ECON /90023 ( /676): DEVELOPMENT ECONOMICS Department of Economics University of Melbourne

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1 ECON /90023 ( /676): DEVELOPMENT ECONOMICS Department of Economics University of Melbourne CONTACT INFORMATION: Course Lecturer: Susan Olivia Room: 519 Economics & Commerce Building Phone: Office Hours: Wednesday 2 4 pm and by appointment MEETING TIMES: The course meets Monday 4.30pm 6.00pm in Econ & Comm G13 [Theatrette 3] and Wednesday 9am 10.30am in Zoology Agar Theatre. A tutorial will occasionally be needed and will be scheduled at a time when one of the computer labs is available. COURSE DESCRIPTION: This course is organized around a theme of poverty reduction and development. Poverty reduction is currently the key criterion that is being used to judge the progress of developing countries, particularly those that are heavily indebted to international financial institutions. The first week of the course reviews major themes in economic development and growth, contrasting them with the disappointing development experience of large parts of the world. The remainder of the course adopts a more microeconomic focus, covering: 1) poverty 2) shocks, vulnerability and risk-coping; 3) microfinance, savings and credit; and 4) human capital strategies and labour markets. This sequence reflects a shift from static to more dynamic views of the development strategy needed to yield rapid growth and poverty reduction. In the final part of the course we will examine empirical tools to evaluate and measure the impact of policies. Several techniques for modelling household behaviour are used during the course and a combination of lectures and empirical exercises will be used to improve familiarity with these. The exercises require a limited degree of familiarity with spreadsheets and other computational and/or econometric software. While you are encouraged to consult with your classmates when doing the empirical exercises the work handed in must reflect individual efforts. ASSESSMENT: There will be a final examination and, three empirical exercises (problem sets). The first empirical exercise (on poverty) carries double weight. All components are required to be completed, because part of the aim of the course is to improve your proficiency in using the tools of applied research and policy analysis. Each exercise is due (in class) at the beginning of class on the due date. Late exercises will not be accepted. Grades will be based on the following weights: Empirical exercises 25% Class participation 5% Final examination 70%

2 PREREQUISITES: This course requires a degree of comfort with working through formal arguments (mathematical, logical and graphical). Further background in calculus and econometrics is helpful, but not required. Similarly, you should be conversant with microeconomics and should have taken READING: There is no textbook for the course, but the following references are going to be very useful if you plan on doing some work in (micro) development economics: Deaton, A. (1997). The Analysis of Household Surveys: A Microeconometric Approach to Development Policy. John Hopkins University Press: Baltimore, Maryland. Bardhan, P. and Udry, C. (1999). Development Microeconomics. Oxford University Press: New York. Ray, D. (1998). Development Economics. Princeton University Press: Princeton, New Jersey. The required readings will be available on the course web page These also could be made available in a course packet at the student s expense if there is agreement on this. The detailed course schedule lists the relevant readings for each session and I expect you to have read them prior to the classes in which they are discussed. The list of readings is more extensive than what will be covered in class. Students will be responsible primarily for what is covered in class. I may make modifications/additions to the list of readings on this syllabus. Any such modifications will be announced in a timely fashion in class. ATTENDANCE AND PARTICIPATION: Part of your assessment depends on class participation over the semester, so a pattern of repeated absences will be reflected in your grade. Participation includes asking questions in lecture, being involved in discussions, and general engagement with the class.

3 Tentative Course Work Schedule Subject to change check the website for most current version Week Lecture Topic Reading Assessment 1 26 July 28 July 2 2 Aug 4 Aug 3 9 Aug 11 Aug 4 16 Aug 18 Aug Introduction 1,2,3,4 Poverty policy and measurement 5,6,7,8 Temporal poverty comparisons and decompositions Interventions: infrastructure, price policy and area targeting Interventions: infrastructure, price policy and area targeting Pt 1 Proj 1 out 9,10 11,13,17 Pt 1 Proj 1 in Pt 2 Proj 1 out 19,20,21,23 Project 2 out 5 23 Aug 25 Aug 6 30 Aug 1 Sept 7 6 Sept 8 Sept 8 13 Sept 15 Sept 20 & 22 Sept 27 & 29 Sept 9 4 Oct 6 Oct Oct 13 Oct Oct 20 Oct Oct 27 Oct Case studies of problems in monitoring poverty Pt 2 Proj 1 in reduction Vulnerability and risk-coping institutions 32,33,34 Project 2 in Testing for full insurance; consequences of nonmarket 35,36,37 risk-coping Missing markets and agricultural response 38,40 Project 3 out Teaching Recess Microfinance Evaluation of microfinance impacts Human capital and absent growth Evaluating human capital returns and investment strategies Migration How do we evaluate policy? Identification of causal impacts of development intervention How do we evaluate policy? Current debate about randomization 41,42 43,44 46,47 48,49,50 51, , 58,59 61,62,63 Project 3 in

