Department of Economics - Warwick



Department of Economics

EC 205 Development Economics

2004-2005

Academic Aims

The module aims to introduce students to the problems and features of developing economies, focussing both on the analytical approaches adopted to help understand the growth process in general, and on the sectoral and micro/macroeconomic issues relevant to contemporary developing countries.

Learning Objectives

Students will learn to deal with complex development issues by applying and extending their core skills in economic analysis and quantitative methods. They will also learn to search for relevant literature and databases, to approach this information critically and to address key questions on development from an economic perspective by writing essays.

Introduction

For many students this will be your first systematic study of the economic problems of developing countries. Therefore the first term will be more applied and the second term will be more theoretical.

One objective in the first term is to provide a broad perspective of the development process in these countries over recent decades. In particular we highlight the meaning of development, and the evidence available on poverty, human development and living standards. The second part of term one concentrates on contemporary issues such as capital flows, international debt and the role of international trade. We compare the experiences of developing countries in adjusting to shocks emanating from fluctuating commodity prices (e.g. the 1973 and 1980 oil-price shocks), world recessions and changes in macroeconomic policies in Western countries (e.g. higher real interest rates after 1980).

In term two we consider models of economic growth, including two-sector and endogenous growth models. There will also be some discussion of particular topics: unemployment, migration, and financial crises.

Staff

E-mail address Room

Jeffery Round (Module Leader) J.I.Round@warwick.ac.uk S1.122

Eugenio Proto E.Proto@warwick.ac.uk S2.108

Alan Roe A.R.Roe@warwick.ac.uk or alan.roe@opml.co.uk

Lectures

Tuesday 17.00 - 18.00 Room L5

Thursday 11.00 - 12.00 Room S0.18

Seminars

Seminars will take place in term 1 as follows. There will be four seminar groups each meeting four times each term. Groups will meet in weeks 3, 5, 7 and 9. Please sign up for one of the seminar slots: the sign-up sheet is on the module panel of the second year notice-board. Note: you must do preparatory reading ahead of time to gain from the seminar.

Textbooks

There are several good textbooks on development economics and these generally complement each other. The following books are the recommended main texts, although you will need to supplement them with other readings as specified for each topic.

Ray, Debraj (1998), Development Economics, Princeton University Press.

Basu, K. (1997), Analytical Development Economics, MIT Press

Also useful:

Todaro, Michael P and Stephen C. Smith (2002), Economic Development, (8th edition), Longman.

Meier, Gerald M. and James Rauch (2000), Leading Issues in Economic Development, (7th edition), Oxford.

Examination and assessment

Note that the examination paper this year will contain two sections: section A questions will relate to term 1 material and section B to term 2. Candidates will be required to answer at least one question from each section (three questions to be attempted in three hours).

In addition to the final examination (May/June) (weight 80%) there are two assessed essays (weight 10% each) which must be submitted on the following dates (standard submission rules):

Essay 1: Thursday 2 December 2004 (week 10)

Essay 2: Thursday 10 March 2005 (week 20)

Note, as library resources are limited you should begin preparing your essays as soon as you can and in any case well before the deadline.

Term 1:

Topic 1. Introduction to development economics (JIR: 2 lectures)

Issues; introduction to the study of development international development targets and the Millenium Development Goals; concepts of poverty and inequality; evidence on recent trends

D Ray (1998) Ch 2

M.P. Todaro and S. Smith (2002) Ch 1 and 2

G.M. Meier and J Rauch (2000) Ch I.A, I.B

N. Stern (1989) ‘The Economics of Development: A Survey’, Economic Journal 99 (Sept) 597-685.

P. Streeten et al (1981) First Things First, OUP, Ch 1, 2 and 3.

A. Sen (1983) ‘Development: Which Way Now?’, Economic Journal, 93: 745-762.

B. Ingham (1993) ‘The Meaning of Development: Interactions between ‘new’ and ‘old’ ideas’, World Development, 21(1): 1803-21.

A. Sen (1999) Development is Freedom, OUP, (Chapters 1 and 2).

L Prichett (1995) ‘Divergence Big Time’, World Bank Policy Research Working Paper 1522.

F Bourguignon and C Morrisson (2002) ‘Inequality among World Citizens’, American Economic Review; 727-744.

World Bank World Development Report 1991, Overview, Chs 1 and 2.

World Bank World Development Report 2000/2001, Chs 1-3.

Topic 2. Measurement issues (JIR:2 lectures)

(a) Measuring output and income over time and across countries. Purchasing power parity (PPP); productivity-differential model, international prices (ICP).

