Sandra PONCET
MICHIGAN UNIVERSITY
Visiting Professor
Professor Faculty of
Economics University Paris
1 (Sorbonne)
ECON 461
Development Economics
Email: sponcet@umich.edu
Office: Lorch Hall, room 207
Tel: 734-764-2374
Office hours: Monday:
16.30-18.30
& Wednesday: 10.30-12
Personal Homepage
Course Outline
assignment
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Texts and Other materials
|Course
structure
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Resources
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Paper
Course
slides
Course Overview
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LOCATION: Mon/Wed from 2:30-4 PM in location 1360 East Hall
PDF Syllabus
Course Description and Requirements
Lectures will explore the related themes of Economic Growth and Development. The course is
organized around twenty topic areas, or modules, that together provide comprehensive
coverage of Development Economics. The modules also correspond to chapters in the
textbook Economic Development 9th Edition by Todaro and Smith that we will use as our
main text. During the first part of the course, we will analyze the main theories and models of
economic development and study the determinants of economic growth, focusing on
proximate factors such as labor, capital and productivity. During the second part of the course,
we will analyze economic problems and policies both domestic and international.
Course Prerequisites
ECON 401 with a grade of at least C- or Graduate standing.
Grades are based on multiple-choice quizzes (10 percent), one midterm examination (25
percent), one paper (25 percent), and a comprehensive final examination (40 percent). In
borderline cases, oral participation in lecture will tip the balance. If you have a disability that
needs accommodation, please contact Professor Poncet no later than January 30. The
midterm examination will be given in class on WEDNESDAY February 21, from 2:35 pm
sharp until 4:00 pm.
There will be three multiple-choice quizzes. These quizzes are worth 10% of your final mark.
The lowest quiz score will be dropped (to account for days missed due to illness or off-days in
which you did not perform as well as you hope).
Paper assignment and final exam
The paper assignment appears below. The paper is due in class on WEDNESDAY, MARCH
28. The final examination will be given as scheduled, on FRIDAY, April 20 from 1:30 pm sharp
until 3:30 pm. If you cannot perform assignments at these times, you should not elect this
course.
Makeup examinations are given rarely. Except in serious emergencies: Students who miss an
examination without prior authorization normally receive 0 points for that assignment; and
students who submit the paper late, without prior authorization, are penalized. Success in this
course requires, among other skills, the capability of writing coherent essays.
Texts and Other materials
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Main textbook
The main text for this course is Economic Development by Michael P. Todaro and Stephen C.
Smith (2006), ninth edition (henceforth referred to as TS) published by Addison-Wesley.
An online study guide is available at http://www.aw.com/todaro . Helpful exercises, practice
quizzes, review and additional material are available there. You should make use of this site.
Other materials
Other material for the course includes Development Economics (1998) by Debraj Ray
(henceforth referred to as DR), published by Princeton University Press and Armendáriz de
Aghion, Beatriz, and Jonathan Morduch, The Economics of Microfinance, MIT Press (2005).
In addition, a series of published and (more recent) unpublished articles will be available on
line.
(* Readings are required.)
Readings are selected to complement, not duplicate, lectures and discussions. When
preparing for examinations, you should develop an understanding of all required readings,
regardless of how explicitly they were discussed in class. The Todaro and Smith book is
available at local bookstores (Ulrich’s, Michigan Book & Supply and Michigan Union
Bookstore).
Paper Assignment
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Due in class on Wednesday, March 28, 2007
INSTRUCTIONS:
PDF
1. Choose a news article (not an “opinion” column such as an editorial) published after May 1, 2005, in The
New York Times, The Wall Street Journal, Business Week, The Economist, or The Financial Times (no
exceptions!). The story should relateto development and/or underdevelopment in developing countries.
2. Summarize in one tight paragraph the story contained in the article.
3. Identify the important issues posed explicitly and implicitly in the article from the standpoint of economic
development in the developing world.
4. Use the tools and knowledge you have acquired in this course to analyze the issues you have identified.
REQUIREMENTS
1. Your paper may not exceed three pages in length, exclusive of the cover page and of pages devoted
solely to endnotes, figures, and references.
