Development Economics

In this course students will learn about the politics around poverty in developing countries, including its measurement and key determinants. They can explain the linkages between poverty, hunger, gender inequality, and fertility. They can analyze how market failures in markets for land, labor, capital and insurance can trap households in poverty, and derive appropriate policy recommendations to tackle these poverty traps. They can use regression analysis and impact evaluation methods to assess determinants of poverty and ways to overcome it.

Textbook

The main text book for this lecture is Debraj Ray (1998). Development Economics. Princeton University Press.

We also discuss material from Allan De Janvry and Elizabeth Sadoulet’s book, Development economics: Theory and practice.

Readings marked with an asterisk (*) below are required; the rest are recommended.

Exam and credits

There will be a 90 minute exam at the end of the course. Students should demonstrate a good understanding of poverty, its measurement and determinants in developing countries. They should also be able to critically present theories and models of market failures for land, labor, capital and insurance markets that can trap households in poverty. Students have to demonstrate that they are able to interpret empirical results that relate to these models, and are able to draw relevant policy conclusions coming out of these models and empirical assessments.

Students will earn 6 credits for the course.

Course outline

I. Poverty measurement and analysis

• Definition of poverty
• Income and non-income poverty
• Identification and aggregation issues
• Robustness checks & sensitivity analysis

Reading:

• Ray, Chapter 8*
• Dreze & Srinivasan (1997). Widowhood and Poverty in Rural India. Journal of Development Economics 54(2): 217–234.*
• Lanjouw & Ravallion (1995). Poverty and household size. Economic Journal 105(433): 1415–1434.*
• Ravallion & Bidani (1994). How robust is a poverty profile? World Bank Economic Review 8(1): 75–102.
• Haughton & Khandker (2009). Handbook on poverty and inequality. World Bank, Washington, D.C.
• Lanjouw (2005). Adjusting for differences in needs and economies of scale in the measurement of poverty in Morocco. World Bank Working Paper.
• Günther & Grimm (2007). Measuring pro-poor growth when relative prices shift. Journal of Development Economics 82(1): 245–256.*
• Klasen, Lechtenfeld & Povel (2015). A feminization of vulnerability? Female headship, poverty and vulnerability in Thailand and Vietnam. World Development 71: 36–53.
• Chai & Moneta (2010). Retrospectives: Engel Curves. Journal of Economic Perspectives 24(1): 225–240.
• Appleton (2003). Regional or national poverty lines? The case of Uganda in the 1990s. UN-WIDER working paper.
• Alatas, Banerjee, Hanna, Wai-Poi & Purnamasari (2016). Self-targeting: Evidence from a field experiment in Indonesia. Journal of Political Economy 124(2): 371–427.*

II. Manifestations and correlates of poverty

2. Poverty and fertility

• Linkages between fertility and poverty
• Determinants of the ‘supply’ of children
• Determinants of the ‘demand’ for children
• The role of family planning policies

Readings:

• Ray, Chapters 9.1–9.3*
• Todaro. Economic Development, 11th edition, 6.4*, 6.6, Case study 6
• De Janvry & Sadoulet (2015). Development Economics: Theory and Practice. Routledge, Chapter 11.
• Myrskylä, Kohler & Billari (2009). Advances in development reverse fertility declines. Nature 460(7256): 741–743.
• Bryant (2007). Theories of fertility decline and the evidence from development indicators. Population and Development Review 33(1): 101–127.
• Bongaarts (2008). Fertility transitions in developing countries: Progress or stagnation? Studies in Family Planning 39(2): 105–110.
• Miller (2010). Contraception as development? New evidence from family planning in Colombia. The Economic Journal 120(545): 709–736.
• Ashraf, Field & Lee (2014). Household bargaining and excess fertility: an experimental study in Zambia. The American Economic Review 104(7): 2210–2237.
• Bongaarts & Sinding (2011). Population policy in transition in the developing world. Science 333(6042): 574–576.
• May (2012). World population policies: Their origin, evolution, and impact. Springer.
• Darroch & Singh (2013). Trends in contraceptive need and use in developing countries in 2003, 2008, and 2012. The Lancet 381(9879): 1756–1762.

3. Migration and unemployment

• Migration, informality, and urban unemployment
• The Harris-Todaro model

Readings:

• Ray, Chapter 10*
• Todaro, Chapter 7*
• Hoddinott (1996). Wages and Unemployment in an Urban African Labour Market. Economic Journal 106: 1610–1626.
• Yamada (1996). Urban Informal Employment and Self-Employment in Developing Countries: Theory and Evidence. Economic Development and Cultural Change 44: 289–314.*
• Kingdon & Knight (2006). How flexible are wages in response to local unemployment in South Africa? Industrial and Labor Relations Review 59: 471–495.
• Williamson (1998). Migration and Urbanization. Handbook of Development Economics, Vol. 1, ch. 11.
• Perry, Maloney, Arias, Faynzylber, Mason & Saavedra-Chanduvi (2007). Informality: Exit and Exclusion. World Bank.
• Bazzi, Gaduh, Rothenberg & Wong (2016). Skill transferability, migration, and development: Evidence from population resettlement in Indonesia. American Economic Review 106(9): 2658–2698.*
• Glaeser, Kahn & Rappaport (2008). Why do the poor live in cities? Journal of Urban Economics 63(1): 1–24.*

