas." Journal of Human Resources. 28:4, 759-790. Bardhan, P. 1983. "Labor_tying in a Poor Agrarian Economy: A Theoretical and Empirical Analysis." QJE. 98. Eswaran, M. and A. Kotwal. 1985. "A Theory of Two-Tier Labor Markets in Agrarian Economies." American Economic Review, 75. (Covered in D-25-1) Dutta, B., D. Ray, and K. Sungupta. 1989. "Contracts with Eviction in Infinitely Repeated Principal-Agent Relationships," in Bardhan, ed. Bell, Clive, Arup Raha, T.N. Srinivasan. 1994. "Matching and Contractual Performance: Sharecropping in Punjab." Manuscript: Vanderbilt. III. Saving, Credit and Risk Besley, T. 1995. Savings, Credit and Insurance, in Handbook of Development Economics, Volume III. 7

BU, chapters 7 & 8 Deaton, chapter 6. A. Risk, Saving and Credit Constraints Paxson, C. 1992. "Using Weather Variability to Estimate the Response of Savings to Transitory Income in Thailand." American Economic Review. 82/1. Rosenzweig, M. and K. Wolpin. 1993. "Credit Market Constraints, Consumption Smoothing and the Accumulation of Durable Production Assets in Low-Income Countries: Investments in Bullocks in India." Journal of Political Economy. Rosenzweig, M. and K. Wolpin. 2000. Natural Natural Experiments in Economics. Forthcoming, Journal of Economic Literature. Section 4. Fafchamps, Marcel and John Pender. 1997. Precautionary Saving, Credit Constraints, and Irreversible Investment: Theory and Evidence from Semiarid India. Journal of Business and Economic Statistics. 15/2:180-194. Fafchamps, Marcel, Chris Udry and Katie Czukas. 1998. Drought and Saving in West Africa: Are Livestock a Buffer Stock? Journal of Development Economics. 55(2), pp. 273-306. Binswanger, Hans and Mark Rosenzweig. 1993. "Wealth, Weather Risk and the Composition and Profitability of Agricultural Investments." Economic Journal. Campbell, J. 1987. "Does Saving Anticipate Declining Labor Income? An Alternative Test of the Permanent Income Hypothesis." Econometrica. 55/6. Chaudhuri, Shubham. 1993. "Crop Choice, Fertilizer Use and Credit Constraints: An Empirical Analysis." Manuscript: Princeton. Deaton, Angus. 1991. "Saving and Liquidity Constraints." Econometrica. 59/5. Deaton, A. 1992. "Saving and Income Smoothing in the Cote d'ivoire." Journal of African Economies, Vol. 1, No. 1. pp. 1-24. Morduch, J. 1993. "Risk, Production and Saving: Theory and Evidence from Indian Households." Manuscript, Harvard University. B. Insurance: 8

Deaton, Angus and Christina Paxson. 1994. "Intertemporal Choice and Inequality." Journal of Political Economy. 102/3. Townsend, R. 1994. "Risk and Insurance in Village India." Econometrica. 62:539-592. Udry, C. 1994. "Risk and Insurance in a Rural Credit Market: An Empirical Investigation in Northern Nigeria," Review of Economic Studies. 61(3), no. 208, pp. 495-526. Ligon, Ethan. 1998. "Risk-sharing and Information in Village Economies." Review of Economic Studies. Goldstein, Markus. 1999. Chop Time, No Friends, Examining Options for Individual Insurance in Southern Ghana. Manuscript: Berkeley. Carter, Michael. 1997. "Environment, Technology and the Social Articulation of Risk in West African Agriculture." Economic Development and Cultural Change. 45/3: 557-590. Cox, Donald and Emmanuel Jimenez. 1992. "Social Security and Private Transfers in Developing Countries: The Case of Peru." World Bank Economic Review. 6:155-169. Foster, Andrew.1995. "Rice Prices, Credit Markets and Child Growth in Rural Bangladesh." Forthcoming, Economic Journal. Jacoby, Hanan and Emmanuel Skoufias. 1997. Risk, Financial Markets and Human Capital in a Developing Country. Review of Economic Studies. 64/3: 311-336. Lim, Y. 1990. "Disentangling Permanent Income from Risk Sharing: A General Equilibrium Perspective on the Rural Credit Market in Developing Countries." Manuscript, University of Chicago. Ravallion, M. and S. Chaudhuri. 1997. "Risk and Insurance in Village India: Comment." Econometrica. 65/1 (January): 171-184. Rose, Elaina. 1994. "Consumption Smoothing and Excess Female Mortality in Rural India." Manuscript: University of Washington. Coate, S. and M. Ravallion. 1993. "Reciprocity Without Commitment: Characterization and Performance of Informal Risk-Sharing Arrangements." Journal of Development Economics. Thomas and Worall. 1995. Informal Risk Sharing in Villages. C. Credit Markets, Imperfect Information and Rationing 9

