Winter 1996
This is the first module of the Development Economics sequence, the introduction to development economics. In this part, we will focus on macroeconomic aspects of development --growth and finance-- and on theoretical approaches to development economics, especially organizational issues. In the last module of the sequence (in Econ 560B) we will study transition.
The discussion may resemble the following outline.
1. Introduction to Development Economics
What is development economics about? Is there a need for a distinct field of development economics? What are the key differences between developing and developed countries? What is the nature of the transition that is implied? What approaches are useful in studying development? What, if any, lessons from western experience are relevant to the problems of developing countries?
This section will review, briefly, the history of development economics, and review some of the accumulated wisdom.
Bardhan, P.K., "Economics of Development and the Development of Economics," Journal of Economic Perspectives, vol. 7, 2, Spring 1993.
Lal, Deepak, The Poverty of Development Economics. Cambridge, MA, Harvard University Press, 1985.
North, Douglas, Institutions, Institutional Change and Economic Performance. New York, Cambridge University Press, 1990.
Rosenberg, Nathan, and L. E. Birdzell, How the West Grew Rich. New York, Basic Books, 1986.
Gershenkron, A., Economic Backwardness in Historical Perspective. Harvard University Press, 1962.
Syrquin, Moshe, "Patterns of Structural Change," Handbook of Development Economics, vol 1, 1989.
Stern, Nicholas, "The Economics of Development: A Survey," Economic Journal, 99, September 1989: 597-685.
2. Development and Growth
What is the difference between growth and development? What can growth theory tell us about development? There is much current interest in endogenous growth theory. We will explore the relationship between the "new growth theory" and development, and ask the question: Does the "new growth theory" help explain the patterns of development we actually observe?
Barro, R. and X. Sala-i-Martin, Economic Growth. New York, McGraw Hill, 1995.
Azariadis, C., and A. Drazen, "Threshold Externalities in Economic Development," Quarterly Journal of Economics, Cv, 2, May 1990: 501-26.
Aghion, P. And P. Howitt, "A Model of Growth Through Creative Destruction," Econometrica, 60, 1992: 323-351
Grossman, G. and E. Helpman, Innovation and Growth in the Global Economy. MIT Press, 1991.
Roubini, N., and X. Sala-i-Martin, "A Growth Model of Inflation, Tax Evasion, and Financial Repression," Journal Monetary Economics, 35, 2, April 1995.
Easterly, W., "How Much to Distortions Affect Growth," Journal Monetary Economics, 32, 2, November 1993.
Romer. P., "The Origins of Endogenous Growth," Journal of Economic Perspectives, 8, 1, 1994: 3-22.
Romer, P., "Idea Gaps and Object Gaps in Economic Development," Journal of Monetary Economics, 32, 3, December 1993.
King, R. and R. Levine, "Finance, Entrepreneurship, and Growth: Theory and Evidence," Journal of Monetary Economics, 32, 3, December 1993.
DeLong, J.B. and L.H. Summers, "How Strongly Do Developing Countries Benefit From Equipment Investment," Journal of Monetary Economics, 32, 3, December 1993.
Brezis, Elise, Paul Krugman, and Daniel Tsiddon, "Leapfrogging in International Competition: A Theory of Cycles in National Technological Leadership," American Economic Review, 83, 5, December 1993: 1211-19.
2.1 Empirical Studies
Pack, Howard, "Endogenous Growth Theory: Intellectual Appeal and Empirical Shortcomings," Journal of Economic Perspectives, 8, 1, 1994: 55-72.
Barro, R., "Economic Growth in a Cross-Section of Countries," Quarterly Journal of Economics, 106, 1991: 407-444.
Mankiw, N.G., D. Romer and D. Weil, "A Contribution to the Empirics of Economic Growth," Quarterly Journal of Economics, 107, 1992: 407-437.
Rodrick, Dani, "Getting Interventions Right: How South Korea and Taiwan Grew Rich," Economic Policy, 20, April 1995: 53-107.
Mankiw, N.G., "The Growth of Nations," Brookings Papers on Economic Activity, 1, 1995.
Young, A., "The Tyranny of Numbers: Confronting the Statistical Realities of the East Asian Growth Experience," Quarterly Journal of Economics, CX, 3, August 1995.
Alessina, Alberto, and R. Perotti, "The Political Economy of Growth: A Critical Survey of the Recent Literature," World Bank Economic Review, 8, 3, 1994: 351-371.
3. Finance and Economic Development
What is the role of financial development in economic development? Recent empirical work seems to suggest that financial institutions play an important role in explaining economic growth. What aids or inhibits the development of financial institutions? Are their specific problems in developing countries that inhibit the development of financial institutions? How important is this in explaining performance in LDC's?