G. M. Meier and J Rauch Ch I.A

T.N. Srinivasan (1994) ‘Data base for development analysis: an overview’ Journal of Development Economics, 44 (1): 3-27.

A. Heston (1994) ‘A brief review of some problems in using national accounts data in level of output comparisons and growth studies’, Journal of Development Economics, 44 (1): 29-52.

I. Kravis (1984) ‘Comparative studies of national incomes and prices’, Journal of Economic Literature, 22 (March) [Available in SRC].

R. Marris (1984) ‘Comparing the incomes of nations: a critique of the International Comparison Project’ Journal of Economic Literature, 22 (March) [Available in SRC].

I. Kravis, A. Heston and L. Summers (1978) ‘Real GDP estimates for more than 100 countries’, Economic Journal, (June): 215-242.

I. Kravis, L. Summers and A. Heston (1982) World Product and Income: International Comparison of Real Gross Domestic Product, Johns Hopkins Press. [Especially chapter 1].

L. Summers and A. Heston (1988) ‘A new set of international comparisons of real product and price level estimates for 130 countries, 1950-1985’, Review of Income and Wealth, March 1988: 1-26.

(b) Living standards measurement; Physical Quality of Life Index (PQLI), Human Development Index (HDI)

G. M. Meier and J Rauch Ch I.A

M.P. Todaro and S. Smith (2002) Ch 2

United Nation Development Programme Human Development Report (Annual: but see especially 1992, Technical notes, pp 88-100).

P. Dasgupta and M. Weale (1992) ‘On Measuring the Quality of Life’, World Development, 20 (1): 119-131.

M. Desai (1991) ‘Human Development: Concepts and Measurement’, European Economic Review, 3: 350-357.

S Anand and M Ravallion (1993) ‘Human Development in Poor Countries’: On the Role of Private Incomes and Public Services’, Journal of Economic Perspectives, 7(1): 113-150.

M McGillivray (1991) ‘The Human Development Index: Yet Another Redundant Development Indicator?’, World Development, 19(10): 1461-1468.

T. N. Srinivasan (1994) ‘Human Development: A New Paradigm or Reinvention of the Wheel?’, American Economic Review, 84(2): 232-237.

Topic 3. Theories of development (JIR: 2 lectures)

Rostow’s ‘stages of growth’; dual-economy models of Lewis and Fei-Ranis; Chenery’s ‘patterns’ of development structural change and transformation across countries and over time.

M.P. Todaro and S. Smith Ch 4.

G. M. Meier and J Rauch Chs I.C, II

W.A. Lewis (1954) “Economic development with unlimited supplies of labour", The Manchester School 22 (May) - this has been reprinted numerous times.

J.C.H. Fei, G. Ranis (1964) Development of the labor surplus economy Homewood Ill.: Irwin.

J.C.H. Fei, G. Ranis (1961) ‘A theory of economic development’, American Economic Review, 51: 698-710.

R. Nurkse (1953) Problems of capital formation in underdeveloped countries New York: Oxford U.P.

H. Chenery and M. Syrquin (1975) Patterns of Development 1950-1970, OUP, Chs 1, 2 and 5.

M. Syrquin (1988) ‘Patterns of Structural Change’ in Chenery and Syrquin (ed) Handbook of Development Economics (Vol 1) Ch 7 (mainly up to end of section 4).

World Bank (1991) World Development Report 1991, Ch 2

H.Chenery and M. Syrquin (1986) ‘Typical patterns of transformation’ in Chenery, Robinson and Syrquin, Industrialisation and Growth, OUP (Ch 3).

M.Syrquin and H. Chenery (1986) ‘Patterns of Development: 1950 to 1983’, World Bank Discussion Paper, No 41.

Topic 4: Agriculture and Development (JIR: 1 lecture)

D Ray (1998) Chs 11, 12.

M.P. Todaro and S. Smith Ch 10

C P Timmer (1988) ‘The Agricultural Transformation’ chapter 8 in H Chenery and T N Srinivasan Handbook of Development Economics, Volume 1, North-Holland.

Otsuka, K. Chuma H. and J. Hayami (1992) “Land and Labor Contracts in Agrarian Economies: Theories and Facts”, Journal of Economic Literature, 30(4), 1965-2018.

Sahaban R.A. (1987) “Testing between competing model of sharecropping”, Journal of Political Economy, 95, 893-920.