III. Vicious cycles of poverty in rural areas

4. Poverty and access to land

• Land distribution
• Share-cropping: efficiency and risk issues
• Land markets
• Land reforms and land rights

Readings:

• Ray, Chapters 10, 12*
• Binswanger-Mkhize, Bourguignon & van den Brink (eds.) (2009). Agricultural land redistribution: toward greater consensus. World Bank, Chapter 1* and Chapter 15*
• Jayne, Yamano, Weber, Tschirley, Benfica, Chapoto & Zulu (2003). Smallholder income and land distribution in Africa: implications for poverty reduction strategies. Food Policy 28(3): 253–275.
• Deininger & Byerlee (2011). Rising global interest in farmland: can it yield sustainable and equitable benefits? World Bank.
• Borras Jr, Hall, Scoones, White & Wolford (2011). Towards a better understanding of global land grabbing: an editorial introduction. The Journal of Peasant Studies 38(2): 209–216.
• Grimm & Klasen (2009). Endogenous Institutional Change and Economic Development: A Micro-Level Analysis of Transmission Channels. CRC Poverty, Equity, and Growth Discussion Paper No. 14.
• Besley & Burgess (2000). Land reform, poverty reduction, and growth: Evidence from India. The Quarterly Journal of Economics 115(2): 389–430.
• Galiani & Schargrodsky (2010). Property rights for the poor: Effects of land titling. Journal of Public Economics 94(9): 700–729.

5. Credit markets and poverty

• Formal and informal credit access for the poor
• The role of money lenders
• Credit rationing
• Microfinance

Readings:

• Ray, Chapter 14*
• Udry (1994). Risk and Insurance in a Rural Credit Market: An empirical investigation of Northern Nigeria. Review of Economic Studies 61: 495–526.*
• Pitt & Khandker (1998). The Impact of Group-based Credit Programs on Poor Households in Bangladesh. Journal of Political Economy 106: 958–96.*
• Khandker (2005). Microfinance and Poverty: Evidence Using Panel Data from Bangladesh. The World Bank Economic Review 19(2): 263–286.
• World Bank, World Development Report 1998/99, ch. 6, 8
• Banerjee & Duflo (2014). Do Firms Want to Borrow More? Testing Credit Constraints Using a Directed Lending Program. Review of Economic Studies 81(2): 572–607.*
• Bell (1988). Credit Markets and Interlinked Transactions. Handbook of Development Economics, Vol. 1, ch. 16
• Besley (1995). Savings, Credit, and Insurance. Handbook of Development Economics, Vol. 3a, ch. 36.
• Banerjee, Duflo, Glennerster & Kinnan (2015). The miracle of microfinance? Evidence from a randomized evaluation. American Economic Journal: Applied Economics 7(1): 22–53.*
• Crepon, Devoto, Duflo & Pariente (2015). Estimating the impact of microcredit on those who take it up: Evidence from a randomized experiment in Morocco. American Economic Journal: Applied Economics 7(1): 123–150.*

6. Insurance markets

• How risk affects poverty outcomes
• Potential and limits of insurance
• Partial insurance
• Self-insurance
• Credit and insurance

Readings:

• Ray, Chapter 15*
• Fafchamps (2003). Rural poverty, risk and development. Edward Elgar Publishing.*
• Carter, de Janvry, Sadoulet & Sarris (2014). Index-based weather insurance for developing countries: A review of evidence and a set of propositions for up-scaling. Development Policies Working Paper 111.
• Dercon (2005). Risk, insurance, and poverty: a review. Insurance against poverty, 9–37.
• Karlan, Osei, Osei-Akoto & Udry (2012). Agricultural decisions after relaxing credit and risk constraints. NBER Working Paper No. 18463.
• Cole, Giné, Tobacman, Topalova, Townsend & Vickery (2013). Barriers to household risk management: Evidence from India. American Economic Journal: Applied Economics 5(1): 104–135.
• Cole, Giné & Vickery (2016). How does risk management influence production decisions? Evidence from a field experiment. Review of Financial Studies, hhw080.
• Morduch (1995). Income Smoothing and Consumption Smoothing. Journal of Economic Perspectives 9: 103–114.
• Townsend (1995). Consumption Insurance: An Evaluation of Risk-bearing in Low-Income Economies. Journal of Economic Perspectives 9: 83–102.*
• Townsend (1994). Risk and Insurance in Village India. Econometrica 62: 539–91.
• World Bank (2014). World Development Report: Risk and Opportunity. Washington, D.C.

