Année universitaire 2013/2014 Collège universitaire Semestre d’automne

Development Economics

Lisa CHAUVET & Sandra PONCET Course content and objectives Lectures will explore the related themes of Economic Growth and Development. The course is organized around 7 topic areas, or modules, that together provide comprehensive coverage of Development Economics (poverty & inequality, population growth, credit market, microfinance, institutions, aid, and civil wars). We will first analyze the main theories and models of economic development and study the determinants of economic growth, focusing on proximate factors such as labor and capital. Then, we will focus on important economic issues such as institutions, aid and civil wars. The main questions that will be addressed in class include: What kinds of policies are required to reduce poverty? Is population growth good for growth? Can microfinance help to reduce poverty? Is the fate of poor countries geographically pre-determined? Is trade good for growth? Is aid effective to achieve development? Is democratization good for growth? What can be done to prevent civil wars? LECTURE 1 : Lisa Chauvet. Introduction to economic development: nature, meaning and objectives Required readings *TS, Chapter 1: Economics, Institutions, and Development: A Global Perspective and *Easterly, William (2002), The Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics, Cambridge, MA.: MIT Press., Chapter 1 (Why Growth Matters). Additional readings DR, Chapters 1 and 2: Introduction, and Economic Development: An Overview. World Bank website on Poverty Banerjee and Duflo (2007), The economic lives of the poor, Journal of Economic Perspectives 21 n°1, pages 141168. Ravallion and Chen (2008)The developing world is poorer than we thought, but no less successful in the fight against poverty, World Bank Policy Research Working Paper 4703. LECTURE 2 : Sandra Poncet. Classic theories of economic development Required readings *TS, Chapter 3, Classic Theories of Economic Development (102-116, 119-125 + appendix on Solow model). *Easterly, William (2002), The Elusive Quest for Growth: Economists’ Adventures and Misadventures in the Tropics, Cambridge, MA.: MIT Press., Chapter 2 and Chapter 3.

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Additional readings: DR , Chapter 3: Economic Growth D. Rodrik, R. Hausmann and A. Velasco (2005) “Growth Diagnostics”, unpublished manuscript. World Bank, 2008, The Growth Report Strategies for Sustained Growth and Inclusive Development On Rostow's stages of growth Website on major development economists: from early development theorists to the Neo-Liberal School LECTURE 3. Sandra Poncet. Contemporary models of development Required readings *TS, Chapter 4, Contemporary models of development and underdevelopment *Easterly, William (2002), The Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics , Cambridge, MA.: MIT Press, Chapter 3 (Solow's surprise). Additional readings DR , Chapter 4: The New Growth Theories Barro, Robert, and Xavier Sala-i-Martin (2004), Economic Growth , Second Edition: Introduction. World Bank, 2008, The Growth Report Strategies for Sustained Growth and Inclusive Development LECTURE 4. Sandra Poncet. Poverty, Inequality and development Required readings *TS , Chapter 5, Poverty, Inequality, and Development * World Development Report 2006 Overview and Introduction Additional readings World Bank website on inequality Dollar, David (2002), “ Growth is Good for the Poor ”, Journal of Economic Growth, 7 (3), 195-225. Milanovic, B 2007 An even higher global inequality than previously thought. Engerman, L., and K. Sokoloff (2006), “ Colonialism, Inequality, and Long – Run Paths of Development ” in Understanding Poverty , edited by A.B. Banerjee, R. Benabou, and D. Mookherjee. Oxford University Press. DR Chapter 6, 7 (pp 220-241). World Development Report 2000/2001, Attacking Poverty , The World Bank, Washington, D.C.: Oxford University Press., pp. 117 – 131. Aghion, Philippe, and Beatriz Armendáriz de Aghion (2006), “ A New Growth Approach to Poverty Reduction ”, in Understanding Poverty , edited by A.B. Banerjee, R. Benabou, and D. Mookherjee. Oxford University Press. Piketty, Thomas (2006), “ The Kuznets Curve: Yesterday and Tomorrow ”, in Understanding Poverty , edited by A.B. Banerjee, R. Benabou, and D. Mookherjee. Oxford University Press. LECTURE 5. Sandra Poncet. Population growth and development Required readings *TS , Chapter 6, Population Growth and Economic Development *Easterly, William (2002), The Elusive Quest for Growth: Economists’ Adventures and Misadventures in the Tropics, Cambridge, MA. MIT Press., pages 90-96 of Chapter 5. Additional readings DR , Chapter 9, Population Growth and Economic Development. Robert H. Cassen, 1976, “ Population and development: A survey”, World Development 4 (1976): 785-830. Nancy Birdsall, 1988, “Economic approaches to population growth”, in Handbook of Development Economics, vol. 1, ed. Hollis B. Chenery and T. N. Srinivasan (Amsterdam: Elsevier, 1988).

