International economic development P11.2230 Spring 2009 NYU Wagner Graduate School of Public Service New York University Section 1: Wednesday, 2-3:40 pm, Silver 501 Section 2: Thursday, 6:45-8:25 pm, Waverly 431 Jonathan Morduch The Puck Building, Room 3048, (212) 998-7515 jonathan.morduch@nyu.edu Office Hour: 4-5 p.m. Wednesday While some countries have achieved unprecedented rates of economic growth in the past half century, other countries have experienced set-backs. For those that have seen rapid growth, economic changes have not always translated into proportional social changes and sometimes rapid social changes have occurred in the absence of economic growth. This course takes up issues of economic growth and social change in a comparative perspective. The course begins by reviewing the relationships between poverty, inequality, and economic growth. In that context, attention then turns to the role of markets, with a focus on local financial markets. In the second part of the semester, attention turns to policy interventions to improve education and reduce child labor, confront rapid population growth, reduce the burden of disease, and strengthen safety nets. We will use the following texts: Debraj Ray, Development Economics, Princeton University Press, 1998. Beatriz Armendáriz and Jonathan Morduch, The Economics of Microfinance, MIT Press, 2005. The texts will be supplemented by additional readings. The texts are also on reserve at Bobst. 1
Course Requirements The course requirements are a mid-term examination, a final examination, and two problem sets. Grades will be calculated according to: Class Participation 10% Problem sets 15% Mid-Term Exam 30% Final Examination 45% Schedule 1. 1/21 & 1/22: Introduction to theories of development. Global trends and the scope of challenges. 2. 1/28 & 1/29: Foreign Aid. 3. 2/4 & 2/5: Defining poverty and inequality. Relationships between poverty, inequality, and economic growth. Problem set 1 due (economic growth rates) 4. 2/11 & 2/12: Informal markets: Access to finance. Problem set 2 due (growth relationships) 5. 2/18 & 2/19: Microfinance: a new policy paradigm? 6. 2/25 & 2/26: Saving and asset-building. Problem set 3 due (credit and insurance) 7. 3/4 & 3/5: Coping with risk. Safety nets. 8. 3/11 & 3/12: Mid-term exam (in class) Spring Break 9. 3/25 & 3/26: Markets and technology adoption 10. 4/1 & 4/2: Population and Growth. Problem set 4 due (population) 11. 4/9: Education [4/8 section cancelled, Passover] 12. 4/15 & 4/16: Gender and the intra-household allocation of resources 13. 4/22 & 4/27: Health Problem set 5 due (health) 14. 4/29 & 4/30: Corruption 5/7: Final exam (take-home) due 2
Readings > Recommended reading 1. Introduction to theories of development. Global trends and the scope of challenges. Development Economics is a relatively young field, arising just after World War II, as many colonies were gaining independence from Europe. We begin by setting out early debates and the current state of the world. Debraj Ray, Development Economics, chapters 1 and 2, Introduction and Economic Development: Overview, pp. 3-44. > Millenium Development Goals. See www.developmentgoals.org 2. Economic Growth and Foreign Aid Why do some countries grow richer while others don t? Historically, patterns of economic growth have been driven by much more than just levels of investments and human resources. Recent evidence shows the roles of legal systems, political institutions, trade and tax policy, and geography, among other forces. William Easterly, The Quest for Growth: How we wandered the tropics trying to figure out how to make poor countries rich, [www.worldbank.org/research/growth/notes1.html] William Easterly, 2003. Can Foreign Aid Buy Growth? Journal of Economic Perspectives 17 (3), Summer: 23 4. Debraj Ray, Economic Growth, Development Economics, chapter 3 just pp. 47 64 and 74-90. > Debraj Ray, History, Expectations, and Development, Development Economics, chapter 5, pp. 131-161. 3. Defining poverty and inequality. Relationships between poverty, inequality, and economic growth. Before considering the relationship between economic growth and poverty, we need to be clearer about measurement issues. There is no perfect way to measure poverty and inequality, but there is consensus about key principles. The most appropriate method will often depend on the questions that we are asking. The World Bank s Voices of the Poor project often yields quite different answers about what it means to be poor. Jonathan Morduch, Concepts of Poverty, forthcoming as chapter 2 of United Nations Handbook of Poverty Statistics. New York: United Nations. Forthcoming, 2008. 3
