Economics 720 Economic Development

Prof. Christopher Clague Nasatir Rm 318Phone 594-5503 Home phone 858-412-3251 (not after 9PM, please!)Office Hours: TTh 2-3PM and by appointmentEmail: christopher.clague@gmail.com

Required purchases1. Michael Todaro and Stephen Smith, Economic Development, 11th edition, Addison Wesley, 2012. ISBN 978-0-13-801388-2 ($123 new, used paperback for less, Kindle $117)2. Abhijit Banerjee and Esther Duflo, Poor Economics, 2011, Public Affairs, ISBN 978-1-61039-093-4 (paperback) ($16 new, used for less)3. Course Reader, containing exercises, tables and sources for paper topics

GradingHomework and quizzes 25%Test 1 March 13 25%Paper 25%Final exam May 13 25%

There will be frequent homework assignments and occasional class quizzes. Student are required to write a paper on a topic approved by the instructor. The paper will normally be an analysis of a controversial topic in economic development, based on a review of recent literature. The Reader contains some Sources for paper topics, which are suggestions of works that introduce various topics. You are not limited to these topics. Students must submit a Topic Page by March 27 (before Spring Break), and the paper itself is due by May 1.

Why are some nations rich and others poor? Why have some poor nations escaped from poverty in recent decades, while others have stagnated or regressed? These questions can be addressed in the framework of production theory, focusing on physical and human capital, population growth, and technological change. They can also be addressed on a policy level: what economic policies conduce to capital accumulation and technological progress? At a deeper level, what characteristics of society lead to the policies and institutions that support economic progress? This course will consider all these perspectives, drawing on institutional and behavioral economics, social history, and political science, as well as economic history and neoclassical economic theory.

Outline

Jan 23 and Jan 28-30Week 1. Introduction to development economics 1. Todaro and Smith (TS), Chaps 1 and 22. TS Chap 2 Section 2.7 Long-Run Causes of Comparative Development, pp. 83-91, including footnotes 54-82, describes many references that you may want to consult later.3. Acemoglu, Johnson, and Robinson, “Institutions as a Fundamental Cause of Economic Growth”, in Handbook of Economic Growth 2005. You should read sections 1-4. 4. World Bank Governance Indicators (presented in lecture)

Feb 4-6 and 11-13Weeks 2 and 3. Production function approach; Solow model; Cobb-Douglas in the Solow model; physical and human capital1. TS, Appendix 3.2 The Solow Model, 146-492. TS, Appendix 3.3 Endogenous Growth Theory, 150-543. Hsieh and Klenow, 2010, AEJ: Macro, 2(1): 207-23, “Development Accounting”

Feb 18-20Week 4. Human Capital: Cognitive Achievement1. Hanushek and Woessman, 2008, JEL 46(3): 607-88, “The Role of Cognitive Skills in Economic Development”

Feb 25-27 and March 4-6Weeks 5 and 6 International Trade1. TS, Chap 12. Read pp. 564-75; skim over 575-93; read 593-613; read carefully 613-17; skip 617-23; read box on Taiwan 624-302. TS, Chap 11, Section 11.6, “The Washington Consensus”, pp. 530-323. TS, Chap 4, Section 4.5, “Kremer’s O-Ring Theory”, pp. 176-1804. Richard Baldwin, 2011, NBER wp 17716, “Trade and Industrialization After Globalization’s Second Unbundling: How Building and Joining a Supply Chain are Different and Why it Matters” (chapter in Feenstra and Taylor, Globalization in an Age of Crisis, 2013)

March 11-13 TEST 1 MARCH 13Week 7 Agricultural Transformation and Rural DevelopmentTS, Chap 9. Read the whole chapter.Topics includea. land tenure contracts, share cropping, interlinked credit and rental contractsb. land reformc. the boundaries of the firm (Oliver Williamson)

TEST 1 MARCH 13

March 18-20Week 8 PopulationTS, Chap 6. Read the whole chapter. Topics includea. Demographic transitionb. Theories of fertilityc. Consequences of population size and of population growthd. Family planning programs

March 25-27Week 9 Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty1. Banerjee and Duflo book of that title, 2011. Various chapters.Chap 5, “Pak Sudarno’s Big Family” is on fertility2. Banerjee and Duflo, JEP 2006, “The Economic Lives of the Poor” 21(1): 141-68

MARCH 31-APRIL 4 SPRING RECESS

April 8-10Week 10 Finance and DevelopmentTopics include:a. How important is financial development in development?b. Informal finance and the rise of microfinancec. Financial sector reform and the question of open capital markets1. TS, Chap 15 Sections 1 and 2, pp. 729-38 on functions of financial system and role of Central Banks 2. TS, Chap 15, Section 15.3 Informal finance, pp 739-433. TS, Box on Grameen Bank, pp. 763-674. TS, Chap 14, Section 15.4 Reforming financial systems, pp. 744-515. Banerjee and Duflo, Chap 7, pp. 157-82, The economics of lending to the poor6. Prasad and Rajan, JEP Summer 2008 22(3): 149-72, “A Pragmatic Approach to Capital Account Liberalization”7. La Porta, Lopez-de-Silano, Shleifer, JEL 2008 46(2):285-332, “The Economic Consequences of Legal Origins”

April 15-17Week 11 Education PoliciesTopics includea. private and social returns to educationb. how education affects inequality1. TS, Chap 8 Section 8.2, pp. 365-68 on rates of return; Section 8.5, pp.377-86, Educational Systems and Development, Section 8.4, pp. 373-77 Gender Gap2. TS, Chap 5 Section 5.5, pp. 241-48, “Policy options on inequality and poverty”3. Banerjee and Duflo, Chap 4, “Top of the class,” pp. 71-102

April 22-24Week 12 Institutional Economics and Institutional ReformTopics includea. Prisoners Dilemma gameb. Rule obedience model of tax compliancec. Is corruption the most important barrier to development?1. See exercises in Reader2. Clague, 2002, “The International Campaign Against Corruption: An Institutionalist Perspective” posted on Blackboard3. Banerjee and Duflo, Chap 10, “Policies, Politics,” esp. pp. 253-65, “Against Political Economy”

April 29-May 1Week 13 Choice of topicsDebt and Financial Crises: TS, Chap 13

ORUrbanization: TS, Chap 7, Sections 7.1-7.4

May 6-8Week 14 REVIEW

FINAL EXAM Tuesday, May 13 3:30-5:30