4 Reading List Note: An asterisk (*) denotes extra readings recommended for students with a particular interest in the topic and are not covered in the course lectures; and are thus optional reading unless otherwise noted. Section 0 Introduction 1. Diamond, J. (1999) Guns, Germs, and Steel: The Fates of Human Societies Norton, NY, pp Easterly, W. (2002) The Elusive Quest for Growth: Economists Adventures and Misadventures in the Tropics MIT Press, Cambridge, chapters 2, 3, and Banerjee, A. and Duflo, E. (2007) The economic lives of the poor, Journal of Economic Perspectives 21(1): Deaton, A. (2010) Understanding the Mechanisms of Economic Development NBER Working Paper Series 15891, pp Available at Section I Poverty 5. Besley, T. and Burgess, R. (2003) Halving global poverty, Journal of Economic Perspectives 17(3): Deaton, A. (1997) The Analysis of Household Surveys: A Microeconometric Approach to Development Policy pp Ravallion, M. and Bidani, B. (1994) How robust is a poverty profile?, World Bank Economic Review 8(1): Morduch, J. (1998) Poverty, economic growth and average exit time, Economics Letters 59(3): Glewwe, P. and Hall, G. (1998) Are some groups more vulnerable to macroeconomic shocks than others? Hypothesis tests based on panel data from Peru, Journal of Development Economics 56(1): McKay, A. and Lawson, D. (2003) Assessing the extent and nature of chronic poverty in low income countries: issues and evidence, World Development 31(3): Gibson, J. and Rozelle, S. (2003) Poverty and access to roads in Papua New Guinea, Economic Development and Cultural Change 52(1):

5 12. Jacoby, H. (2000) Access to markets and the benefits of rural roads Economic Journal 110(465): Jalan, J. and Ravallion, M. (2003)* Does piped water reduce diarrhea for children in rural India? Journal of Econometrics, 112(1): Duflo, E. And Pande, R. (2007)* Dams Quarterly Journal of Economics 112(2): Aker, J and Mbiti, I. (2010)* Mobile phones and economic development in Africa Journal of Economic Perspectives forthcoming. 16. Ravallion, M. (2010) A comparative perspective on poverty reduction in Brazil, China and India World Bank Research Observer forthcoming. 17. Elbers, C., Fujii, T., Lanjouw, P., Ozler, B. and Yin, W. (2007) Poverty alleviation through geographic targeting: How much does disaggregation help?, Journal of Development Economics 83(1): Chen, S., Mu, R. and Ravallion, M. (2009)* Are there lasting impacts of aid to poor areas?, Journal of Public Economics 93(3-4): Ravallion, M. (1992) How do price changes affect the poor?, in Poverty Comparisons: A Guide to Concepts and Methods Living Standards Measurement Study Working Paper No. 88, The World Bank pp (also reprinted as a book by Harwood Publishers in 1994). 20. Deaton, A. (1989) Household survey data and pricing policies in developing countries, World Bank Economic Review 3(2): Sadoulet, E., and A. de Janvry. (1995) Quantitative Development Policy Analysis Johns Hopkins, Baltimore (Chapter 2 Demand Analysis ). 22. Ivanic, M and Martin, W. (2008)* Implications of higher global food prices for poverty in low income countries World Bank Policy Research Working Paper No World Bank: Washington, D.C. 23. Subramanian, S. and Deaton, A. (1996) The demand for food and calories, Journal of Political Economy 104(1): Deaton, A. (2002) Is world poverty falling?, Finance and Development 39(2): Deaton, A. (2001) Counting the world s poor: problems and possible solutions, World Bank Research Observer 16(2): Deaton, Angus (2003) Adjusted Indian poverty estimates for , Economic and Political Weekly January 25, pp