Daryl Collins, Jonathan Morduch, Stuart Rutherford, Orlanda Ruthven. Portfolios of the Poor: How the World s Poor Live on $2 a Day. Chapter 1. Debraj Ray, Economic Inequality, Development Economics, chapter 6, pages 169-196. Debraj Ray, Poverty and undernutrition, Development Economics, chapter 8 (first half), pages 249-267. > Jonathan Morduch, Poverty Measures, forthcoming as chapter 3 of United Nations Handbook of Poverty Statistics. New York: United Nations. Forthcoming, 2008. > Angus Deaton, Is World Poverty Falling? Finance and Development 39 (2), June 2002. [http://www.imf.org/external/pubs/ft/fandd/2002/06/deaton.htm]. For a related interview with Deaton see http://www.imf.org/external/pubs/ft/survey/2002/070802.pdf. > Voices of the Poor The World Bank. [www.worldbank.org/poverty/voices/index.htm] Does economic growth comes at the expense of the poor? How does economic growth affect poverty and inequality? How can patterns of inequality affect levels of growth? The World Development Report highlights the translation of debate into action, but The Economist faults it for papering over Dollar s and Kraay s findings. Debraj Ray, Inequality and Development: Interconnections, Development Economics, chapter 7, pp. 197 241. Quantity and Quality, The Economist (Economics Focus), 2000. > David Dollar and Aart Kraay, Growth is good for the poor, The World Bank, working paper. [http://econ.worldbank.org/files/1696_wps2587.pdf] > Howard White and Edward Anderson (1992). Growth versus Distribution: Does the pattern of growth matter? Institute of Development Studies, University of Sussex, Working paper. [http://www.ids.ac.uk/ids/pvty/pdf-files/growth.pdf] 4. Access to financial services Lack of insurance is part of a broader lack of access to financial services. This section shows how informational problems limit the scope of credit markets and restrict the role that the price mechanism plays to ration demand. This provides a framework with which to reevaluate standard policy prescriptions. Beatriz Armendáriz de Aghion and Jonathan Morduch (2003), The Economics of Microfinance: Chapter 1: Rethinking banking Chapter 2: Why intervene in credit markets? Daryl Collins, Jonathan Morduch, Stuart Rutherford, Orlanda Ruthven. Portfolios of the Poor: How the World s Poor Live on $2 a Day. Chapter 2. 4
> Debraj Ray, Credit, sections 14.1-14.3, pp. 529 561. > Rutherford, Stuart (1998), The Poor and their Money. Delhi: Oxford University Press, chapters 1 and 2. 5. Microfinance The root of credit market failures is lack of collateral. But new institutions like Bangladesh s Grameen Bank and Bolivia s BancoSol have shown that it is possible to secure high rates of repayment while lending to poor households. The key is a series of new mechanisms, most famously group-lending with joint liability. Yunus describes the early experience with Grameen, and Morduch s papers describe a range of other programs, as well as emerging opportunities and tensions in the movement. Mohammad Yunus (1995), The Grameen Bank: Experiences and Reflections. Dhaka: Grameen Bank. Beatriz Armendáriz de Aghion and Jonathan Morduch (2003), The Economics of Microfinance: Chapter 4: Group lending Chapter 5: Beyond group lending Chapter 7: Gender Chapter 9: Subsidy and sustainability CGAP, Microcredit Interest Rates, Occasional Paper Number 1, August 1996 [Extract]. Jonathan Morduch (2000), The Microfinance Schism, World Development, April. > Freedom from Hunger: www.freefromhunger.org > Pro Mujer: www.promujer.org > ACCION International: www.accion.org > Consultative Group to Assist the Poorest: www.cgap.org 6. Saving and Asset Accumulation Households use a great variety of strategies to cope with misfortune and build assets for the future. Some are very effective, while others are less so and none are costless. Beatriz Armendáriz de Aghion and Jonathan Morduch (2003), The Economics of Microfinance: Chapter 6: Saving and insurance Daryl Collins, Jonathan Morduch, Stuart Rutherford, Orlanda Ruthven. Portfolios of the Poor: How the World s Poor Live on $2 a Day. Chapter 4. 7. Coping with risk. Safety nets. Is there a role for the government in supporting these informal coping mechanisms? Can informal insurance effectively patch the safety net? Some argue that the lack of good ways to 5
