Download - Devecon Lecture1 Introduction
-
8/14/2019 Devecon Lecture1 Introduction
1/33
Development economics
Lecture 1: Introduction
Julie Chytilov
-
8/14/2019 Devecon Lecture1 Introduction
2/33
Development economics
Lecture 1: Introduction2
Overview
Characteristics of underdevelopment
How poor people live
Requirements of the course
-
8/14/2019 Devecon Lecture1 Introduction
3/33
Development economics
Lecture 1: Introduction3
Characteristics of underdevelopment
Both symptoms and causes
Poverty not only having little money
Examples we are going to talk about
Education
Health and well-being
Population growth
Access to financial services
-
8/14/2019 Devecon Lecture1 Introduction
4/33
Development economics
Lecture 1: Introduction4
Sectors of the economy Dominance by agriculture and petty services
Little manufacturing industry
Workers in agriculture
Subsistence farmers
Tenant farmers
Landless laborers
Distribution of employment
Agriculture Industry Services
Low-income 65% 18% 17%
Middle-income 28% 32% 40%
High-income 5% 28% 67%Source: Thirlwall (2006), ILO (2002)
-
8/14/2019 Devecon Lecture1 Introduction
5/33
Development economics
Lecture 1: Introduction5
Diminishing returns in agriculture Land = fixed factor of production -> decreasing marginal product
Limit to employment in agriculture
Many people -> on average earn low income
Family farms
Migration to towns -> large informal sector: street trading, haircutting, shoe-shining, transport,
Labor
MPL
Subsistence wage
-
8/14/2019 Devecon Lecture1 Introduction
6/33
Development economics
Lecture 1: Introduction6
Sectors of the economy
-
8/14/2019 Devecon Lecture1 Introduction
7/33
Development economics
Lecture 1: Introduction7
Low capital accumulation Industry: increasing returns
All factors are variable (vs. fixed land)
Low level of capital Physical
Human
Low capital accumulationpoverty
-
8/14/2019 Devecon Lecture1 Introduction
8/33
Development economics
Lecture 1: Introduction8
Exports dominated by primary commodities Export: primary commodities, low value added
Import: manufactured goods
Ratio of export to import prices = barter terms of trade Terms of trade of primary goods relative to manufactured goods have been
falling down
Prices of primary commodities cyclically volatile
Low level of diversification
Primary commodities as a percentage of exports
East Asia and Pacific 16%
South Asia 22%Latin America and Caribbean 50%
Middle East and North Africa 79%
Sub-Saharan Africa 62%
-
8/14/2019 Devecon Lecture1 Introduction
9/33
Development economics
Lecture 1: Introduction9
Exports dominated by primary commodities
Percentage of merchandise exports (2000)
Agricultural raw
materials Food Fuel
Manufactu
res Metals
Low income 4.2 15.0 23.6 50.9 5.8
Middle income 2.3 9.3 22.2 59.0 4.8
High income 1.6 6.1 5.1 81.9 2.4Sub-Saharan Africa 5.8 16.9 29.0 35.1 8.0
Source: World Development Indicators (2004)
-
8/14/2019 Devecon Lecture1 Introduction
10/33
Development economics
Lecture 1: Introduction10
High export concentrationConcentration and diversification indeces
Concentration
index
Diversification
index
Number of
products
Developing economies 0.110 0.272 260
Developed economies 0.067 0.124 260
Africa 0.309 0.619 258
Zambia 0.415 0.833 129
Uganda 0.559 0.861 65Chad 0.781 0.733 7
China 0.077 0.454 254
India 0.167 0.615 237
Czech Republic 0.080 0.389 246USA 0.094 0.261 257
Source: UNCTAD Handbook of Statistics (2008)
-
8/14/2019 Devecon Lecture1 Introduction
11/33
Development economics
Lecture 1: Introduction11
High export concentration
Coffee 20%
Fish 15%Gold 13%
Other
-
8/14/2019 Devecon Lecture1 Introduction
12/33
Development economics
Lecture 1: Introduction12
Education
Source: World Development Indicators (2004)
Primary Secondary Tertiary Male Female Primary Secondary
Low income 94 46 10 72 53 32 25
Sub-Saharan Africa 87 71 56 43 24
Middle income 111 75 22 92 83 25 20
High income 102 106 61 16 14
Gross enrollment ratio Adult literacy rate Pupil-teacher ratio
Under-provision of education
125 million children receive no primary education, 1/3 in Africa
Gender gap
-
8/14/2019 Devecon Lecture1 Introduction
13/33
Development economics
Lecture 1: Introduction13
Education
-
8/14/2019 Devecon Lecture1 Introduction
14/33
Development economics
Lecture 1: Introduction14
Health and well-being
Low HDI
countries
High HDI
countries
Infant mortality rate (per 1000 births) 104 6Maternal mortality ratio (per 100,000 births) 595 8
Life expectancy 51 77.5
Physicians (per 1000 people) 0.1 2.7
Udaipur
Average BMI index = 17.8 (18.5 = cutoff for being underweight)
55% of adults are anemic 72% at least one symptom of disease
46% report an illness
-
8/14/2019 Devecon Lecture1 Introduction
15/33
Development economics
Lecture 1: Introduction15
Health and well-beingProportion of people aged 15-49 with HIV worldwide living in particular country (2003)
29 million people worldwide, 19 million in Africa (2003)
Lower productivity and income
Virtual generation of orphans (in 2000 estimated 10 million of AIDS orphans in Africa)
Lower life expectancy: in Zimbabwe is 42, in the absence of AIDS is estimated to be 64.
