Economics 120
Development Economics
Instructor
Professor Jon Robinson
457 Engineering 2
Lectures: MWF 11-12:10,
Stevenson 150
Office hours: Tuesday 11-12,
Wednesday 3:30-4:30
Course Description (syllabus
available at http://people.ucsc.edu/~jmrtwo/teaching)
By some estimates,
approximately 1.1 billion people live on less than $1.08 a day.[1]
Health status, educational attainment, government quality, and many other
indicators are substantially lower in developing countries than in developed
countries. Why are so many people so poor when so many people in developed
countries are so rich? What is it that constrains poor people from catching up?
Perhaps most importantly, what types of interventions can be the most effective
in helping people move out of poverty?
These are all very big
questions that we cant hope to answer in just one quarter. Many people, from
academics to philanthropic organizations such as the Bill and Melinda Gates
Foundation to Peace Corps volunteers to celebrity entertainers have their own
ideas as to what factors are most important in constraining poor people from
getting richer. But what do we really know about what works and what doesnt?
This class does not take any
philosophical position on what needs to be done. Instead, the goal of this
class is to critically interpret the existing evidence, in order to begin to
understand what we know and what we dont know. This class is about closely
scrutinizing the evidence before making any policy prescriptions. We will take
a very microeconomic approach by studying individual households and firms,
rather than countries. We want to understand the choices and constraints facing
the average person in a developing country.
Most of the papers we will
read will be empirical, and one goal of the class will be to learn how to read
and understand (at a basic level) empirical work. We will spend quite a bit of
time reading, discussing, and interpreting tables from these papers.
Econometrics is a
prerequisite for this class. However, we will spend some time at the beginning
of the quarter to review some basic econometrics. You will also be asked to use
the statistical program Stata in several problem sets. Stata version 8 can be
accessed on any home computer by connecting to the UCSC virtual computer lab. This
allows you to use Stata without physically going to a computer lab. Information
on setting up the virtual lab is here: http://ic.ucsc.edu/services/virtual_computer_labs/how_to_connect.php.
If you don't have a computer or would prefer working in a lab, Stata version 6
is available on campus computers in instructional computing labs. A map of
these labs is here: http://ic.ucsc.edu/services/computer_labs/locations.php.
I will spend some time in
lecture going through some basic Stata commands. You can also get more help by
clicking on the links at http://people.ucsc.edu/~jmrtwo/teaching.
Topics
Development is a large field
that includes much more than can be covered in one class, so by necessity I'll
focus the class on several major topics in the microeconomics of development.
These will include health and nutrition, education, formal and informal
risk-coping mechanisms, savings, credit, and household economics. Towards the
end of the class, we will take some time to study other topics of interest.
These topics include HIV/AIDS, and studies that come at the intersection
between development economics and behavioral economics.
Grading
Grades for this class will be
based on 5 problem sets, 2 midterms, and a final exam. The problem sets will
count for 20%, each midterm will count for 25%, and the final will count for
30%. Class participation might also count in marginal cases (for instance, in
the decision between a B+ and an A-).
The dates of the 2 midterms
are Friday, January 30th and Friday, February 27th.
The majority of the readings
for this class will be papers, though several reading (especially towards the
beginning) will come from the textbook Development Economics by Debraj
Ray. The textbook is an excellent reference if you are interested in
development, but is not required. A copy is on reserve at McHenry.
There are a number of papers
on the syllabus, but only those marked with a * are required. All other listed
readings are recommended but not required. It is essential that you do all of
the required readings, and it would be to your benefit to at least skim the
recommended ones as well.
Some of these papers include
a fair amount of math you are NOT responsible for most of that. Rather, I
expect you to make an effort to understand the tables and results, which can be
understood without understanding all the math behind them.
All the links in the syllabus
work as of this writing (most can also be found on JSTOR, Google scholar, or
other online sources). Most require a subscription to download, however. UCSC
pays the fee for all of us, but you must be on campus to access them (or log on
remotely to the UCSC library webpage).