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Partha Dasgupta, 1995, “The population problem: Theory and evidence”, Journal of Economic Literature, 33 (1995), 1879-1902. Kelly, A.C. (1988), “Economic Consequences of Population Change in the Third World”, Journal of Economic Literature, 26 (2), pp. 1685 – 1728. Naughton B , Chapter 7: Population growth and the one child family in The Chinese Economy Transitions and Growth (2005-MIT Press). LECTURE 6. Sandra Poncet. Capital accumulation: credit market imperfections Required readings *DR , Chapter 14: Credit *Besley, Timothy. (1994): "How do Market Failures Justify Interventions in Rural Credit Markets" World Bank Research Observer 9 (1) pg. 27. Abhijit Banerjee, Pranab Bardhan, Esther Duflo, Erica Field, Dean Karlan, Asim Khwaja, Dilip Mookherjee, Rohini Pande and Raghuram Rajan, 2010, "Microcredit is not the enemy" Additional readings Besley, Timothy (1995), “Savings, Credit and Insurance”, pp. 2175 – 2201, in T.N. Srinivasan Handbook of Development Economics, Vol. III. LECTURE 7. Sandra Poncet. Microfinance Required readings * Armendáriz de Aghion, Beatriz , and Jonathan Morduch (2005), The Economics of Microfinance , MIT Press, Chapters 4, 5 and 8. Additional readings Armendáriz de Aghion, Beatriz , and Jonathan Morduch (2005), “Microfinance: Where do we stand?” Forthcoming in Charles Goodhart (ed.), Financial Development and Economic Growth: Explaining the Links, London: Macmillan/ Palgrave. Morduch, Jonathan (1990), “ The Microfinance Promise ”, Journal of Economic Literature, Vol. XXXVII. Lead article (December) Armendáriz de Aghion, Beatriz and Christian Gollier (2000), “ Peer Group Formation in An Adverse Selection Model ”, The Economic Journal, July. Armendáriz de Aghion, Beatriz (1999), “On the Design of a Credit Agreement With Peer Monitoring”, Journal of Development Economics 60: 79 – 104. Armendáriz de Aghion, Beatriz , Ashok Rai, and Thomas Söjström (2002), “ Poverty Reducing Credit Policies ”, in Understanding Poverty , by Abhijit Banerjee, Roland Benabou and Dilip Mookherjee. Yunus, Muhammad (2002), “ Grameen Bank II: Designed to Open New Possibilities ”. Additional readings Abhijit V. Banerjee and Esther Duflo (2011), Poor Economics. Public Affairs. Armendáriz de Aghion, Beatriz, and Jonathan Morduch (2005), “Microfinance: Where do we stand?” Forthcoming in Charles Goodhart (ed.), Financial Development and Economic Growth: Explaining the Links, London: Macmillan/ Palgrave. LECTURE 8 : Lisa Chauvet. Fundamental determinants of development: Geography and Institutions Required readings *Acemoglu, Daron, Simon Johnson, and James Robinson (2006), “Understanding Prosperity and Poverty: Geography, Institutions, and the Reversal of Fortune”, in Understanding Poverty, edited by A.B. Banerjee, R. Benabou, and D. Mookherjee. Oxford University Press.

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*Dani Rodrik, Arvind Subramanian and Francesco Trebbi, 2002, “Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development”. Journal of Economic Growth, vol. 9, no.2, pages 131-136 and figures 2 &3. Additional readings Rodrik, Dani, (2003), Introduction “What do we learn from country narratives?” in Rodrik, ed., In Search of Prosperity: Analytic Country Studies on Growth, Princeton University Press, 2003. LECTURE 9 : Lisa Chauvet. Democracy and development Required readings *Acemoglu D., Johnson S., Robinson J.A., Yared P., 2008. Income and Democracy. American Economic Review 98(3), 808-843. *Barro R., 1996. Democracy and Growth. Journal of Economic Growth 1(1), 1-27. Additional readings Acemoglu, D., J.A. Robinson, 2006. Economic Origins of Dictatorship and Democracy, Cambridge University Press. LECTURE 10 : Lisa Chauvet. Civil wars Required readings *Paul Collier and A. Hoeffler, 2007, "Civil War", Handbook of Defense Economics. Additional readings Paul Collier, (1999), "On the Economic Consequences of Civil War" Oxford Economic Papers 51, 168-83. Collier P. and A. Hoeffler, 2004. Greed and Grievance in Civil War. Oxford Economic Papers 56, 663-595. LECTURE 11 : Lisa Chauvet. Aid Effectiveness debate Required readings *Burnside C. and D. Dollar, 2000. Aid, Policies and Growth. American Economic Review 90, 847-868. Additional readings Dalgaard C-J, H. Hansen and F. Tarp, 2004. 0n the Empirics of Foreign Aid and Growth. Economic Journal 114(496), 191–216. Roodman D., 2007. The Anarchy of Numbers: Aid, Development, and Cross-country Empirics. CGDev Working Paper 32. (see also 2004 version of the working paper) LECTURE 12 : Lisa Chauvet. Scaling up aid: new challenges Required readings *Bulir A. and A.J. Hamann, 2001. How Volatile and Unpredictable are Aid Flows, and What are the Policy Implications. WIDER Discussion Paper 2001/143, UNU-WIDER, Helsinki. Additional readings Rajan R. and A. Subramanian, 2005. What Undermines Aid’s Impact on Growth? IMF Working Papers 05/126, International Monetary Fund, Washington D.C.

