issues in economic

7/27/2019 Issues in Economic

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Leading Issues inEconomic Development


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Oxford University PressO xf o rd N ew Yo rkAu ckla nd Bangkok Buenos Aires Cap e Town ChennaiDor es Salaam Delhi Hong Kong Istanbul Karac hi KolkotoKuala Lumpur Ma dr id Melbourne Mexico C i ty MumbciN a i r o b i Soo Paulo Shanghai Taipei Tokyo TorontoCopyright 2005 by Oxford University Press, Inc.Published by Oxford University Press, inc-198 Madison Avenue, New York , New York 10016http://vAvw.oup.comOxford is a registered t rademark of Oxford Universi ty PressAl l r ights reserved. No part of this publ icat ion may be reproduced,stored in a ret r ieval system, or t ransmit ted, in any form or by any means,e lectron ic, m echanica l , photocopy ing, record ing, or o therw ise,wi thout the prior permission of Oxford Universi ty Press.

ISBN 13:978-0-19-517960-6

Printed in the United States of Americaon ac id- f ree poper
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To the next generation of development economists.-G .M.M.

To Doris-J.E.R.


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CONTENTS

EXHIBITS xiiiPREFACE XVU S I N G THIS BOOK xv i iW O R L D M A P O F HUMAN DEVEL OPMENT INDEX xvi i i

I . INTRODUCTION 1Overview ]I.A. MEA SURING DEVELOPMENT 5

Note I.A. 1. The Evolution of Measures of Development 12Selection lA. 1. W h y A re S ervices Cheaper in the Poor Countries? 16

Comment I.A. 1. Th e Productivity and Factor P roportions Exp lanations AgainSelection l.A.2. Income Poverty

Comment l.A.2. Capabilities and EntitlementsNote l.A.2. Other Important Differences Between Developed and Less

Developed Countries 32LB. EC O NO M IC PERFORMANCE O F LESS DEVELOPED COUNTRIES:

THE RECENT PAST 3 4Selection IB. 1. The Lost Decades: Developing Countries' Stagnation in Spite of

Policy Reform 1980-1998Note IB. 1. No Easy Answers, Yet All Is Not LostSelection IB.2. How Reform W orke d in ChinaSelection I.B.3. India Since IndependenceSelection l.B.4. The Impact of the Economic Reforms in Latin America and

the Car ibbeanSelection I.B.5. W hy Has Af r ica Gro wn Slowly?

I.e. THE DISCIPLINE OF DEVELOPMENT ECONOMICSNote I.e. 1. Evolution of Development Economics

Comment I.C.I. Classical GrovAh TheoryComment l.C.2. Development Economics as a Special Subject

Note l.C.2. New Endogenous Grov/th Theory


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CONTENTS ix

IV. H U M A N RESOURCES 18 3Overview 184IV.A. EDUCATION 187

Note IV.A. 1. Three Views of the Contribution of Education to Economic Growth 187Selection IV.A. 1. Economic Impact of Education 189

Comment IV.A. I.Updated Estimates of Returns to Investment in EducationComment IV.A.2. Ability Differences, Spillovers, and the Returns to Investment in Education

Selection IV.A.2. Creat ing Human Cap ita l 194Selection IVA.3. Schooling and Labor Market Consequences of School Construction

in Indonesia 198Selection IV.A.4. Interpre ting Recent Research on Sch ooling in De velo ping Coun tries 20 1Selection IVA.5. School Inputs an d Educa tional Outcome s in South A frica 20 6

IVB. HEALTH 212Selection IV.B. 1. Pharmaceuticals and the Developing W or ld 218Selection IV.B.2. Iden tifying Impacts of Intestinal W orm s on H ealth in the Presence of

Treatment Externalities 2 2 5Selection IV.B.3. Confront ing AIDS 231

IVC. POPULATION 240Note IVC. 1. The Size of the W orld's Population an d the Size of the Av erag e Family 2 4 7Selection IVC. 1. Economic Ap proac hes to Population Gro wth 24 8Selection IVC.2. Dem ographic Trends in Sub-Saharan Afric a 25 5

Comment IVC. 1. The "Demographic Dividend" 2IVD. GENDER A N D DEVELOPMENT 261

Selection IVD. /. Gender Inequality at the Start of the 21 st Century 261Selection IV.D.2. Miss ing W omen 275Selection IV.D.3. W om en as Policy Makers 28 4

V. INVESTMENT A N D FINANCEOverview: Investm ent and F inance: Th e E ngines of Growth?

Note VI. The AK Mo d e lSelection Vl.\s Fixed Investment the Key to Economic Growth?Selection V.2. Financial Development and Economic Grov^hSelection V.3. Taming International Capital FlowsSelection V.4. Can Fore ign Aid Buy Growth?Selection V.5. The Microf inance Promise