Reading List
1. Background
Debate on What Constrains Poor People from Breaking
out of Poverty
*Sachs, Jeffrey (2007), Breaking
the Poverty Trap. Scientific
American, August 17.
*Sachs, Jeffrey (2007), Rapid
Victories Against Extreme Poverty. Scientific
American, March 18
*Easterly, William (2007), Africas
Poverty Trap. Wall Street Journal,
March 23.
UN Millenium Project (2005), Investing
in Development. Chapter 2.
Some
Evidence on What Poor People Do With their Money
*Banerjee, Abhijit, and
Esther Duflo (2007), The Economic
Lives of the Poor. Journal of Economic Perspectives 21 (1):
141-167.
[Link is to working paper
version with tables. The link to the published version, without many tables, is
here:
http://www.anderson.ucla.edu/faculty/bhagwan.chowdhry/Banerjee-Duflo.pdf]
2. Empirical Tools
*Ray, Appendix 2.3.
*Duflo, Esther, Rachel
Glennerster, and Michael Kremer (2005), Using
Randomization in Development Economics: A Toolkit. mimeo, MIT Poverty
Action Lab (pp. 1-27, 40-47).
Example of why
randomization is important
*Glewwe, Paul, Michael
Kremer, Sylvie Moulin and Eric Zitzewitz (2004), Retrospective
vs. Prospective Analyses of School Inputs: The Case of Flip Charts in Kenya.
Journal of Development Economics 74 (1): 251-268.
3. Health, Nutrition, and
Income
Theory
*Ray, pp. 272-279, 489-504.
Empirical
*Thomas, Duncan et al. (2006),
Causal
Effect of Health on Labor Market Outcomes: Experimental Evidence. mimeo,
UCLA.
Thomas, Duncan and Elizabeth
Frankenberg (2002), Health,
Nutrition, and Prosperity: A Microeconomic Perspective, Bulletin of the
World Health Organization 80 (2): 106-113.
4. Education
*Duflo, Esther (2001), Schooling
and Labor Market Consequences of School Construction in Indonesia: Evidence
from an Unusual Policy Experiment.American Economic Review 91
(4): 795-813.
The Interaction Between
Health and Education
*Miguel, Ted and Michael
Kremer (2004), Worms:
Identifying Impacts on Education and Health in the Presence of Treatment
Externalities. Econometrica 72 (1): 159-217.
Schultz, T. Paul (1999), Health
and Schooling Investments in Africa. Journal of Economic
Perspectives 13 (3): 67-88.
Interventions
Duflo,
Esther, Pascaline Dupas, and Michael Kremer (2008), Peer
Effects and the Impact of Tracking: Evidence from a Randomized Evaluation in
Kenya, mimeo, UCLA.
Duflo,
Esther, Rema Hanna, and Stephen Ryan (2007), Monitoring Works: Getting Teachers to
Come to School, mimeo, MIT.
5. Informal Insurance and
Risk-Coping Mechanisms
*
*Townsend, Robert (1995), Consumption
Insurance: An Evaluation of Risk-Bearing Systems in Low-Income Economies.Journal
of Economic Perspectives 9 (3): 83-102.
*Udry, Christopher (1990), Credit Markets in
Northern Nigeria: Credit as Insurance in a Rural Economy. World Bank
Economic Review 4 (3): 251-269.
Townsend, Robert (1994), Risk
and Insurance in Village India. Econometrica 62 (3):
539-591.
For an overview of
informal risk-coping mechanisms, a good reference is:
Dercon, Stefan (2002), Income
Risk, Coping Strategies, and Safety Nets. World Bank Research Observer 17
(2): 141-166.
6. Savings
Are Savings Effective in
Insuring Consumption Against Shocks?
*Paxson, Christina (1992), Using
Weather Variability to Estimate the Response of Savings to Transitory Income in
Thailand. American Economic Review 82 (1): 15-33.
Informal Savings
Mechanisms: ROSCAs
*Gugerty,
Mary Kay (2007), You
Cant Save Alone: Commitment in Rotating Savings and Credit Associations in
Kenya. Economic Development and
Cultural Change 55 (2007): 251-282.