-
8/14/2019 Devecon Lecture1 Introduction
16/33
Development economics
Lecture 1: Introduction16
Health and well-being 40% of people are at
risk of malaria
Mostly in developing
countries
> 500 mil. ill every year
> 1 mil. deaths everyyear
Mostly affects children
(Africa 20% of childhood
deaths)
African children have onaverage 1.6-5.4episodes of malariaevery year
Clinical malaria episodes (2004), WHO
-
8/14/2019 Devecon Lecture1 Introduction
17/33
Development economics
Lecture 1: Introduction17
Rapid population growth
Population growth (in %): birth rate death rate
Birth rate: newly born per 1000 population
Death rate: deaths per 1000 population
Age structure Developing countries: children under 15 = 40%
Developed countries
-
8/14/2019 Devecon Lecture1 Introduction
18/33
Development economics
Lecture 1: Introduction18
Fertility
Number of familymembers in poorhouseholds 7-8(median)
USA = 2.5
2.5-5 adults (jointfamilies)
Young (51) = 6 (median)
USA = 1
Source: Banerjee andDuflo (2006)
-
8/14/2019 Devecon Lecture1 Introduction
19/33
Development economics
Lecture 1: Introduction19
Fertility
World Development Indicators (2006)
-
8/14/2019 Devecon Lecture1 Introduction
20/33
Development economics
Lecture 1: Introduction20
Causes and consequences of population growth
Population growth poverty
Living standard
Food supply
Education and health systems
Employment opportunities
Poverty population growth Poor health environment
Help of children when parents are sick or old, household labor
Local institutions promoting high number of children (clan)
-
8/14/2019 Devecon Lecture1 Introduction
21/33
Development economics
Lecture 1: Introduction21
How poor spend their money
Food: 56-78%
Festivals and celebrations: 10% in Udaipur, India, 0% in Nicaragua Tobacco and alcohol:
-
8/14/2019 Devecon Lecture1 Introduction
22/33
Development economics
Lecture 1: Introduction22
Ownership of assets
Land
4% in Mexico, 30% in Pakistan, 37% in Guatemala, 50% in Nicaragua, 65% inPeru, 85% in Panama
Very small landholdings
91
30
11 16
34
1925 26
40
1122
13
38
0
20
40
60
80
100
%
House equipment
Electricity Radio
Black and white TV Colour TV
Fan Telephone
Electric iron Gas/electric/kerosene cooker
Bicykl Motorbike
Water pump Piped waterIndoor latrine
4923
72
17842
21 6
28
7
Large variation in ownership of
assetsPiped water (0% in Udaipur 36% in Guatemala)
Electricity (1.3% in Tanzania 99% in Mexico)
Latrine (0% in Udaipur 100% in Nicaragua)
Karnataka (2007)
-
8/14/2019 Devecon Lecture1 Introduction
23/33
Development economics
Lecture 1: Introduction23
How poor earn their money
Many entrepreneurs
Peru: 69% of urban poor households operate a non-agricultural business
25-98% of rural households operate a farm
Multiple occupations
Lack of specialization
Operation on small scale
-
8/14/2019 Devecon Lecture1 Introduction
24/33
Development economics
Lecture 1: Introduction24
How poor earn their money
-
8/14/2019 Devecon Lecture1 Introduction
25/33
Development economics
Lecture 1: Introduction25
Access to financial institutions
Borrowing
Many people borrow (11% in East Timor; 93% in Pakistan)
Mostly from informal source
Udaipur
Relatives 23%
Moneylender 18%
Shopkeeper 37%
Bank 6%
High interest rate (3-4% per month)
High default rates
Difficult enforcement
Difficult monitoring
No collateral
Microcredit
-
8/14/2019 Devecon Lecture1 Introduction
26/33
Development economics
Lecture 1: Introduction26
Access to financial institutions
Savings
Few people have savings accounts (14%)
Lack of reliable savings products Informal strategies