2. On the cover page, on successive lines, centered, roughly one-third of the way down the page, place:
the title of your article, the name of the periodical, the date of publication, your name, your student
identification number, “Econ 461, Winter 2006”.
3. The paper must be typed and double-spaced; use margins of at least 1 inch and a font size of 12
(points). Use this font size for endnotes as well as for text.
4. Attach a copy of the article (or articles, if the story is told in a series of reports).
5. Staple together all of the pages of your submission (including the copy of the article).
6. Number each page of your paper (except the cover page) using Arabic numerals. Consider the cover
page to be page 0.
7. When numbering endnotes, use Arabic numerals.
Tips
SUGGESTIONS
1. Comply scrupulously with the instructions and requirements above. Failure to do so will result in lost
points. If you don’t understand something, seek clarification from me.
2. Begin immediately your search for a suitable article. Toward this end, you will probably want to read
regularly at least one of the periodicals mentioned above.
3. Choose your article carefully. It should be easy to find an article that bears on Economic development in
Africa, Asia and Latin America. It will be more challenging (but certainly not difficult) to find an article that
permits you to discuss issues and tools of relevance to this class. Remember the point of the exercise: to
show me what you have learned in this class.
4. The instructions on examinations will read (in part): “Wherever possible, enrich your answers with
examples and references drawn from course discussions and materials. Wherever necessary, define
important terms and explain the assumptions underlying your arguments. Points will be awarded for
organized and coherent argumentation.” These instructions apply with even greater stringency on the
paper, for which you have more time and direct access to class materials, than they do on the
examinations.
5. You are not required to find and consult sources other than those that appear on the syllabus; but you
are certainly not prohibited from conducting research in the library! Nor are you prohibited from consulting
multiple articles, in various periodicals, covering the same event.
Course structure
MONDAY
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WEDNESDAY
January 8 : Introduction to economic development: January 10 : Differences and commonalities
nature, meaning and objectives
among developing countries: indicators
January 15: No class Martin Luther King, Jr.
January 17 : Classic theories of economic
Day University Symposia
development
January 22 : Contemporary theories of economic
January 24 : MCQ Quiz 1
development
Poverty, Inequality and Development
January 29 :
Economic growth decomposition: proximate and
fundamental determinants Measuring TFP growth
February 5 : Urbanization and rural-urban
Migration
February 12 : Microfinance: models
February 19 : Human Capital: Education and
Health in Economic Development
March 5 : Fundamental determinants of
development: Institutions
January 31: Population growth and
development
February 7 : MCQ Quiz 2
Capital accumulation: credit market
imperfections
February 14 : Microfinance: determinants of
success and impact
February 21 : Mid-term exam
March 7 : Industrial policy
March 12 : Trade theory and development
March 14 : Trade policy debate
March 19 : Foreign financing: two gap model,
March 21 : Foreign financing: Debt and debt
International flow of financial resources
crisis
March 26 : Debt forgiveness
March 28 : MCQ Quiz 3
Foreign financing Asian Crisis
April 2 : IMF stabilization and financial architecture April 4: Foreign financing: aid
April 9 : Aid effectiveness debate
April 11 : Civil wars
April 16: Concluding remarks
Examinations FRIDAY Apr 20, 1:30-3 pm
Resources - Selected Readings
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(* Readings are required.)
Lecture 1. Introduction to economic development: nature, meaning and objectives
*TS , Chapter 1: Economics, Institutions, and Development: A Global Perspective
*The World Bank, World Development Report (2004), Introduction and Chapter 1
DR , Chapter 1: Introduction and chapter 2 Economic Development: An Overview.
Sen, Amartya (1988), “The Concept of Development”, in H. Chenery and T. N. Srinivasan
(eds.), Handbook of Development Economics.
Sen, Amartya (1993), “Development: Which Way Now?” The Economic Journal, 93
(December).
Lecture 2. Differences and commonalities among developing countries: indicators
*TS , Chapter 2: Comparative Development: Differences and Commonalities Among
Developing Countries
*Dani Rodrik and Arvind Subramanian, 2003, The Primacy of Institutions (and what this does
and does not mean) , Finance and Development, June 2003 Volume 40, Number 2
Easterly,William, and Ross Levine, 2002, “ Tropics, Germs and Crops: How Endowments
Influence Economic Development ,” NBER Working Paper 9106 (Cambridge,Massachusetts:
National Bureau of Economic Research).