save and insure are as critical as difficulties in borrowing. These papers take up debates and describe constraints and opportunities. Debraj Ray, Chapter 15, pages 591 616. Jonathan Morduch, Microinsurance: The Next Revolution? in Understanding Poverty, edited by Abhijit Banerjee, Roland Benabou, and Dilip Mookherjee. Oxford University Press, 2006. Daryl Collins, Jonathan Morduch, Stuart Rutherford, Orlanda Ruthven. Portfolios of the Poor: How the World s Poor Live on $2 a Day. Chapter 3. > Debraj Ray, More from Insurance, chapter 15. > Jonathan Morduch (1998), Between the State and the Market: Can Informal Insurance Patch the Safety Net? World Bank Research Observer 14(2), August, 187-202. > World Bank resources on safety nets: http://www.worldbank.org/poverty/safety/ 8. Mid-term exam (In class) 9. Markets and technology adoption Guest lecture by Hope Michelson, based on her research in Nicaragua on small-scale farmers and their relationship with supermarkets like Wal-Mart. Readings to be added to Blackboard 10. Population growth and the demographic transition Debraj Ray, Population Growth and Economic Development, Development Economics, Chapter 9, especially 9.1-9.3. Cristian Pop-Eleches (2005), The Impact of an Abortion Ban on Socio-Economic Outcomes of Children: Evidence from Romania, Mimeo. > Sudhir Anand and Jonathan Morduch (1998), Poverty and Population Pressure, chapter 2 in Massimo Livi-Bacci and Gustavo de Santis, eds., Population and Poverty in Developing Countries. Oxford University Press (Clarendon), 1998, pages 9 24. > The Population Council: www.popcouncil.org/ 11. Education Public Report on Basic Education (PROBE) in India (1999), Oxford University Press. Esther Duflo. Schooling and Labor Market Consequences of School Construction in Indonesia: Evidence from an Unusual Policy Experiment, American Economic Review 91(4), 2001, pp. 795-813 6
Rema Hanna and Esther Duflo. Monitoring Works: Getting Teachers to Come to School, NBER Working Paper No. 11880, 2005; BREAD Working Paper No. 103, 2005 J. Angrist, E. Bettinger, E. Bloom, E. King, and M. Kremer. Vouchers for Private Schooling in Colombia: Evidence from a Randomized Natural Experiment, American Economic Review, December 2002. 12. Gender and the intra-household allocation of resources David Dollar and Roberta Gatti, Gender Inequality, Income, and Growth: Are Good Times Good for Women? World Bank, Gender and Development Working Paper # 1, 1999. [www.worldbank.org/gender/prr/dg.pdf] Debraj Ray, The Functional Impact of Poverty, Development Economics, sec. 8.4, pp. 281-8. Duflo, Esther. Gender Inequality in Development. Jere Behrman and Emmanuel Skoufias (2006), Mitigating Myths about Policy Effectiveness: Evaluation of Mexico s Antipoverty and Human Resource Investment Program, The Annals of the American Academy of Political and Social Science 606, 244-275. http://ann.sagepub.com/cgi/reprint/606/1/244 > Beatriz Armendáriz de Aghion and Jonathan Morduch (2003), The Economics of Microfinance: Chapter 7: Gender > UNDP web: www.undp.org/gender/ > Oxfam web: www.oxfam.org.uk/policy/gender/lgender.htm > UNDP, Human Development Report 1995, Oxford University Press. Available in Bobst. 13. Health Deon Filmer, Jeffrey Hammer, and Lant Pritchett, Health Policy in Poor Countries: Weak Links in the Chain, World Bank Policy Research Working Paper 1874, January 98, pp. 1 63. Deon Filmer, Jeffrey S. Hammer, and Lant H. Pritchett (2002). Weak Links in the Chain II: A Prescription for Health Policy in Poor Countries, World Bank Research Observer 2002 17: 47-66. [http://wbro.oupjournals.org/cgi/reprint/17/1/47.pdf] Abhijit Banerjee, Angus Deaton, and Esther Duflo, 2004. Wealth, health, and health services in rural Rajasthan, Poverty Action Lab Paper No. 8, May. Abhijit Banerjee, Angus Deaton, and Esther Duflo. http://www.povertyactionlab.com/papers/banerjee_deaton_duflo_2.pdf 7
John Gallup and Jeffrey Sachs, The Economic Burden of Malaria, Kennedy School CID, Harvard University, working paper, October 1998, pp. 1-20. [www2.cid.harvard.edu/cidpapers/mal_wb.pdf] Miguel,Edward and Kremer,Michael (2004). Worms: Identifying Impacts on Education and Health in the Presence of Treatment Externalities, Econometrica, pp 159-217. 14. Corruption Abhijit Banerjee, Roland Benabou, Dilip Mookherjee (eds.). Understanding Poverty, Chapter 11 Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 681-712, August. Bertrand, Djankov, Hanna, and Mullainathan (2005) Does Corruption Cause Bad Drivers?, NBER Working Paper #12274. Olken, Ben, 2005. Monitoring Corruption: Evidence from a Field Experiment in Indonesia, NBER Working Paper #11753. 8