Introduction and Ch. 1
ARE/ECN 115A
Preface
It was Winter Quarter 2012. The imaginary scent of pepper spray still permeated the air around
the Occupy tents on the UC Davis Quad. I gritted my teeth and told the campus bookstore to
order up 125 copies of an undergraduate econometrics textbook at $150 a shot. (That’s a gross of
$18,750 just from my class.)
Over dinner that night, my 20-year-old son, Sebastian, just back from occupying the Port of
Oakland, said he spent $180 on a new edition calculus text required for his course. My 16-yearold son, Julian, exclaimed: “That’s obscene.” Sebastian responded, “You’re right. Basic calculus
hasn’t changed in decades. You don’t need new editions to learn calculus.”
Before dinner was over, my two kids ambushed me and made me promise never, ever, to assign
an expensive textbook to my students again.
“So, what do you want me to do then, write one?” I asked them.
“Exactly,” they answered in unison.
“And get a good title for it,” my wife, Peri, added.
The next day, RebelText was born.
What I Do
(Besides cause trouble)




High-level Impact Evaluation
Poverty and Inequality
Migration, human capital and development
Environment-development interactions (CGD,
resource extraction)
 Gender
 REAP/PRECESAM/ENHRUM
 Editor, Am J Ag Econ
What Is Poor?
Wealth category
%
Ultra poor
(NB group estimated that
one half of these 18
households are now
LEAP beneficiaries)
Nearly poor
22
A little better than the
poor
29
Non poor
31
TOTAL
100
Characteristics
Ohianaminami (‘from here you are dying’)
Known locally as ‘bottles’ (i.e., you scratch them and nothing comes off)
‘God is their only help’
Physically frail or ill so no strength to work
Not mentally sound so unemployable
So poor that ‘if you throw away rubbish they would want to keep it’
They beg
Noone to depend on: ‘just roaming the world’
They live off other people’s leftovers
No land or property
Live in a family house (sometimes abandoned)
Nearly Ohianaminami
Still weak but can work
They hire labour when they can to work on land
Subsistence, no selling
Cannot borrow or use credit because they cannot pay back
Children not working or have died
Autoahiaafo (A little better than the poor)
They have strength to work
With a little working capital they can work better
Farming and small trading
Don’t get credit but can borrow
Don’t own land but sharecrop (Abuna or Abusua )
Landowners (inherited or acquired)
Hire out land
Benefit from family remittances
Invest in their children’s education
Have better off children
Sometimes own a car
Build and rent out houses
Lease land for rubber plantations (new trend)
Go outside community to buy wholesale and sell inside the community
Don’t provide credit
Lend amongst themselves
A Social Cash Transfer Program
Main Goal:
“Improve the living standards of Orphans
and Vulnerable Children (OVC)”
UNICEF with country government
One of seven programs like it in SubSaharan Africa
Transfer Scheme
• Unconditional social cash transfer (SCT)
– Targeted to poor and vulnerable households
• Asset poor, labor poor, often elderly and
infirm, many child-headed households
• About US$50 per quarter
• Represents about 30% of income for the
treated households
Social Protection vs. Production?
• Should countries spend scarce resources on
SCTs?
• …or should they spend them on productive
programs?
– New crop technologies, input subsidies, crop
price supports, extension
• The big question UNICEF and African
governments face
Q: What Happens When A Transfer Hits
the Target Household?
A: It Spends It
Expenditure shares
on:
A
B
C
D
Crop
22%
27%
12%
15%
Livestock
25%
16%
30%
21%
Retail
32%
37%
27%
33%
Services
4%
4%
4%
6%
Production
2%
2%
2%
1%
ROW
15%
15%
25%
24%
Transfer
Treatment
Control
Transfer
Treatment
T,N
T
T, T
Control
Transfer
Treatment
T,N
T
T, T
NT,NT’
Control
Rest of
Lesotho
Rest of
World
Transfer
Treatment
T,N
T
NT,T
T, T
NT,NT’
NT’,NT
Control
Rest of
Lesotho
Rest of
World
Transfer
Treatment
T,N
T
NT,T
T, T
NT,NT’
NT’,NT
NT,C
Control?
Rest of
Lesotho
Rest of
World
Effect on Total Income
Multiplier
Level Change
Nominal
(CI)
2.23
( 2.08- 2.44)
7.38
(6.89 -8.06 )
Real
(CI)
1.36
( 1.25- 1.45)
4.5
(4.15 -4.80 )
Total Income Y
Effect on Household Incomes
Household A Income
Multiplier
nominal
cpi increase in %
1.15
1.96%
real
1.03
nominal
1.08
Household C income
cpi increase in %
real
1.88%
Ineligible
Households
0.33
0.33
= 24%
0.33 + 1.03
Effects on Production
Production multiplier for:
Crop
Livestock
Retail
Services
Other Production
TOTAL
HH A (24% pop)
0.03
0.02
0.07
0
0
0.13
HH C (76% pop)
0.15
0.26
0.52
0.08
0
1.01
1.01
= 89%
0.13 + 1.01
How to Do Studies Like This?
