Economic Development II Spring 2002 Department of Economics New York University Thursdays, Room 715: 11:30 am 1:30 pm. Jonathan Morduch 269 Mercer Street, Room 806b 4 Washington Square North, Room 54 (212) 998-7515 Jonathan.Morduch@NYU.edu Office hours by appointment Objectives This course has multiple objectives. First is to introduce and evaluate some of the most important debates and recent empirical research on economic development. This semester, we will concentrate on microeconomic approaches to understanding households, markets, and institutions. The second objective is to tackle methodological issues. In particular, answering questions often involves disentangling causal relationships and avoiding biases due to unobserved heterogeneity (especially in behavioral responses, unobservable personal characteristics, and unobservable spatial variation). The lectures will review advantages and limits of new econometric techniques, particularly those developed for analyzing panel data. The third objective is to provide an opportunity to write a research paper using household survey data. The research paper will be due at the end of the course in place of a final examination, and individual topics will be determined over the course of the semester. 1
Course Requirements The course requirements are participation in class and the final paper. There will also be optional problem sets. Grades will be calculated according to: Class Participation 20% Final paper 80% Texts Two books will be used repeatedly and are worth buying: Angus Deaton, The analysis of household surveys: A microeconometric approach to development policy. Johns Hopkins/World Bank, 1997. Pranab Bardhan and Christopher Udry, Readings in development economics, volume II: Empirical microeconomics. MIT Press, 2001. It will be assumed that students are familiar with basic concepts in modern development economics, for which Debraj Ray s course, Development Economics I, provides a thorough introduction (and for which his text, Development economics, provides a lively, authoritative overview). Schedule, Spring 2002 Poverty and inequality 1. January 24 Measuring consumption, inequality, and poverty 2. January 31 Is growth good for the poor? Households, labor markets, contracts 3. February 7 Rural labor markets, household models, income and nutrition 4. February 14 Intrahousehold inequalities 5. February 21 Labor contracts and sharecropping 6. February 28 Land reform and property rights Risk and insurance 7. March 7 Poverty, vulnerability, consumption smoothing March 14 No class: Spring break 8. March 21 Risk sharing 9. March 28 Risk and human capital 10. April 4 Microfinance Learning, norms, and collective action 11. April 11 No class April 18 Education 12. April 25 Technological adoption 13. May 2 Social learning and network effects 14. May 7 Conclusions, final paper due 2
Readings >= Recommended reading Poverty and inequality January 24: Measuring consumption, inequality, and poverty Methodological issues: Introduction to household surveys, measurement error, panel data, attrition, poverty measurement. Foster survey? Deaton, Angus (1997), chapter 3.1: 133-169. Gibson, John Gibson, John Deaton new paper > Deaton, Angus (2001), Counting the World's Poor: Problems and Possible Solutions, World Bank Research Observer 16 (2), Fall 2001: 125-147. Duncan Thomas et al on Indonesia. January 31 Is growth good for the poor? Methodological issues: heterogeneity, fixed effects, specification error. Dollar, David and Aart Kraay (2000), Growth is good for the poor, World Bank working paper. * Abhijit Banerjee and Esther Duflo, Inequality and Growth: What can the Data say?, Department of Economics, MIT, draft, October 1999. [Available on course website] Pritchett, Lant (2001), Hills, Valleys, World Bank Economic Review > Pritchett: Where has all the education gone? > Ravallion in World Development > Debraj Ray, Development Economics, chapter 7, pages 197 241. Households, labor markets, contracts February 7 Rural labor markets, household models, income and nutrition Methodological issues: exclusion restrictions, instrumental variables. Dwayne Benjamin, Econometrica, 3
Duncan Thomas and John Strauss (1997), Health and wages: evidence on men and women in urban Brazil, Journal of Econometrics 77: 159-185. [Chapter 1 in Bardhan-Udry.] Deaton (1997), chapter 4.1, 204 223. > Shankar Subramanian and Angus Deaton (1996) The Demand for Food and Calories, Journal of Political Economy 104, 133-162. > Debraj Ray, Development Economics, 8.3.4. > John Strauss and Duncan Thomas, Health, Productivity, and Labor Supply, section 2.2 in ch. 34 of Handbook of Development Economics 3A, pp. 1908-17. > John Strauss and Duncan Thomas, Nutrient Intakes and Income, section 2.1 in ch. 34 of Handbook of Development Economics 3A, pp. 1893 -- 1908. February 14 Intrahousehold inequalities Methodological issues: exclusion restrictions, measurement error. Thomas, Duncan (1990), "Intra-Household Allocation: an Inferential Approach". Journal of Human Resources 25(4): 635 664. [Chapter 3 in Bardhan-Udry.] Udry, Christopher (1995), Gender, Agricultural Production and the Theory of the Household, Journal of Political Economy 104 (5), October: 1010-1046. [Chapter 4 in Bardhan-Udry.] Duflo, Esther and Christopher Udry (2001), Intrahousehold Resource Allocation in Cote d Ivoire: Social Norms, Separate Accounts