7. Hunger and undernutrition

• Causes & prevention of famines
• Measurement, interpretation and determinants of undernutrition

Reading:

• Dreze & Sen (1991). Hunger and Public Action. Oxford University Press, chapters 1*, 2*, 5*, 6*, 7*, 8*, 9, 13.
• Sen (1983). Poverty and Famines. Oxford University Press, Chapters 4*, 5*, 6, 7, 9.
• Klasen (2006). Poverty, undernutrition, and child mortality: some inter-regional puzzles. Journal of Economic Inequality 6(1): 89–115.*
• Svedberg (1999). 841 Million undernourished? World Development 27(12): 2081–2098.
• de Haen, Klasen & Qaim (2011). What do we really know? Metrics for food insecurity and undernutrition. Food Policy 36: 760–769.
• Behrman & Deolalikar (1988). Health and nutrition. Handbook of Development Economics, Vol. 1, Chapter 14: 633–708.
• Glewwe & Miguel (2008). The impact of child health and nutrition on education in less developed countries. Handbook of Development Economics, Vol. 4, Chapter 56: 3561–3606.
• De Onis, Onyango, Borghi, Garza & Yang (2006). Comparison of the WHO child growth standards and the National Centre for Health Statistics/WHO international growth reference. Public Health Nutrition 9(7): 942–947.
• Moradi (2010). Nutritional status and economic development in Sub-Saharan Africa: 1950–1980. Journal of Economics and Human Biology 8(1): 16–29.*

8. Undernutrition, poverty, and labor markets

• Nutritional efficiency wages & nutrition-based poverty traps
• Conceptual and empirical issues

Readings:

• Ray, Chapter 13*
• Dasgupta (1997). Nutrition, the Capacity to Work and Poverty Traps. Journal of Econometrics 77(1): 1–32.*
• Deaton (1997). Analysis of Household Surveys. World Bank, Chapter 4.1*
• Bliss & Stern (1978a). Productivity, Wages and Nutrition, Part I: The Theory. Journal of Development Economics 5: 331–362.
• Bliss & Stern (1978b). Productivity, Wages and Nutrition, Part II: Some Observations. Journal of Development Economics 5: 363–398.
• Klasen & Woolard (1998). Unemployment, Household Formation, Poverty, and Nutrition in South Africa.*
• Rosenzweig (1988). Labor Markets in Low-Income Countries. Handbook of Development Economics, Vol. 1, ch. 15.
• Strauss & Thomas (1995). Human Resources. Handbook of Development Economics, Vol. 3a, ch. 34.
• Strauss (1986). Does better nutrition raise farm productivity? Journal of Political Economy 94(2): 297–320.*
• Subramanian & Deaton (1996). The demand for food and calories. Journal of Political Economy 104(1): 133–162.*

9. Gender inequality

• The extent of gender inequality
• Explaining gender bias in intra-household resource allocation
• Development and gender inequality links

Readings:

• Duflo (2012). Women empowerment and economic development. Journal of Economic Literature 50: 1051–1079.*
• Bandiera & Natraj (2013). Does Gender Inequality Hinder Development and Economic Growth? Evidence and Policy Implications. The World Bank Research Observer 28: 2–21.
• Morrison, Raju & Sinha (2010). Gender equality, poverty reduction, and growth: A Copernican quest. Equity and growth in a globalizing world, 103.
• Buvinic et al. (2013). A Roadmap for promoting women’s economic empowerment. United Nations Foundation and ExxonMobil Foundation.
• Esteve-Volart (2004). Gender Discrimination and Growth: Theory and Evidence from India. STICERD, LSE.
• World Bank (2012). World Development Report: Gender Equity and Development.
• Thomas (1989). Intrahousehold Resource Allocation: An Inferential Approach. Journal of Human Resources 25: 635–83.
• Browning, Chiappori & Weiss (2011). Family Economics. Cambridge University Press.
• King, Klasen & Porter (2008). Women and Development. In B. Lomborg (ed.), Global Crises, Global Solutions, 2nd edition. Cambridge University Press.

10. Behavioral policy interventions to reduce poverty

• Incidence analysis of public spending
• The effectiveness of cash transfer programs
• Programs to promote health

Readings:

• De Janvry & Sadoulet (2015). Development Economics: Theory and Practice. Routledge, Chapter 14.*
• World Bank (2014). World Development Report: Mind, Society and Behavior, Chapters 10 and 11.
• Sunstein (2014). Nudging: A very short guide. Journal of Consumer Policy 37(4): 583–588.
• Sugden (2009). On nudging: A review of ‘Nudge: Improving decisions about health, wealth and happiness’ by Richard H. Thaler and Cass R. Sunstein.
• Dalton, Ghosal & Mani (2016). Poverty and aspirations failure. The Economic Journal 126(590): 165–188.
• Macours & Vakis (2009). Changing Households’ Investments and Aspirations Through Social Interactions: Evidence from a Randomized Transfer Program. World Bank Policy Research Working Paper.
• Tanguy, Dercon, Orkin & Taffesse (2014). The future in mind: Aspirations and forward-looking behaviour in rural Ethiopia.