Gallup, John Luke, and Jeffrey D. Sachs with Andrew D.Mellinger, 1998, “ Geography and
Economic Development ,” paper presented at the Annual World Bank Conference on
Development Economics, Washington, D.C., April.
Visit UNCTAD web site on Least developed countries, land-locked countries and island states
(LDC Case Studies) and website on Development of Africa
Lecture 3. Classic theories of economic development
*TS , Chapter 3, Classic Theories of Economic Development
*Easterly, William (2002), The Elusive Quest for Growth: Economists' Adventures and
Misadventures in the Tropics , Cambridge, MA.: MIT Press., Chapter 1 (Why Growth Matters) ,
Chapter 2 (Aid for investment), Chapter 3 (Solow's surprise).
DR , Chapter 3: Economic Growth
On Rostow's stages of growth
Website on major development economists: from early development theorists to the
Neo-Liberal School
Lecture 4. Contemporary models of development
*TS , Chapter 4, Contemporary models of development and underdevelopment
DR , Chapter 4: The New Growth Theories
Barro, Robert, and Xavier Sala-i-Martin (2004), Economic Growth , Second Edition:
Introduction.
Lecture 5. Poverty, Inequality and development
*TS , Chapter 5, Poverty, Inequality, and Development
* World Development Report 2006 Overview and Introduction
Engerman, L., and K. Sokoloff (2006), “ Colonialism, Inequality, and Long – Run Paths of
Development ” in Understanding Poverty , edited by A.B. Banerjee, R. Benabou, and D.
Mookherjee. Oxford University Press.
DR Chapter 6, 7 (pp 220-241).
World Development Report 2000/2001, Attacking Poverty , The World Bank, Washington, D.C.:
Oxford University Press., pp. 117 – 131.
Dollar, David (2002), “ Growth is Good for the Poor ”, Journal of Economic Growth, 7 (3),
195-225.
Aghion, Philippe, and Beatriz Armendáriz de Aghion (2006), “ A New Growth Approach to
Poverty Reduction ”, in Understanding Poverty , edited by A.B. Banerjee, R. Benabou, and D.
Mookherjee. Oxford University Press.
Piketty, Thomas (2006), “ The Kuznets Curve: Yesterday and Tomorrow ”, in Understanding
Poverty , edited by A.B. Banerjee, R. Benabou, and D. Mookherjee. Oxford University Press.
Lecture 6. Economic growth decomposition: proximate and fundamental determinants:
Measuring TFP growth
*Rodrik, Dani, (2003), Introduction “ What do we learn from country narratives? ” in Rodrik, ed.,
In Search of Prosperity: Analytic Country Studies on Growth, Princeton University Press,
Princeton, NJ, 2003.
*DR , Chapter 4: The New Growth Theories Measuring Technical Progress.
P. Kugman, 1994, The Myth of Asia's Miracle , Foreign Affairs, 73, 6, p62.
A. Young, 1995," The tyranny of numbers: confronting the statistical realities on the East Asia
Growth Experience ", Quarterly Journal of Economics, 110, 3, pp. 641-680.
Hall, R. and C. Jones. 1999. “ Why Do Some Countries Produce So Much More Output Per
Worker Than Others? ” Quarterly Journal of Economics CXIV(1): 83-116.
Lecture 7. Population growth and development
*TS , Chapter 6, Population Growth and Economic Development
DR , Chapter 9, Population Growth and Economic Development
Robert H. Cassen, 1976, “Population and development: A survey”, World Development 4
(1976): 785-830.
Nancy Birdsall, 1988, “Economic approaches to population growth”, in Handbook of
Development Economics, vol. 1, ed. Hollis B. Chenery and T. N. Srinivasan (Amsterdam:
Elsevier, 1988).
Partha Dasgupta, 1995, “The population problem: Theory and evidence”, Journal of Economic
Literature, 33 (1995), 1879-1902.
Kelly, A.C. (1988), “Economic Consequences of Population Change in the Third World”, Journal
of Economic Literature, 26 (2), pp. 1685 – 1728.