Textbooks

References

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The main text for this course is Economic Development by Michael P. Todaro and Stephen C. Smith (2006), (henceforth referred to as TS) ninth edition published by Addison-Wesley. An online study guide is available at http://www.aw.com/todaro. You should make use of this site. Other material for the course includes: -Easterly, William (2002), The Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics, Cambridge, MA. MIT Press. -Abhijit V. Banerjee and Esther Duflo (2011), Poor Economics. Public Affairs. -Debraj Ray, Development Economics (1998), Princeton University Press (henceforth referred to as DR) -Armendáriz de Aghion, Beatriz, and Jonathan Morduch, The Economics of Microfinance, MIT Press (2005). In addition, a series of published and (more recent) unpublished articles will be available on line. (* Readings are required.) Course Website The website for the course (accessible through the ENTG) should be visited frequently. Readings that are available in electronic form will be posted in the “Resources” section of the website, as will copies of all course-related handouts. Also basis exercises and quizzes will be posted for the students to practice.

Evaluation Grades are based on: one paper (1/3), in class multiple choice questions (1/3) a two-hour final exam (1/3). The paper is due in class at latest on the last day of class (December 6th). An electronic copy should be send to the lecturer’s urkund address to screen for plagiarism ([email protected] and [email protected]). Guidelines for paper assignment INSTRUCTIONS 1. Choose a news article (not an “opinion” column such as an editorial) published after May 1, 2008, in The New York Times, The Wall Street Journal, Business Week, The Economist, or The Financial Times (no exceptions!). The story should relate to development and/or underdevelopment in developing countries and to one of the topics covered in class (poverty & inequality, population growth, credit market, microfinance, education, geography and trade, geography and institutions, trade, democracy, aid, and civil wars). 2. Summarize in one tight paragraph the story contained in the article. 3. Identify the important issues posed explicitly and implicitly in the article from the standpoint of economic development in the developing world. 4. Use the tools and knowledge you have acquired in this course to analyze the issues you have identified. REQUIREMENTS 1. Your paper may not exceed four pages in length, exclusive of the cover page and of pages devoted solely to endnotes, figures, and references. 2. On the cover page, on successive lines, centered, roughly one-third of the way down the page, place: the title of your article, the name of the periodical, the date of publication, your name, your student identification number, “Development economics, Fall 2013”. 3. The paper must be typed and double-spaced; use margins of at least 1 inch and a font size of 12 (points). Use this font size for endnotes as well as for text. 4. Attach a copy of the article (or articles, if the story is told in a series of reports). 5. Staple together all of the pages of your submission (including the copy of the article). 6. Number each page of your paper (except the cover page) using Arabic numerals. Consider the cover page to be page 0. 7. When numbering endnotes, use Arabic numerals.

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SUGGESTIONS 1. Comply scrupulously with the instructions and requirements above. Failure to do so will result in lost points. If you don’t understand something, seek clarification from us or from the TA. 2. Begin immediately your search for a suitable article. Toward this end, you will probably want to read regularly at least one of the periodicals mentioned above. 3. Choose your article carefully. It should be easy to find an article that bears on Economic development in Africa, Asia and Latin America. It will be more challenging (but certainly not difficult) to find an article that permits you to discuss issues and tools of relevance to this class. Remember the point of the exercise: to show us what you have learned in this class. 4. The instructions on examinations will read (in part): “Wherever possible, enrich your answers with examples and references drawn from course discussions and materials. Wherever necessary, define important terms and explain the assumptions underlying your arguments. Points will be awarded for organized and coherent argumentation.” These instructions apply with even greater stringency on the paper, for which you have more time and direct access to class materials, than they do on the examinations. 5. You are not required to find and consult sources other than those that appear on the syllabus; but you are certainly not prohibited from conducting research in the library! Nor are you prohibited from consulting multiple articles, in various periodicals, covering the same event. Guidelines for the final exam A two-hour exam will be organized after the twelve lectures. It will be made of various sections. It will typically include some True/False/Uncertain questions, some Multiple Choice Questions, some short answers questions and quantitative questions. Exams of previous years are good illustrations of what students can expect and will be provided.

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