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X CONTENTSVI. URBANIZATION AND THE INFORMAL SECTOR 331

Overview 331VI.A. URBAN GR OW TH A N D INFRASTRUCTURE 33 6

Selection VI.A. 1. Urban Growth in Developing Countr ies:A Dem ographic Reappraisal 33 6Selection VI.A.2. Urb an Primacy, External Costs, and Q ua lity of Life 33 8Selection Vl.A.3. The Impact of the Privatization of W ater Services on C hildMo rtal i ty in Argen tina 343

VLB. RURAL-URBAN MIGR ATION A N D THE INFORM AL SECTOR 353Selection VLB . 1. Economic Development with Unlimited Supplies of Labor 35 5Selection VLB.2. A Model of Labor Migration and Urban Unemployment in Less

Developed Countries 35 8Note VLB. 1. The Lewis Versus the Horris-Todaro View of Underemployment in

Less Developed Coun tries 36 0Selection VIB.3. W age Spillover and Unemployment in a W ag e-G ap Economy:

The Jam aican Case 36 5Note Vl.B.2. Econometric Studies of M igra tion 37 0Selection VI.B.4. Labour Market Modelling and the Urban Informal Sector:Theory and Evidence 371Selection VLB.5. The Role of the Informal Sector in the Migration Process:

A Test of Probabilistic M igra tion Mod els and Labour Market Segmentationfor India 37 6

VII. AGRICULTURE 381Overview 381VIL A. DE SIG NING A N AGRICULTURAL STRATEGY 38 4

Selection VILA. 1. Agriculture, Cl imate, and Technology: W hy Are the TropicsFalling Behind? 38 8

Note VILA. /. Food , Hunger, Famine 39 3Selection VII.A.2. Ag ricultura l Development Strategies 39 4Note VILA.2. Induced Technical an d Institutional Ch ange 3 9 7

Comment VILA. I.The Green Revolution 398Selection V II.A.3. Some Theoretical Aspects of Ag ricultu ral Policies 40 0Selection VII.A.4. Rural Infrastructure 4 0 4Selection Vll.A.5. Prospects an d Strategies for Land Reform 4 0 7

VII.B. MIC RO EC ON OM ICS OF THE RURAL SECTOR 416Selection VII.B. 1. The New Development Economics 416


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CONTENTS xi

Selection VII.B.2. Contractual Arrangem ents, Employment, and W ages inRural Labor M arke ts: A Crit ica l Review 4 2 0

Selection VllB.3. The Ne w Institutional Economics an d Development Theory 4 2 3Selection Vll.B.4. Rural Credit Markets and Institutions in Developing Countries:Lessons for Policy An alysis from Practice an d M od ern Theory 4 2 5Selection VIIB.5. A Survey of Agricultural Household Models:

Recent Findings an d Policy Implications 42 8Comment VII.B. I.Supply Functions and Price Responsiveness 4

VIII. INC OM E DISTRIBUTION 43 3Overview 433

Note VIII. 1. Measurement of Income Inequality 43 7VIII .A. THE IMPACT OF DEVELOPMENT O N INC OM E DISTRIBUTION 44 4

Selection Vlll.A. 1. Economic Gr ow th and Income Inequality 44 4Selection Vlll.A.2. A Note on the U Hypothesis Relating Income Inequality and

Economic Development 44 9Selection Vlll.A.3. Economic Development, Urban Underemployment, and

Income Inequality 4 50Comment Vlll.A. I.The Informal Sector, Intraurban Inequality, and the Inverted U

Selection VIII.A.4. Explaining Inequality the W orld Round: Cohort S ize, KuznetsCurves, and Openness 45 6Comment Vlll.A.2. Evidence fo r the Inverted U Across Countries Versus Within Countries

over Time 463VIII.B. THE IMPACT OF INC OM E DISTRIBUTION O N DEVELOPMENT 4 6 5

Selection VIII.B. 1. The M id dl e Class Consensus an d Economic Development 4 6 5Selection VIII.B.2. Income Distribu tion, Polit ical Instability, an d Investment 46 8

V III.C CASE STUDIES 47 3Selection VIII.C. L Rising Inequali ty in Ch ina, 19 81 -1 99 5 47 3Selection Vlll.C.2. Falling Inequality in Rural Indonesia, 1978-1993 481