6 27. Deaton, A. (2010) Price indexes, inequality and the measurement of world poverty, American Economic Review 100(1): Ravallion, M. and Sen. B. (1996) When method matters: monitoring poverty in Bangladesh, Economic Development and Cultural Change 44(4): Chen, S. and Ravallion, M. (2008)* The developing world is poorer than we thought, but no less successful in the fight against poverty, World Bank Policy Research Working Paper No World Bank: Washington, D.C. 30. Ravallion, M., Chen, S. and Sangraula, P. (2008)* Dollar a day revisited, World Bank Policy Research Working Paper No World Bank: Washington, D.C. 31. Ravallion, M. (2010)* Price levels and economic growth: Making sense of the PPP changes between ICP rounds World Bank Policy Research Working Paper No World Bank: Washington, D.C. Section II Shocks, Vulnerability and Risk Coping 32. World Bank (2001) Helping poor people manage risk, in Attacking Poverty: World Development Report, 2000/2001. Oxford University Press. Chapter Dercon, S. (2002) Income risk, coping strategies and safety nets, The World Bank Research Observer 17(2): Besley, T. (1995) Nonmarket institutions for credit and risk sharing in low-income Countries, Journal of Economic Perspectives 9(3): Townsend, R. (1995) Consumption insurance: an evaluation of risk-bearing systems in lowincome economies, Journal of Economic Perspectives 9(3): Morduch, J. (1995) Income smoothing and consumption smoothing, Journal of Economic Perspectives 9(3): Kochar, A. (1995) Explaining household vulnerability to idiosyncratic income shocks, American Economic Review 85(2): de Janvry, A., Fafchamps, M., and Sadoulet, E. (1991) Peasant household behaviour with missing markets: some paradoxes explained, Economic Journal 101(6): Bardhan, P., and Udry, C. (1999). Development Microeconomics (Chapter 2, Household Economics) Oxford University Press, pp Only Section I and II is relevant. 40. Sadoulet, E., and A. de Janvry. (1995). Quantitative Development Policy Analysis Johns Hopkins, Baltimore (Chapter 6 Household Models ).

7 Section III Microfinance, Savings and Credit 41. Meyer, R. (2001) Microfinance, rural poverty alleviation, and improving food security, Finance For The Poor 2(2): Morduch, J. (2000) The Microfinance Schism, World Development 28(4): Armendáriz de Aghion, B. and Morduch, J. (2005) The Economics of Microfinance MIT Press, Cambridge. 44. Coleman, Brett (2001) Measuring impact of microfinance programs, Finance For The Poor 2(4): Burgess, R. and Pande, R. (2005)* Do rural banks matter? Evidence from the Indian Social Banking Experiment, American Economic Review 95(3): Section IV Human Capital Strategies and Labour Markets 46. Easterly, W. (2002) The Elusive Quest for Growth: Economists Adventures and Misadventures in the Tropics MIT Press, Cambridge, (Chapter 4 Educated for What? ). 47. Pritchett, L. (2001) Where has all the education gone?, World Bank Economic Review 15(3): Psacharopoulos, G. and Patrinos, H.A. (2004) Returns to investment in education: A further update, Education Economics 12(2): Bennell, P., (1996) Rates of return to education: does the conventional pattern prevail in sub-saharan Africa?, World Development 24(1): Schultz, Paul (2003) Human capital, schooling and health, Economics and Human Biology 1(2): McKenzie, D., Gibson, J. and Stillman, S. (2010) How important is selection? Experimental vs non-experimental measures of the income gains from migration Journal of the Eureopean Economic Association, 8(4): Yang, D. (2008) International migration, remittances and household investment: Evidence from Philippine migrants exchange rate shocks Economic Journal 118(April): Gibson, J., McKenzie, D. And Stillman, S. (2010)* The impacts of international migration on remaining household members: Omnibus results from a migrant lottery program Review of Economics and Statistics (forthcoming).

8 54. Hanson, G. (2010)* International migration and the developing world in Rodrik, D. And Rosenzweig, M. (eds.) Handbook in Development Economics Vol. 5 Elseveir: Amsterdam. Section V The Evaluation Problem: How do we know what works? 55. Ravallion, M. (2001) The mystery of the vanishing benefits: An introduction to impact evaluation, World Bank Economic Review, 15(1): Duflo, E., Glennerster, R. and Kremer, M. (2008) Using randomization in development economics research: A toolkit, in Schultz, T. and Strauss, J. (eds.), Handbook of Development Economics Vol. 4. Elseveir: Amsterdam (pp , , ). 57. Duflo, E. (2001) Schooling and labor market consequences of school construction in Indonesia: Evidence from an unusual policy experiment, American Economic Review, 91(4): Parker, S. and Skoufias, E. (2000) Conditional cash transfers and their impact on child work and schooling: Evidence from the PROGRESA program in Mexico, Economia 2(1): Miguel, T. and Kremer, M. (2004) Worms: Identifying impacts on education and health in the presence of treatment externalities, Econometrica 72(1): Duflo, E., Hanna, R. and Ryan, S. (2008) Monitoring works: Getting teachers to come to school CEPR Discussion Paper Series No Section VI The Future of Development Economics? 61. Rodrik, D. (2009) The new development economics: We shall experiment, but how shall we learn?, in Cohen, J. and Easterly, W. (eds.) What works in Development? Thinking Big and Thinking Small Brookings Institution Press: Washington. 62. Ravallion, Martin (2009) Should the randomistas rule?, The Economists' Voice 6(2), Article 6. [Available at: Deaton, A (2010) Instruments, randomization, and learning about development, Journal of Economic Literature, 48(2):