*Anderson,
Siwan, and Jean-Marie Baland (2002), The
Economics of ROSCAs and Intra-Household Resource Allocation, Quarterly Journal of Economics 117 (3): 963-995.
Besley, Tim, Stephen Coate,
and Glenn Loury (1993), The
Economics of Rotating Savings and Credit Associations. American
Economic Review 83 (4): 792-810.
Formal Savings
*Dupas,
Pascaline and Jonathan Robinson (2008), Savings
Constraints and Microenterprise Development: Evidence from a Field Experiment
in Kenya, mimeo, UCLA and UCSC.
7. Credit
Theory
*
Empirics
*Karlan,
Dean and Jonathan Zinman (2007), Observing
Unobservables: Identifying Information Asymmetries with a Consumer Credit
Experiment,
forthcoming, Econometrica.
*Karlan, Dean and Jonathan
Zinman (2008), Expanding
Credit Access: Using Randomized Supply Decisions to Estimate the Impacts,
forthcoming, Review of Financial Studies.
Aleem, Irfan (1990), Imperfect
Information, Screening, and the Cost of Informal Lending: A Study of a Rural
Credit Market in Pakistan. World Bank Economic Review 4 (3):
329-349.
Micro-credit
*Morduch, Jonathan (1999), The
Microfinance Promise. Journal of Economic Literature 37
(4): 159-1614.
*Morduch,
Jonathan (1998), Does
Microfinance Really Help the Poor? mimeo, NYU.
Karlan, Dean (2007), Social Connections and Group
Banking. Economic Journal 117 (517): F52-F84.
Returns to Capital
*de
Mel, Suresh, David McKenzie and Christopher Woodruff (2008), Returns
to Capital in Microenterprises: Evidence from a Field Experiment, Quarterly Journal of Economics 123 (4):
1329-1372.
8. Household Economics
*Thomas,
*Duflo, Esther (2003), Grandmothers
and Granddaughters: Old-Age Pensions and Intrahousehold Allocation in South
Africa. World Bank Economic Review 17 (1): 1-25.
Dercon, Stefan and Pamela
Krishnan (2000), In
Sickness and in Health: Risk Sharing within Rural Households in Rural Ethiopia.
Journal of Political Economy 108 (4): 688-727.
Udry, Christopher (1996), Gender,
Agricultural Productivity, and the Theory of the Household. Journal
of Political Economy 104 (5): 1010-1046.
Other topics
We might not get to all
of these, but these papers are at least good places for further reading for
those that are interested in the subject matter.
9. HIV/AIDS
Philipson, Tomas and Richard
A. Posner (1995), The
Microeconomics of the AIDS Epidemic in Africa. Population and
Development Review 21 (4): 835-848.
*Dupas, Pascaline (2007), Relative
Risks and the Market for Sex: Teenage Pregnancy, HIV, and Partner Selection in
Kenya, mimeo, UCLA.
*Robinson, Jonathan and Ethan
Yeh (2008), Transactional
Sex as a Response to Risk in Western Kenya. mimeo, UC Santa Cruz.
10. New Approaches to
Development: Behavioral Economics
*Ashraf, Nava, Dean Karlan,
and Wesley Yin (2006), Tying
Odysseus to the Mast: Evidence from a Commitment Savings Product in the
Philippines. Quarterly Journal of Economics 121 (2): 635-672.
*Duflo, Esther, Michael
Kremer, and Jonathan Robinson (2007), "Nudging Farmers to Use Fertilizer:
Evidence from Field Experiments," mimeo, MIT and Harvard.
Not yet available online,
will be distributed in class
Bertrand, Marianne, Dean
Karlan, Sendhil Mullainathan, Eldar Shafir, and Jonathan Zinman (2008), What's Advertising
Content Worth? Evidence from a Consumer Credit Marketing Field Experiment,
mimeo, Yale.
[1] Shahua Chen and Martin Ravallion (2004). How Have the Worlds Poor Fared Since the 1980s? World Bank Research Observer 19 (2): 141-169.