IX. POLITICAL EC ON OM Y 4 8 9Overview 489IX.A. THE (PROPER) ROLE OF THE STATE IN LESS DEVELOPED CO UNTRIES 4 9 4

Selection IX.A. 1. Public Policy an d the Economics of Developm ent 4 9 4Comment IX.A. 1. Development Planning 49Comment IX.A.2. Governing the Market 500


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xii CONTENTSIX.B. R E NT S E E K I N G A N D G O V E R N M E N T FA ILU RE 5 0 2

Note IX.B. 1. W h a t A r e Rents? 5 0 2Selection IX.B. 1. The Po l i t i ca l Economy o f the Rent-Seeking So c i e t y 5 0 5

Commen t IX.B. I . Com plete Rent Dissipation Th rough Com petitive Rent Seeking Inthe Harris-Todaro Model 508Commen t IX.B.2. The Relationsh ip Between Rent Seeking and Corrup tion 508

Selection IX.B.2. The Regulat ion of Entry 510Selection IX.B.3. Af r i c a ' s Grov4h Tra ged y: Po l ic ies a n d Ethn ic Div is ions 52 1

IX.C STATE CAP ACITY 5 3 6Selection IX.C. 1. Ins ti tu tions an d Econom ic Pe r fo rm anc e:

Cro ss-C oun t ry Tests Us ing Al te rna t ive Ins t i tu t iona l M easu res 5 3 6Selection IX.C.2. The Sta te as Prob lem and So lu t ion :

P r e d o t io n , Em b e d d e d Au t o n o m y , a n d S t ru c tu r a l Ch a n g e 5 4 1Selection IX.C.3. Tak ing Trade Po l icy Ser ious ly :

Expo r t Su bs id iz a t ion as a Case Study in Po l icy Ef fec t iveness 5 6 0Selection IX.C.4. Burea ucra t ic St ruc ture an d Bure aucra t ic Per fo rm anc e in

Less De ve lope d Co unt r ies 5 73

X . D E VE L OP M E N T A N D TH E E N V I R O N M E N T 5 8 1Overview: Environmental P roblems in Less Versus More Developed Countr ies 581

Selection X. 1. Deve lopmen t an d the Env i ronmen t 58 8Commen t X. 1. Th e "Environm ental Ku znets Cu rve" 597

Selection X.2. No r t h - S o u t h T r a de a n d t h e G l o b a l En v i ro n me n t 5 9 9Comment X.2. E m pirical S tudies of the Im pac t of International T rade on the

E nvironm ent in Less Develop ed Cou ntries 601Selection X.3. De fores ta t ion an d the Ru le o f Law in a Cross Sect ion o f Co unt r ies 6 0 3Selection X.4. Dete rminan ts o f Po l l u t i on Aba temen t i n Deve lop ing Coun t r i es :

Ev idence f rom South an d Southeast As ia 61 2Selection X.5. G enu ine Sav ings Rates i n Dev e lop ing Coun t r i es 6 2 2

A P P E N D I X : H O W T O READ A REGRE SSION TABLE 6 33I NDEX OF SEL ECTION AU TH OR S 6 3 9I NDEX 6 4 1


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EXHIBITS

Exhibit I.A. 1. The Hum an Development Index 5Exhibit l .A.2. Human Development Index Rankings Compared to U.S. Dollar Per Capita

GDP Rankings 6Exhib i t l.A.3. Excha nge-Rate-Deviation Index in Relation to Real GDP Per Ca pita 15Exhib i t l.A.4. Basic Da ta 21Exhib i t IB. 1. Life Expectancy and Educational Attainment Versus Per Capita GDP:

Recent Perform ance of Less Developed Coun tries 42Exhib i t IB.2. Coun try Averag e Versus Populat ion-W eighted Per Capita GDP G rowth

Rotes: Recent Pe rforma nce of Less Developed Coun tries 43Exhib i t IB.3. Catching Up to the Core 44Exhib i t lll.A. 1. Share of Primary Products in Merchandise Exports and Index of

Export Conce ntrat ion 1 3 7Exhib i t IV.B. I Health Indicators 21 2Exhib i t IVC 1. Demographic Data and Population Forecasts, by Human Development

Index and Ge ogra phic Region 24 0Exhibi t V 1. Investment an d Financ ial Indicators in Fast an d Slow G row th Economies 29 6Exhibi t VLB. 1. Self-Employment an d Un paid Family Labor 35 3Exhibi t VILA. 1. Ag ricultura l Labor Force an d Productivity 38 5Exhib i t Vlll. 1. Income Distribution an d Inequality Measures 4 4 0Exhib i t IX.A. 1. M ark et Failure an d State Intervention 4 9 9Exhib i t X.1. Environmental Indicators 58 4

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