Kochar, A. 1997. "An Empirical Investigation of Rationing Constraints in Rural Credit Markets in India." Journal of Development Economics. 53/2 (August), 339-372. Bell, Clive, T.N. Srinivasan and Chris Udry. 1997. "Rationing, Spillover, and Interlinking in Credit Markets: The Case of Rural Punjab," Oxford Economic Papers. 49, 557-585. D. Seasonality Behrman, Jerry, Andrew Foster and Mark Rosenzweig. 1997. The Dynamics of Agricultural Production and the Calorie-Income Relationship: Evidence from Pakistan. Journal of Econometrics. 77, 187-207. Paxson, Christina. 1993. "Consumption and Income Seasonality in Thailand." Journal of Political Economy. Sahn, David, ed. 1989. Seasonal Variability in Third World Agriculture: The Consequences for Food Security. Baltimore: Johns Hopkins. IV. Health and Nutrition BU, Chapter 10. Strauss, John and Duncan Thomas. 1998. Health, Nutrition and Economic Development. Journal of Economic Literature. 36/2: 766-817. Deaton, chapter 4.1 A. Income Elasticity of Demand for Calories/Health Subramanian, S. and A. Deaton. 1992. "The Demand for Food and Calories. Journal of Political Economy. 104/1: 133-162. Anand, Sudhir and Martin Ravallion. 1993. "Human Development in Poor Countries: On the Role of Private Incomes and Public Services." Journal of Economic Perspectives. Behrman, Jere and Anil Deolalikar. 1987. "Will Developing Country Nutrition Improve with Income? A Case Study for Rural South Asia." Journal of Political Economy. 95:108-138. Bouis, Howarth. 1994. "The Effect of Income on Demand for Food in Poor Countries" Are our Databases Giving Us Reliable Estimates?" Journal of Development Economics. Bouis, Howarth and Lawrence Haddad. 1992. "Are Estimates of Calorie-Income Elasticities too High? A Recalibration of the Plausible Range." Journal of Development Economics. 39:333-364. 10

Ravallion, Martin. 1990. "Income Effects on Undernutrition." Economic Development and Cultural Change. 38:489-516. Sahn, David. 1994. "The Contribution of Income to Improved Nutrition in Cote d'ivoire." Journal of African Economies. 3:29-61. B. Health/Nutrition and Productivity: Thomas, Duncan and John Strauss. 1997. Health and Wages: Evidence on Men and Women in Urban Brazil. Journal of Econometrics. 77, pp. 159-185. Strauss, J. 1986. "Does Better Nutrition Raise Farm Productivity?" Journal of Political Economy. Behrman, Jere and Anil Deolalikar. 1980. "Agricultural Wages in India: The Role of Health, Nutrition and Seasonality," in Sahn, ed. Alok Bhargava. 1997. "Nutritional Status and the Allocation of Time in Rwandese Households." Journal of Econometrics. 77/1:277-295. Deolalikar, Anil. 1988. "Nutrition and Labor Productivity in Agriculture: Estimates for Rural South Asia." The Review of Economics and Statistics. 70:406-413. Pitt, M., M. Rosenzweig and MD. Nazmul Hassan. 1990. "Productivity, Health and Inequality in the Intrahousehold Distribution of Food in Low-Income Countries." American Economic Review. 80/5. Sahn, David and Harold Alderman. 1988. "The Effects of Human Capital on Wages and the Determinants of Labor Supply in a Developing Country." Journal of Development Economics. 29:157-183. Swamy, Anand. 1997. "A Simple Test of the Nutrition-based Efficiency Wage Model." Journal of Development Economics. 53/1:85-98. V. Agrarian Technology BU, Chapter 12 Foster, Andrew, Mark Rosenzweig. 1995. "Learning by Doing and Learning from Others: Human Capital and Technical Change in Agriculture." Journal of Political Economy. Munshi, Kaivan. 1998. "Farmers as Econometricians: Social Learning and Technology Diffusion in the Indian Green Revolution." Manuscript: BU. 11

Conley, Timothy and Chris Udry. 2000. Learning About a New Technology: Pineapple in Ghana. Manuscript: Yale. Besley, Timothy and Ann Case. 1994. "Diffusion as a Learning Process: Evidence from HYV Cotton." Manuscript: Princeton. Burger, Kees. 1994. "Farm Households, Cash Income and Food Production." Ph.D. Dissertation, University of Amsterdam. VI. Program Evaluation: An Example Pitt, Mark and Shahidur Khandker. 1998. The Impact of Group-Based Credit Programs on Poor Households in Bangladesh: Does the Gender of Participants Matter? Journal of Political Economy. 106/5: 958-996. Morduch, Jonathan. 1998. Does Microfinance Really Help the Poor? Evidence of Flagship Programs in Bangladesh. Manuscript: Princeton. Related theory: Ghatak, Maitreesh. 1998. Joint Liability Credit Contracts and the Peer Selection Effect. Manuscript: Chicago. Diagne, Aliou. 1997. Default Incentives, Peer Pressure and Equilibrium Outcomes in Group- Based Lending Programs. Manuscript: IFPRI. Ghatak, Maitreesh and Timothy W. Guinnane. 1998. The Economics of Lending with Joint Liability: Theory and Practice. Yale University Economic Growth Center Discussion Paper 791. VII. Organization Leonard, Kenneth. 1999. Health Care in Rural Cameroon: Structural Estimation of Production in Teams with Unobservable Effort. Manuscript: Columbia. Banerjee, Abhijit and Duflo, Esther. 1999. Reputation Effects and the Limits of Contracting: A Study of the Indian Software Industry. Manuscript: MIT Banerjee, Abhijit, Dilip Mookherjee, Kaivan Munshi and Debraj Ray. 1998. Inequality, Control Rights and Efficiency: A Study of Sugar Cooperatives in Western Maharashtra. Manuscript: Penn. 12