Lecture 8. Urbanization and Rural-Urban Migration: Theory and Policy
*TS , Chapter 7, Urbanization and Rural-Urban Migration: Theory and Policy
Williamson, Jeffrey (1988), “Migration and Urbanization” in H. Chenery and T. N. Srinivasan
(eds.), Handbook of Development Economics, Volume 1.
DR , Chapter 10-3 (p. 372-398)
Lecture 9. Capital accumulation: credit market imperfections
*DR , Chapter 14: Credit
*Besley, Timothy. (1994): "How do Market Failures Justify Interventions in Rural Credit
Markets" World Bank Research Observer 9 (1) pg. 27.
Besley, Timothy (1995), “Savings, Credit and Insurance”, pp. 2175 – 2201, in T.N. Srinivasan
Handbook of Development Economics , Vol. III.
Lecture 10. Microfinance: models
*Morduch, Jonathan (1990), “ The Microfinance Promise ”, Journal of Economic Literature, Vol.
XXXVII. Lead article (December)
* Armendáriz de Aghion, Beatriz , and Jonathan Morduch (2005), The Economics of
Microfinance , MIT Press, Chapters 1, 4 and 5.
Armendáriz de Aghion, Beatriz and Christian Gollier (2000), “ Peer Group Formation in An
Adverse Selection Model ”, The Economic Journal, July.
Armendáriz de Aghion, Beatriz (1999), “On the Design of a Credit Agreement With Peer
Monitoring”, Journal of Development Economics 60: 79 – 104.
Armendáriz de Aghion, Beatriz , and Jonathan Morduch (2005), “Microfinance: Where do we
stand?” Forthcoming in Charles Goodhart (ed.), Financial Development and Economic Growth:
Explaining the Links, London: Macmillan/ Palgrave.
Lecture 11. Microfinance: determinants of success and impact
* Armendáriz de Aghion, Beatriz , and Jonathan Morduch (2005), The Economics of
Microfinance , MIT Press, Chapters 8 and 9.
Yunus, Muhammad (2002), “ Grameen Bank II: Designed to Open New Possibilities ”.
Armendáriz de Aghion, Beatriz , Ashok Rai, and Thomas Söjström (2002), “ Poverty Reducing
Credit Policies ”, in Understanding Poverty , by Abhijit Banerjee, Roland Benabou and Dilip
Mookherjee.
Marie Godquin, (2004), "Microfinance Repayment Performance in Bangladesh: How to Improve
the Allocation Loans by MFIs?" World Development, Vol. 32, No. 11, 1909–1926.
Lecture 12. Human Capital: Education and Health in Economic Development
*TS , Chapter 8, Human Capital: Education and Health in Economic Development.
*Easterly, William (2002), The Elusive Quest for Growth: Economists' Adventures and
Misadventures in the Tropics , Cambridge, MA.: MIT Press., Chapter 4 (Educated for what?)
Psacharopouls and A. Patrinos, “Returns to Investment in Education: A Further Update,” World
Bank Working Paper #2881, 2002.
Philippe Aghion, Leah Boustan, Caroline Hoxby and Jerome Vandenbussche, 2005, “ Exploiting
States' Mistakes to Identify the Causal Impact of Higher Education on Growth ”.
February 21 : Mid-term exam
Lecture 13. Fundamental determinants of development: Institutions
*TS , Chapter 11 Development Policymaking and the Roles of Market, State, and Civil Society
*Acemoglu, Daron, Simon Johnson, and James Robinson (2006), “ Understanding Prosperity
and Poverty: Geography, Institutions, and the Reversal of Fortune ”, in Understanding Poverty ,
edited by A.B. Banerjee, R. Benabou, and D. Mookherjee. Oxford University Press.
Glaeser, Eward, Rafael La Porta, Florencio Lopez-de-Silanes, and Andrei Shleifer, “ Do
Institutions Cause Growth ”, mimeo, Harvard University
La Porta, Rafael, Florencio López de Silanes, Andrei Shleifer and Robert W. Vishny (1999),
“ The Quality of Government ”, Journal of Law, Economics and Organization, 15: 1, pp. 222 –
279.