Rotating Savings and Credit Associations (ROSCAs)
Self-help groups
Insurance
Adjustment in consumption
Informal insurance
Informal social networks
Burial funds
Kitchen parties
-
8/14/2019 Devecon Lecture1 Introduction
27/33
Development economics
Lecture 1: Introduction27
Institutions
Quality of governance
Corruption
Political rights
Regulatory burdens
Protection of property rights
Limits placed on political leaders
Measures
Aggregate governance index
Voice and accountability
Political stability and absence of violence
Government effectiveness
Regulatory burden
Rule of law
Freedom from graft
-
8/14/2019 Devecon Lecture1 Introduction
28/33
Development economics
Lecture 1: Introduction28
Institutions
Correlation btw. institutions and development
Causality?
Economicdevelopment
Institutions
Other factor
-
8/14/2019 Devecon Lecture1 Introduction
29/33
Development economics
Lecture 1: Introduction29
Institutions
Correlation btw. institutions and development
Causality?
Exogenous variation in institutions (Acemoglu et al. 2001) Different experience of colonization
Historical mortality
of soldiers and
bishops
Good institutions
Settler societies
Bad extractiveinstitutions
Good institutions
Settler societies
Bad extractiveinstitutions
Developed
Under-developed
Australia, New Zealand,North America
Africa, Latin America
Past Today Today
-
8/14/2019 Devecon Lecture1 Introduction
30/33
Development economics
Lecture 1: Introduction30
Institutions
Correlation btw. institutions and development
Causality?
Exogenous variation in institutions (Acemoglu et al. 2001) Different experience of colonization
Historical mortality
of soldiers and
bishops
Good institutions
Settler societies
Bad extractiveinstitutions
Good institutions
Settler societies
Bad extractiveinstitutions
Developed
Under-developed
Australia, New Zealand,North America
Africa, Latin America
Past Today Today
?
-
8/14/2019 Devecon Lecture1 Introduction
31/33
Development economics
Lecture 1: Introduction31
Introduction of the subject of development economics
Basic understanding of
The nature of poverty and underdevelopment
The development difficulties faced by poor countries
Growth theories
Combination of theory and empirical evidence
Lectures Poverty Inequality
Growth models (Harrod-Domar, Solow) Land
Capital
Population
Role of state
Development and environment
Trade Financing economic development
This course aims and structure
-
8/14/2019 Devecon Lecture1 Introduction
32/33
Development economics
Lecture 1: Introduction32
Each week one lecture and one seminar
Short readings for each seminar Read all of them
Prepare presentation on one of them 10%
List of the readings is on the course webpage -> let me know by email, the
readings will be assigned on the first-come-first-served basis Activity at the seminars bonus points
Homework 15%
Mid-term written exam 25%
Final written exam 50%
Consultation hours: Thursday, 1:30-3:30pm, room 602
This course - requirements
-
8/14/2019 Devecon Lecture1 Introduction
33/33
Development economics
Lecture 1: Introduction33
Textbook
Thirlwall, A.P. 2006. Growth and Development, 8th edition. Palgrave MacMillan
Available in the library
Further readings
Todaro, Michael and Stephen C Smith (2005) Economic Development (9th edition),Addison Wesley.
Ray, Debraj (1998) Development Economics
Short readings for the seminars Uploaded on the course website
Literature for this week Thirlwall, pp. 65-84
Banerjee, Abhijit and Esther Duflo. 2006. Economic Lives of the Poor. http://econ-www.mit.edu/files/805
Literature