Topic 5. Growth accounting (JIR: 1 lecture)

The aggregate production function: growth accounting and ‘technical progress’; the Solow growth model

G.M. Meier and J Rauch pp. 91-5

A.P. Thirlwall (1999) Growth and Development (6th Edition) Macmillan, Ch. 2

R. Barro and X. Sala-i-Martin (1995) Economic Growth, McGraw-Hill, pp. 14-26.

M. Abramovitz (1986) ‘Catching up, forging ahead, and falling behind’, Journal of Economic History 46, 385-406.

N.G. Mankiw (1995), “The Growth of Nations”, Brookings Papers on Economic Activity, (1), 275-310.

A. Young (1995), ‘The Tyranny of Numbers: Confronting the Statistical Realities of East Asian Growth Experience’, Quarterly Journal of Economics, 641-680.

H. Chenery (1986) ‘Growth and transformation’ in Chenery, Robinson and Syrquin, Industrialisation and Growth, OUP (Ch 2).

W. Easterly and R. Levine (2001) ‘It’s Not Factor Accumulation: Stylised Facts and Growth Models’, World Bank Economic Review, 15 (2); 177-219.

W. Easterly and R Levine (2001) ‘It’s Not Factor Accumulation: Stylized Facts and Growth Models’, World Bank Economic Review, 15(2): 177-219 (and comments).

Topic 6. Capital Flows: Their role in Development (ARR: 3 lectures)

Lectures will cover:

• The post-war history - the nature of the flows and their concentration by country.

• The problems of managing the flows - the link with fiscal policy and other aspects of macro economic management.

• Examples of the problems caused by large capital inflows – crises in Argentina, Mexico and East Asia.

• The case for inserting some friction into the process. Examples.

• General results about capital account openness and poorer economies.

Selected Readings:

World Bank, Managing Capital Flows in East Asia, Washington, 1996.

IMF, Capital Account Liberalization:Theoretical and Practical Aspects, IMF Occasional Paper, No. 172, 1998.

IMF, Effects of Financial Globalisation on Developing Countries, Occasional paper No 220, 2003

(More detailed references are shown in the Bibliographies to these papers.)

Topic 6: International Debt: (ARR: 3 lectures)

Lectures will cover:

• Some basic principles governing the contracting of debt

• The 1970-82 debt crisis - causes, attempted cures and consequences

• The aftermath of the debt crisis era – the emergence, rationale of the HIPC(1) and HIPC(2) initiatives.

• The case for and against debt relief – a model to illustrate some problems

Selected Readings:

Jeffrey Sachs (editor), Developing Country Debt and the World Economy, NBER, Chicago, 1989

World Bank, World Development Report, 1993.

World Bank and IMF, Various reports on HIPC and the Poverty Reduction Strategy Papers, available in considerable numbers on the two web-sites, and . See in particular the 1997 paper by A. Boote and K. Tugge (yes they are real names) explaining the HIPC debt relief initiative.

Topic 7: Interntaional Trade – Selected issues on Policy and Reform (ARR: 4 lectures)

Lectures will cover:

• Developing country trade policies in the post –independence years (1948-1975)

• What went wrong?

• Liberalisation and new approaches in the 1980s – logic and critiques

• The connection to WTO and general movements to greater globalisation – how equity is this proving?

• The new globalised world with special reference to China and India

Selected Readings:

General and Historical:

I. Little, T. Scitovsky and M. Scott, Industry and Trade in Developing Countries, Oxford, 1970 plus the supporting volumes (country case studies) on which this book is based.

World Bank, World Development Report, 2000/01 Attacking Poverty, OUP 2001 (WDR) (the sections relating to globalisation).

J.N. Bhagwati, Foreign Trade Regimes and Economic Development, NBER, Columbia, 1975

John Toye, Dilemmas of Development, Blackwell, 1987, especially Chapters 4 and 7.

V. Thomas, J, Nash et al., Best Practices in Trade Policy Reform, Oxford, 1991

World Bank, The East Asian Miracle:Economic Growth and Public Policy, Washington 1993.

Alan Winters, Trade and Poverty: Is There a Connection, WTO Geneva, 2000 (available via the WTO website

China:

Barry Naughton. Growing Out of the Plan Chinese economic reform, 1978-93, Cambridge University Press.

WTO:

The Political Economy of the World Trading System. From GATT to WTO. Bernard Hoekman and Michel Kostecki. Oxford. 1995.

Developing Countries and the Multilateral Trading System.From GATT to the Uruguay Round to the Future. T.N.Srinivasan. Westview Press. 199

The WTO After Seattle Edited by Jeffrey J. Schott. Institute for International Economics Washington D.C. July 2000.

UNDP, Human Development Report, 2003

W.Martin and L.A. Winters, The Uruguay Round: Widening and Deepening the World Trading System, World Bank, 1995.