Dani Rodrik, Arvind Subramanian and Francesco Trebbi, 2002, “ Institutions Rule: The Primacy
of Institutions over Geography and Integration in Economic Development ”. Journal of
Economic Growth, vol. 9, no.2, 131-165.
Dani Rodrik and Roberto Rigobon, 2004, “ Rule of Law, Democracy, Openness and Income:
Estimating the Interrelationships ”. A new attempt to identify the causal relationships among
institutions, income, openness, and geography.
Kaufmann, D. 2003. “ Rethinking Governance: Empirical Lessons Challenge Orthodoxy ”.
Washington DC: World Bank Institute.
Lecture 14. Industry policy
*Dani Rodrik, (2006), “ Industrial Development: Stylized Facts and Policies ”, mimeo.
*Dani Rodrik and Ricardo Hausmann, (2006), “ Doomed to Choose: Industrial Policy as
Predicament ”, mimeo.
World Development Report (2005), Chapters 1 and 2
Murphy, K. M., Andrei Shleifer, and Robert Vishny (1989), “Industrialization and the Big Push”,
Journal of Political Economy, Vol. 97, pp. 1003 – 1026.
DR, Chapter 5: History, Expectations and Development
Rosenstein – Rodan, P. (1943), “Problems of Industrialization of Eastern and South-eastern
Europe”, The Economic Journal, June – September, pp. 204 -207.
Eswaran, Mukesh, and Ashok Kotwal (1994), Why Poverty Persists in India? Oxford University
Press, Dehli.
Lecture 15. Trade theory and development
*TS, Chapter 12 Trade Theory and Development Experience
*Dollar, David (2001), “ Globalization, Inequality and Poverty Since 1980 ”, Washington, D. C. :
The World Bank.
Rodrik, Dani (2001), “ The Global Governance of Trade as if Development Really Mattered ”,
UNDP, October.
Bhagwati, Jagdish, and T. N. Srinivasan (2002), “ Trade and Poverty in Poor Countries ”
American Economic Review., 92, 2 (May), pp. 180-183.
Srinivasan, T. N. and J. Bhagwati. 2001. “Outward Orientation and Development: Are
Revisionists Right?” in D. Lal and R. Snape (eds.) Trade, Development and Political Economy.
New York: Palgrave. Comment by Dani Rodrik
Rodrik, Dani (2002), “ Feasible Globalizations ”, NBER Discussion Paper No. 9129.
Lecture 16. Trade policy
*TS , Chapter 13: The Trade Policy Debate: Export Promotion, Import Substitution, and
Economic Integration.
*David Dollar & Aart Kraay (2001): “ Trade, Growth and Poverty ” Working Paper, World Bank.
*Dani Rodrik (2000): “ Comments on Dollar & Kray ”, Mimeo, Harvard.
Dani Rodrik, 2006, “ Goodbye Washington Consensus, Hello Washington Confusion? ”, mimeo.
The Washington Consensus is dead. What will take its place?
Dani Rodrik, Ricardo Hausmann and Jason Hwang, 2006, “ What You Export Matters ”, mimeo.
Lecture 17. Foreign financing: two gap model, International flow of financial resources
*TS , Chapter 14 Balance of Payments, Developing-Country Debt and the Macroeconomic
Stabilization Controversy and Chapter 15 Foreign Finance, Investment, and Aid: Controversies
and Opportunities
Philippe Aghion, Peter Howitt and David Mayer-Foulkes, 2003, The Effect of Financial
Development on Convergence: Theory and Evidence .
Eswar Prasad, Kenneth Rogoff, Shang-Jin Wei and M. Ayhan Kose, 2003, Effects of Financial
Globalization on Developing Countries, Some Empirical Evidence. IMF.
Lecture 18. Foreign financing: Debt and debt crisis
*TS, Chapter 14 Balance of Payments, Developing-Country Debt and the Macroeconomic
Stabilization Controversy
*Armendáriz de Aghion, Beatriz , (1999) Analytical Issues on LDC Debt: A Survey , The World
Economy (July - August).
Living with debt (2006) IADB report. Chapter 3 "How Does Debt Grow?"
Armendáriz de Aghion, Beatriz , and Francisco Ferreira (1999) The World Bank and the
Analysis of the International Debt Crisis , in J. Harris, J. Hunter, and C. Lewis (eds.) The New
Institutional Economics and Third World Development, Routledge.