and Consumption Choices, MIT and Yale, unpublished draft. February 21 Labor contracts and sharecropping Shaban, Radwan Ali (1987), Testing between competing models of sharecropping, Journal of Political Economy 95: 893-920. [Chapter 5 in Bardhan-Udry.] Foster, Andrew D. and Mark R. Rosenzweig (1994), A Test for Moral Hazard in the Labor Market: Contractual Arrangements, Effort, and Health, Review of Economics and Statistics76: 213-227. [Chapter 6 in Bardhan-Udry.] > Debraj Ray, 12.1-12.3 and pages 771-773 (Section on "Contracts") February 28 Land reform and property rights Methodological issues: exclusion restrictions, cross-region panel estimation. Besley, Timothy (1995), Property rights and investment incentives: theory and evidence from Ghana, Journal of Political Economy 103: 903-937. [Chapter 12 in Bardhan-Udry.] 4
Banerjee, Abhijit, Paul Gertler and Maitreesh Ghatak Bharga. Besley and Burgess, QJE on reform Risk and insurance March 7 Poverty, vulnerability, and consumption smoothing Methodological issues: using rainfall as instruments, dynamic panel estimation, measurement error. Deaton (1997), chapters 6.1-6.3: 335-372. Paxson, Christina (1992), Using Weather Variability to Estimate the Response of Savings to Transitory Income in Thailand, American Economic Review 82: 15-33. [Chapter 7 in Bardhan-Udry.] Morduch, Jonathan, (1994), Poverty and Vulnerability, American Economic Review 84, May: 221 225. Morduch, Jonathan (1995), "Income Smoothing and Consumption Smoothing, Journal of Economic Perspectives 9(3), Summer, pp. 103-114. March 21 Risk sharing Methodological issues: exclusion restrictions, heterogeneity measurement error. Deaton (1997), chapters 6.4-6.6: 372-400. Townsend, Robert (1994) Risk and Insurance in Village India, Econometrica 62, May, 539-592. [Chapter 9 in Bardhan-Udry.] Morduch, Jonathan (2001), Consumption Smoothing Across Space: Testing theories of risksharing in the ICRISAT study region of South India, forthcoming in Stefan Dercon, ed., Insurance Against Poverty (Oxford University Press). Ravallion, Martin and Shubham Chaudhuri (1997), Risk and Insurance in Village India: Comment, Econometrica 65(1), January: 171-84. Deaton, Angus and Christina Paxson (1994), Intertemporal Choice and Inequality, Journal of Political Economy 102: 437-467. [Chapter 10 in Bardhan-Udry.] > Coate, Stephen and Martin Ravallion (1993), Reciprocity without Commitment: Characterization and Performance of Informal Insurance Arrangements, Journal of Development Economics 40 (1), February, 1 24. > Foster, Andrew and Mark Rosenzweig (1999), Imperfect Commitment, Altruism and the Family: Evidence from Transfer Behavior in Low-Income Areas, Department of Economics, University of Pennsylvania, draft. 5
> Ligon, Ethan, Jonathan Thomas, and Tim Worall (1997), Informal Insurance Arrangements in Village Economies, Dept. of Agricultural and Resources Economics, draft, January. > Morduch, Jonathan (1999), Between the Market and State: Can Informal Insurance Patch the Safety Net? World Bank Research Observer 14 (2), August, 187-207. March 28 Risk and human capital Jacoby, Hanan and Emmanuel Skoufias (1997), Risk, Financial Markets, and Human Capital in a Developing Country, Review of Economic Studies 64 (3), July, 311 336. April 4 Microfinance Methodological issues: impact assessments, fixed effects. Pitt, Mark and Shahidur Khandker (1998), The Impact of Group-Based Credit Programs on Poor Households in Bangladesh: Does the Gender of Participants Matter? Journal of Political Economy 106 (5), October, 958 996. Morduch, Jonathan (1998), Does Microfinance Really Help the Poor? New Evidence from Flagship Programs in Bangladesh, Research Program in Development Studies, Princeton University, draft. Jonathan Morduch (1999), The Microfinance Promise, Journal of Economic Literature 37, 1569-1614. > Debraj Ray, Chapter 14.1-14.3. > Jonathan Morduch (2000), The Microfinance Schism, World Development, April. Learning, norms, and collective action April 11 Education Methodological issues: regression discontinuity design, trend breaks, randomized experiments. Angrist, Joshua and Victor Lavy (XXX), Maimonedes Rule, Quarterly Journal of Economics. Esther Duflo (2001), Schooling and labor market consequences of school construction in Indonesia: Evidence from an unusual policy experiment, American Economic Review, November Kremer, Kenya experiment experiments, problems with experiments, they in fact have a maimonedes-type rule at 55 students. > Martin Ravallion and Quentin Wodon (1999), Does Child Labor Displace Schooling? Evidence on Behavioral Responses to an Enrollment Subsidy, Economic Journal. April 18 No class 6
April 25 Technological adoption Andrew Foster and Mark Rosenzweig, Learning by Doing and Learning from Others: Human Capital and Technical Change in Agriculture, Journal of Political Economy 103 (6), 1176-209. [Chapter 11 in Bardhan-Udry.] Das, Jishnu (2000) May 2 Social learning and network effects Munshi, Kaivan (2001) The Identification of Network Effects: Mexican Migrants in the U.S. Labor Market, Department of Economics, University of Pennsylvania, working paper, December. Munshi, Kaivan and Jacques Myaux (2001), Development as a Process of Social Change: An Application to the Theory of Fertility Transition, Department of Economics, University of Pennsylvania, working paper, December. May 7 Conclusions, papers due 7