•
•
•
•
1. Compelling research problem
2. Good theory
3. Careful review of what others have done
4. Clear, testable hypotheses
– Here, that transfers create significant spillovers
• 5. Good Data
• 6. Convincing empirical approach
From Theory to the Field
Making a Difference (We Hope)
ARE 115A
Economics of Development
• Our course websites: rebeltext.org and
smartsite
• E-mail Coordinates:
•
•
•
•
•
•
J. Edward Taylor
Kjersti Nes
Michael Norton
Anil Bhargava
Ted Gilliland
Sunghun Lim
jetaylor@ucdavis.edu
nes@primal.ucdavis.edu
norton@primal.ucdavis.edu
bhargava@primal.ucdavis.edu
gilliland@primal.ucdavis.edu
slim@primal.ucdavis.edu
Book (The Core of this Course)
Efficient and Compact, Economical, Portal to the Internet
Additional required readings will be posted on
the course websites each week:
Rebeltext.org (public domain)
Smartsite (specific to our class)
Grading
 Weekly study questions (10%). Study questions will be posted on
Smartsite.Your answers to them will be due on Smartsite no later than the time
noted on each study question sheet (normally the end of the weekend following
the week we cover the material in class).
 Homework assignments (30%; 3@10% each).
 A midterm exam (30%).
 A final exam (30%).
What Is Development
Economics?
• Everything: Just pick up a traditional
textbook (or look in RebelText)
• So why have a field of development
economics?
– There must be something different about poor
countries. What is it?
• Book: How our thinking about development
has evolved
Evolution of Development
Thought
•
•
•
•
•
Growth
Inequality and Poverty
Trusting Markets
Not Trusting Markets
The Experimental Revolution
Overview in Chapter 1; we’ll cover all of
these in this class
Back to the Bigger Question:
What’s Development?
• Economic development entails far-reaching changes in the
structure of economies, technologies, societies, and political
systems.
• Development economics is the study of economies that do
not fit many of the basic assumptions underpinning economic
analysis in high-income countries
– Including well-functioning markets, perfect information,
and low transaction costs.
• When these assumptions break down, so do the most basic
welfare and policy conclusions of economics
– And we need new tools.
Efficiency Versus Equity
• Rich countries: seen as separate
– Grow the pie, then figure out how it gets
divvied up
• In Poor countries: Equity and efficiency
cannot usually be separated
Why Efficiency Cannot Be
Separated from Equity
• Banks are unwilling to loan money to small farmers
• Poor people cannot get insurance to protect themselves
against crop loss or sickness
• Poverty and malnutrition prevent kids from growing up to
become productive adults
• Access to markets for the stuff people produce, the inputs
they use, and the goods they demand is different for the poor
and rich
• The ability to get a job depends on who you are, not on how
productive you are
• No more student loans?
How Do We Know When a Country
is Developing?
Per-Capita Incomes for Ethiopia,
Malaysia and Japan
40
35
30
25
20
15
10
5
0
Per-Capita
Income
PPP Adjusted
Ja
pa
n
Et
hi
op
ia
M
al
ay
sia
Country
Ethiopia
Malaysia
Japan
US$
PerCapita
PPP
Income Adjusted
90
710
3880
8970
34180
28450
Thousands of US$
• Is it growth?
But Careful: Costa Rica vs.
Equatorial Guinea
Incomes, Mortality and Illiteracy,
Costa Rica and Equatorial
Guinea
200
180
160
140
120
100
80
60
40
20
0
Costa Rica
Adult
Illiteracy
(%)
Infant
Mortaity
Per Capita
Income
(PPP, x
US$1000)*
Equatorial
Guinea
Per Capita
Income
(PPP, x
Infant
Country US$1000)*
Mortality**
Costa Rica
12
14
Equatorial Guinea31
181
* 2008
**Deaths by age 5 per1,000 live births
Adult
Illiteracy
(%)
4
14.3
Income and Growth
• In rich countries: development and growth are seen as
similar
– E.g., think about urban development projects
• A lot of things correlate with income
– Life expectancy is higher in the US than Malawi
• But most development economists would say
development is different from growth
– …though it’s hard to have development without
growth
What Development Projects
Focus On
• Concrete outcomes related to poverty, malnutrition, inequality,
and health
• Basic physical needs like nutrition, shelter, and clothing
• Development of the mind (and of course people’s earnings
potential), through education
• The environment, conservation, and sustainable resource use
• Human rights, gender and ethnic equity
• Government corruption
• Creation of infrastructure: transport, communications, market
So What Is Development Then?
What Does the UN Say?
(The Millennium Development Goals)
http://www.youtube.com/watch?v=vddX4n30sXY
(QR Code in RebelText)
Millennium Development Goals
• Set of targets adopted by 189 nations in Sept. 2000 (specific targets for
each; p. 51)
–
–
–
–
–
–
–
–
1.
2.
3.
4.
5.
6.
7.
8.
Eradicate extreme poverty and hunger
Universal primary education
Ender equity, empowerment of women
Reduce child mortality
Improve maternal health
Combat HIV/AIDS, malaria, other diseases
Environmental sustainability
Develop a global partnership for development
• Some on track, others not (esp. child mortality, gender equity in school
enrollment)
• Effects of recent crisis worrisome (Example from Mexico)
• Per-capita income growth “increases the range of human choice” (W.
Arthur Lewis, 1995, The Theory of Economic Growth)
What Happens When Countries
Develop?
•
Social indicators improve (Chapters 3-5)
– Health: Life expectancy, infant mortality
– Education: Literacy, higher education
•
Structure of economy changes (Chapter 8)
– Shift from agriculture to higher-paying urban jobs
– Expansion of markets
• Spatial
• Varieties: inputs, outputs, credit, insurance, futures
•
Institutions develop and deepen (Chapters 9-10)
– Legal, market, government, etc.
• Ex: Contracts and Real Estate
•
Accelerating then decelerating population growth (the population transition)
– Emigration to immigration (the migration transition)
•
Application of science to problems of production