Lecture 19. Foreign financing: Debt forgiveness
*Easterly, William (2002), The Elusive Quest for Growth: Economists' Adventures and
Misadventures in the Tropics , Cambridge, MA.: MIT Press., Chapter 6 (The loans that were,
the growth that wasn't) and Chapter 7 (Forgive our debts).
Nancy Birdsall, John Williamson and Brian Deese, 2002, Delivering on Debt Relief: From IMF
Gold to a New Aid Architecture, Center for Global Development. Chapter 2 The HIPC Initiative:
Backgrounds and Critiques and Chapter 5 Deepening and Extending Debt Reduction.
Jeffrey Sachs (2002), Resolving the Debt Crisis of Low-Income Countries, Brookings Papers on
Economic Activity.
Lecture 20. Foreign financing: Asian Crisis
*Morris Goldstein, 1998, The Asian Financial Crisis: Causes, Cures, and Systemic Implications,
Policy Analyses in International Economics 55. Chapter 2 Origins of the Crisis and chapter 5
Lessons of the Asian Crisis and Concluding Remarks
Paul Krugman (2000), Analytical afterthoughts on the Asian crisis
Lecture 21. IMF stabilization and financial architecture
*Barry Eichengreen, 1999, Toward A New International Financial Architecture: A Practical
Post-Asia Agenda. IIE. Chapter 7 What the IMF Should Do (And What We Should Do About the
IMF)
*Edwin M. Truman, 2006, Reforming the IMF for the 21st Century, IIE. Chapter 29 An IMF
Reform Package.
Lecture 22. Foreign financing: aid
AFD, (2005), Financing Development: What Are the Challenges in Expanding Aid Flows?
*Easterly chapter "How to assess the need for aid? The answer: don't ask.
AFD, (2004), Development Aid: Why and How? Towards strategies for effectiveness
*J. W. Gunning chapter "Why give aid?"
Lecture 23. Aid effectiveness debate
*C. Burnside et D. Dollar (2000), “Aid, Policies and Growth”, American Economic Review 90 (4),
September, 847–68.
*Comments by W. Easterly, R. Levine et D. Roodman, 2004, "Aid, Policies and Growth: a
comment" American Economic Review, Vol. 94, n°3, pp. 774-780.
Response to comments by C. Burnside et D. Dollar, 2004, "Aid, Policies and Growth: Reply"
American Economic Review, Vol. 94, n°3, pp. 781-784.
The World bank report that started it all: World Bank report. Assessing Aid.
M. Clemens, S. Radelet et R.Bhavnani, 2004, "Counting chickens when they hatch: The short
term effect of aid on growth", Center for Global Development wp 44.
Comments by Rajan, Raghuram and Arvind Subramanian, 2005, " Aid and Growth: What Does
the Cross-Country Evidence Really Show? ", IMF working paper 5127.
Literature review (Agence Française du Développement) by L. Chauvet and J. Amprou (in
French)
W. Easterly, 2003, "Can Foreign Aid buy Growth?" Journal of Economic Perspectives, 17 (3),
23–48.
ODI "Poverty efficient aid allocations"
W. Easterly, 2006, chapter "The legend of the big push" in book The White Men's burden.
Lecture 24. Civil wars :
web site at the World Bank
web site of Collier
*Paul Collier and Hoeffler, 2006, "Civil War", forthcoming in the Handbook of Defense
Economics.
Paul Collier, (1999), "On the Economic Consequences of Civil War" Oxford Economic Papers
51, 168-83.
Paul Collier, (1998), "On Economic Causes of Civil War", Oxford Economic Papers 50 , 563-73.
Paul Collier and Anke Hoeffler, (2001), Greed and Grievance in Civil War
Paul Collier, Anke Hoeffler and Måns Söderbom, (2001), "On the Duration of Civil War"
Lecture 25. Concluding remarks: perspectives
* TS , Chapter 17, Some Critical Issues for the Twenty-First Century
Suggestions for Further Reading: check new stuff on prominent scholars
Beatriz Armendariz
Esther Duflo
William Easterly
Jonathan Morduch
Dani Rodrik
Jeffrey Sachs
Paul Collier