McKinnon, Ronald, Money and Capital in Economic Development, Brookings, 1973.
________, The Order of Economic Liberalization:Financial Control in the Transition to a Market Economy, Johns Hopkins Press, 1991, chapter 2.
Fry, M.J., Money, Interest, and Banking in Economic Development. 2nd edition, Baltimore, Johns Hopkins, 1995.
Greenwald, Bruce, Alec Levinson, and J.E., Stiglitz, "Capital Market Imperfections and Regional Economic Development," in A. Giovannini, ed., Finance and Development: Issues and Experience, Cambridge University Press, 1993.
Greenwood, J., and B. Jovanovic, "Financial Development, Growth, and the Distribution of Income," Journal of Political Economy, 5, 1, 1990: 1076-107.
Bencivenga, V., and B. Smith, "Financial Intermediation and Endogenous Growth," Review of Economic Studies, 58, 1991: 195-209.
Gersovitz, Mark, "Savings and Economic Development," Handbook of Development Economics, vol. 1, 1989.
Deaton, Angus, "Saving in Developing Countries: Theory and Evidence," World Bank Economic Review, 1990.
Montiel, Peter J., "Capital Mobility in Developing Countries: Some Measurement and Empirical Estimates," The World Bank Economic Review, vol. 8, 3, September 1994.
Edwards, S., "Why Are Savings Rates So Different Across Countries: An International Comparative Analysis," NBER Working Paper, 5097, April 1995.
The World Bank, World Development Report 1989, Oxford University Press.
4. Complementarities, the Economics of the Big Push and Hysteresis
The idea that developing economies must reach some critical mass so that the economy can take-off has played an important role in the field. These ideas initially took the form of the "big push" and unbalanced growth. In modern terms we refer to problems of complementarities and multiple equilibria. Hysteresis and path dependence may play an important role in development economics.
Rosenstein-Rodan, P., "Problems of Industrialization of Eastern and Southeastern Europe," Economic Journal, 1943.
Hirschman, Albert, The Strategy of Economic Development. New Haven, Yale University Press, 1958.
Murphy, K., A. Shleifer, and R. Vishny, "Industrialization and the Big Push," Journal of Political Economy, 97, 1989: 1003-1026.
________, ________, and ________, "Income Distribution, Market Size, and Industrialization," Quarterly Journal of Economics, 104, August 1989: 537-64
Arthur, Brian, "Competing Technologies, Increasing Returns, and Lock-in by Historical Events," Quarterly Journal of Economics, 99, March 1989: 116-131.
Matsuyama, K., "Increasing Returns, Industrialization, and Indeterminacy of Equilibrium," Quarterly Journal of Economics, 1991: 617-650.
Krugman, Paul, "History versus Expectations," Quarterly Journal of Economics, 106, 1991: 651-667.
________,"Increasing Returns and Economic Geography," Journal of Political Economy, 99, 3, June 1991: 483-499.
5. The Economics of Organization and Economic Development
How do economic organizations differ in developing and developed countries? The economics of organization explains the development of economic institutions as means of economizing on transactions costs. Are their specific problems faced by developing countries that inhibit the development of economic institutions? How does this impact on economic development? A theory of economic organization is crucial for development economics because of the wide variety of experiences observed.
Stiglitz, J. E., "Economic Organization, Information, and Development," Handbook of Development Economics, vol. 1, 1989.
Greif, Avner, "Contract Enforceability and Economic Institutions in Early Trade: The Maghribi Traders Coalition," American Economic Review, vol. 83, 3, June 1993.
Greif, A., P. Milgrom, and B.R. Weingast, "Coordination, Commitment, and Enforcement: The Case of the Merchant Guild," Journal of Political Economy, 102, 4, August 1994.
Greif, A., "Cultural Beliefs and the Organization of Society: A Historical and Theoretical Reflection on Collectivist and Individual Societies," Journal of Political Economy, 102, 5, October 1994.
Krueger, Anne O., Political Economy of Policy Reform in Developing Countries. MIT Press, 1993.
Kremer, M., "The O-Ring Theory of Economic Development," Quarterly Journal of Economics, CVIII, 3, August 1993: 551-575.
Shelifer, A. and R. Vishny, "Corruption," Quarterly Journal of Economics, CVIII, 3, August 1993: 5599-617.
Mauro, QJE, August 1995.
Tornell, Aaron, "Economic Growth and Decline with Endogenous Property Rights," Harvard University Discussion Paper, 1739, September 1995.
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