reading list of development economics
Course Outline
The aim of the course is to introduce students to the exciting and evolving field of development economics. The central questions for the course are: (i) What are the major economic forces that drives development and growth? (ii) How do government policies and economic institutions affect the development process? (iii) Where do "good" policies and institutions come from? (iv) What are the structural features that characterise developing economies? Throughout the course we focus on the micro foundations of the big macro picture and combine economic theory and data analysis. Our final goal is to understand how the development process works and to identify policy reforms that will make a difference.
Reading List for 2003-04 (A slightly revised version will be posted at the beginning of the Lent term)
In weeks 1-4 we take a macro view and study some broad institutional factors that contribute to underdevelopment. In Weeks 5-9 we take a micro view and study financial markets, agricultural organization and industrial organization in developing countries.
Week 1: Institutions and Economic Development: The Big Picture and Some Evidence
In this lecture we theoretically discuss why institutions, which are ignored in standard growth models, are important in understanding underdevelopment. We examine recent empirical evidence that suggests institutions not only affect current economic performance, but future economic performance as well, suggesting that "history matters", contrary to the "convergence" implications of standard growth models.
North, D. (1991) : "Institutions", Journal of Economic Perspectives.
Daron Acemoglu, Simon Johnson, and James A. Robinson (2001): "The Colonial Origins of Comparative Development: An Empirical Investigation", American Economic Review.
Kenneth Sokoloff and Stanley Engerman (2000): "Institutions, Factor Endowments, and Paths of Development in the New World" Journal of Economic Perspectives.
Week 2: Institutional Failure and Poverty Traps
In this lecture we examine one particular mechanism of how institutions affect economic development. In the presence of transactions costs leading to financial market imperfections, an economy may fail to converge to the efficient steady state, and remain trapped in poverty. The initial wealth distribution may play a crucial role in governing the future trajectory of the economy.
Maitreesh Ghatak and Nien-Huei Jiang: "A Simple Model of Inequality, Occupational Choice and Development". Journal of Development Economics, Vol. 69, No. 1, October 2002.
Banerjee, A. and A. Newman, (1993): "Occupational choice and process of development" Journal of Political Economy, 101 (2).
Banerjee, A. (2002): "Contracting Constraints, Credit Markets and Economic Development, MIT Dept. of Economics Working Paper No. 02-17.
Week 3: Coordination Failure and History Dependence
In this lecture we discuss another mechanism by which history can matter. In the presence of externalities and complementarities in actions of individuals, there can be multiple equilibria. Two identical economies can end of at very different levels of development depending on initial conditions.
Debraj Ray (1998): "History, Expectations and Development", Chapter 5, Development Economics, Princeton University Press, 1998.
Murphy, K., A. Shleifer and R. Vishny (1989) : "Industrialization and the Big Push" Journal of Political Economy, pp. 1003-1026.
Week 4: Adoption and Persistence of Bad Policies and Institutions
Political factors can play an important role in shaping economic policies and institutions. In this lecture we discuss political economy models that address why bad policies and institutions are adopted, and tend to persist.
Acemoglu, Daron and James Robinson (2000), "Political Losers As a Barrier to Economic Development" AEA Papers and Proceedings vol 90, 126-130.
Alesina, Alberto, and Dani Rodrik (1994): "Distributive Politics and Economic Growth", Quarterly Journal of Economics.
Fernandez, Raquel and Dani Rodrik (1991): "Resistance to Reform: Status Quo Bias in the Presence of Individual-Specific Uncertainty", American Economic Review.
Week 5: Financial Markets in Developing Countries: Theory & Evidence
Financial markets play a crucial role in economic development by allowing those who have talents and skills but not money, to undertake investments by using the surplus savings of others. If this market is subject to frictions, then worthwhile projects may not be undertaken for lack of money, thereby depressing national income below its potential. In this lecture we study theoretical models of frictions in financial markets, and empirical evidence on their importance.
Parikshit Ghosh, Dilip Mookherjee and Debraj Ray: "Credit Rationing in Developing Countries: An Overview of the Theory", by, Chapter 11 in Readings in the Theory of Economic Development, edited by D. Mookherjee and D. Ray, London: Blackwell, 2000, pages 383--301.
Abhijit Banerjee, Esther Duflo and Kaivan Munshi (2003): "The (mis)-allocation of capital" European Economic Review, Papers and Proceedings.
Paulson, Anna and Robert Townsend (2001): "Entrepreneurship and Financial Constraints in Thailand", Working Paper, University of Chicago.
Week 6: Institutional & Policy Responses to Financial Market Imperfections
In this lecture we study innovative policy interventions in response to financial market imperfections, with special emphasis on micro-finance. We study theoretical models that show how it can overcome market failures by exploiting social networks, and empirical studies that evaluate the effect of these programmes, and the causes behind their success.
Ghatak, Maitreesh and Timothy W. Guinnane: "The Economics of Lending with Joint Liability : Theory and Practice" Journal of Development Economics, Vol.60, No.1, October 1999.
Karlan, Dean (2002), "Social Capital and Group Banking", Mimeo. Princeton.
Morduch, Jonathan (1998): "Does Microfinance Really Help the Poor? New Evidence from Flagship Programs in Bangladesh", Working Paper, New York University.
Week 7: Agricultural Organization & Productivity in Developing Countries - Theory
Agriculture occupies a central place in less developed economies. In this lecture we study features of agricultural organization in these economies, such as sharecropping tenancy and interlinked contracts, as optimal second-best responses to missing markets and transactions costs. Strategies for successful agrarian reform are discussed.
Banerjee, A.V., P. Gertler and M. Ghatak (2002) : "Empowerment and Efficiency - Tenancy Reform in West Bengal", Journal of Political Economy.
Mukesh Eswaran and Ashok Kotwal (1985): "A Theory of Contractual Structure in Agriculture", American Economic Review, Vol. 75, No. 3, p. 352-367.
Ray, Debraj and Kunal Sengupta (1989) "Interlinkages and Patterns of Compeition", in P. Bardhan (ed.) The Economic Theory of Agrarian Institutions, Clarendon Press, Oxford.
Week 8: Agricultural Organization & Productivity in Developing Countries - Evidence
In this lecture we examine empirical evidence on contractual form and productivity in the agricultural sector in developing countries. The focus will be on empirical determinants of organizational and contractual form, and the effect of these on agricultural productivity.
Ackerberg, D. and M. Botticini (2002): "Endogenous Matching and Empirical Determinants of Contractual Form", Journal of Political Economy.
Shaban, R. (1987): "Testing between alternative models of sharecropping", Journal of Political Economy, v.95.
Jacoby, H., R. Murgai, and S. Rehman (2003): "Monopoly Power and Distribution in Fragmented Markets: The Case of Groundwater", Forthcoming, Review of Economic Studies.
Week 9: Industrial Organization in Developing Countries
Two commonly cited problems for low levels of industrial investment in developing countries is costly contracting and uncertainty. In this lecture we study how industrial organization in developing countries respond to these problem, focussing on the importance of reputation and subcontracting.
Banerjee, Abhijit and Esther Duflo, "Reputation Effects and the Limits of Contracting: A study of the Indian Software Industry," Quarterly Journal of Economics, Vol. 115 (3), pp. 989-1017, 2000.
Tahir Andrabi, Maitreesh Ghatak, and Asim Ijaz Khwaja: "Subcontractors for Tractors - Theory and Evidence on Flexible Specialization, Supplier Selection, and Contracting", Working Paper, LSE, October 2002.
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