D. Baker, G. Epstein and R. Pollin, Globalization and Progressive Economic Policy, Cambridge, 1998

Dani Rodrik, Has Globalization Gone Too Far ? Institute for International Economics, March 1997.

Term 2:

Topic 8: Economic Growth (EP: 5 Lectures)

Ray, D. Ch 2, 3, 4

Mankiw N.G., Romer, D. and D. Weil (1992): "A contribution to Empirics of Economic Growth"

"Economic Growth in a Cross-Section of Countries" Quarterly Journal of Economics 106

Topic 9. Inequality and Development (EP: 3 lectures)

D Ray (1998) Development Economics, Princeton , chapters 6 and 7.

M.P. Todaro and S. Smith Ch 6.

Aghion, P and Bolton, P. (1997), “A Theory of Trickle Down Growth and Development”, Review of Economic Studies, 64, 151-172.

Alesina, A. and D. Rodrik (1994), “Distributive Politics and Economic Growth”, Quarterly Journal of Economics, May, 465-490 .

Banerjee A. and E. Duflo (2000) “Inequality and Growth: What can data Say?'', Mimeo.

Banerjee A.V. and A.F.Newman (1993) “Occupational Choice and the Process of Development'” , Journal of Political Economy 101,274-298.

Barro, R. (2000) “Inequality and Growth in a Panel of Countries'', Journal of Economic Growth 5-1, 5-32

Deininger K. and L. Squire (1998) “New ways of Looking at old issues: Inequality and Growth” Journal of Development economics, 57, 259-287

Forbes, K. (2000) “A Reassessment of the Relationship Between Inequality and Growth”', American Economic Review 90-4, 869-887.

Galor O. and J. Zeira (1993) “Income Distribution and Macroeconomic”', Review of Economic Studies 65, 35-52.

Topic 10: Debt and Financial crises (EP: 3 lectures)

Ray Ch. 17

Basu Ch. 6

Aghion, Ph., Ph Bacchetta and A. Banerjee (1999) “Capital Markets and the Instability of Open Economies”, CEPR DP no. 2083

Chang, R. and A. Velasco, (1998), “Financial Crises in Emerging Markets: A Canonical Model”, NBER WP no.6606.

Demirguc-Kunt A. and E. Detragiache (1998), “Financial Liberalization and Financial Fragility”, Working Paper WP/98/83. Washington: IMF (June)

A. Demirguc-Kunt and E. Detragiace (1998), "Financial Liberalization and Financial Fragility" ( URL: )

Krugman, P. (1999) “Balance Sheets, The Transfer Problem, and Financial Crises” Mimeo MIT (URL: )

Stiglitz, J.E., (1998) “Economic Crises: Evidence and Insight from East Asia”, Brookings Papers in Economic Activity, 2.

Topic 11: International Trade (EP: 3 lectures)

Ray, D., Chapter 16-18

Dollar and Kraay (2001), “Trade Growth and Poverty”, World Bank Paper

Harrison, A. (1992), "Openness and Growth: A Time Series Cross Country Analysis for Developing Countries", Journal of Development Economics , 48

Topic 12 Migration, Unemployment and Industrialization (EP: 3 lectures)

Ray, D., Chapter 10

M.P. Todaro and S. Smith Ch. 8

Basu K., Chapter 2.3

M.P. Todaro, ‘A Model of Labor Migration and Urban Unemployment in Less Developed Countries’, American Economic Review, 59 (March 1969).

J.R. Harris, M.P. Todaro (1970) ‘Migration, Unemployment and Development: A Two Sector Analysis’, American Economic Review, 60 (March).

Murphy, : M., A. Shleifer and R. Vishny, (1989) “Industrialization and the Big Push”, Journal of Political Economy 97:1003-26.

C.M.Becker, A.M.Harner, A.R.Morison, (1994) Beyond urban bias in Africa (Portsmouth, NH).

Topic 13: Institutions and Development (EP: 3 lectures)

Acemoglu D. Lecture notes Ch. 8, 9

North, Douglas C. (1981) Structure and Change in Economic History, W. W. Norton & Co., New York.

North, D. C. and B. Weingrast (1989) Constitutions and Commitment: evolution of institutions Governing Public Choice in Seventeenth Century England, Journal of Economic History, 49, 803-832.

Acemoglu, D, S. Johnson and J. Robinson (2001) “The Colonial Origins of Comparative Development: An Empirical Investigation, “ American Economic Review.

Knack, S. and P. Keefer (1995) “Institutions and Economic Performance: Cross-Country Tests Using Alternative Measures”, Economic and Politics, 7, 207-22*

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