The Heller School for Social Policy and Management s5

The Heller School for Social Policy and Management Brandeis University Sustainable International Development Graduate Program Fall 2015

Module: Introduction to Economics for Development Practitioners (HS266f)

Brian Roach Office hours: To be determined [email protected] or [email protected] Phone: (617)627-6787

Module Summary

This module provides you with a foundation for applying lessons from economics to development issues. The module will cover the essential economic theories related to development, considering both the strengths and limitations of economic models. We will also take a practical approach to solving development problems, assessing what “works” at both a macro and micro level. We will base this assessment on relevant readings and empirical data. We will also discuss the relationship between economic goals and other development goals, such as distributional issues, the environment, and human welfare. My aspiration is that by the end of the module you will be able to express an informed view regarding the potential of economic theory and policy to promote equitable and sustainable development.

Readings

All course readings will be available electronically on LATTE. You do not need to purchase any books for the module.

Grading

Your grade for this module will be determined by the following four factors:

 Class participation and attendance (10%): As there are only six regular class meetings for this module, attendance of all meetings is important and strongly encouraged.  Pre-class writing assignments (30%): There will be a pre-class writing assignment due at the start of class meetings #2 – #6, for a total of five assignments. Each

1 pre-class writing will involve your response to, or evaluation of, one or more readings in advance of each class meeting.  Homework assignments: (30%): There will also be a homework assignment due at the start of class meetings #2 – #6, for a total of five homework assignments. Each homework assignment will involve questions related to the prior class meeting.  Exam (30%): A final comprehensive exam will be given at the last class meeting (meeting #7). A list of review questions will be made available in advance to help you prepare for the exam, and I will arrange for at least one review session prior to the exam.

Pre-class and homework assignments are due at the start of each class meeting. Any work handed in late without prior approval will be assessed a late penalty of at least 20% for every calendar day it is late, including the due date. If an unanticipated situation arises where you believe you cannot reasonably complete an assignment on time, please contact me before the due date. Extensions may be granted, but only under exceptional circumstances. Pre-class and homework assignments should be submitted in hard copy to allow for easier grading (no e-mail submissions please). All assignments for each class meeting should be submitted together (on the same page if you want), and stapled if your submission is multiple pages.

Academic Integrity

Students are expected to be honest in all their academic work. The university policy on academic honesty is distributed annually as in Rights and Responsibilities handbook. Instances of alleged dishonesty are subject to possible judicial action. Potential actions include failure of the course and suspension from the University.

Academic integrity is central to the mission of educational excellence at Brandeis University. Each student is expected to turn in work completed independently, except when assignments specifically authorize collaborative effort. It is not acceptable to use the words or ideas of another person – be it a world-class philosopher or your roommate – without proper acknowledge; you must use footnotes and quotations marks to indicate the source of phrases, sentences, paragraphs or ideas found in published volumes, internet or expressed by another student. I will strictly adhere to Brandeis’ policies on academic integrity, and will report all suspected violations. It is your responsibility to be fully aware of these policies, though you are always welcome to ask me if you need any clarification on issues of academic integrity.

Student Needs

Any student with a disability or individual need documented by Brandeis University will be accommodated to every extent reasonably feasible. Please discuss any such issues with me as soon as possible.

2 Class Philosophy

Many students interested in equitable and sustainable development consider economics to be more a part of the problem, rather than part of the solution. It is true that neoclassical development economics has traditionally assigned little importance to issues of equity, human rights, and environmental sustainability. It is also true that development economics has often placed excessive emphasis on traditional macroeconomic metrics, such as GDP, inflation rates, and debt ratios, to assess development success while neglecting the welfare of real people. For many years, economic policy recommendations to developing countries often took a “one size fits all” approach, specifically the Washington Consensus policies advocating free markets and free trade.

But development economics has always been a sub-discipline with a wide diversity of theories, policy recommendations, and subjective values. More recently, with mixed results from the Washington Consensus approach and wide acceptance of a broad definition of human development, development economics today should be viewed as an evolving and diverse discipline. True, many development economists continue to emphasize free markets and free trade as the foundations of economic development, and with some empirical basis. However, nearly all economists today view “development” through a broader lens than in the past.

With this in mind, I hope everyone will approach this module with an open, yet critical, mind. A diversity of opinions is to be expected – just be careful to support your opinions with readings from the class, empirical data, or your own experiences. I promise to respect all opinions, and that grading will not be based on whether your opinions correspond with my own views. I ask that you come to each class meeting with questions, topics for discussion, and personal reflections from the day’s readings (motivated by the pre-class writings). You are definitely encouraged to ask questions, initiate further discussion on topics, or propose discussion on a related topic. I don’t mind going off on tangents, as long as those tangents are somewhat relevant and interesting. I hope you find the module informative, somewhat enjoyable, and thought provoking. If you ever have any suggestions to improve the module, please don’t hesitate to let me know.

3 Core Competency Statement

This module will foster the development of concepts and skills identified as core competencies for a Master of Arts degree in Sustainable International Development. These concepts and skills are based in a shared vision among all the Heller School community for economic and social development that is environmentally sustainable and socially just. Specifically, you will:

1. Build broad-based knowledge on the topic of economic development, based on current and relevant literature sources. 2. Analyze economic development issues within a broader social, environmental, institutional, and historical context. 3. Apply an analytical, realistic, and problem-solving approach to development challenges, based on evidence and experience. 4. Develop your skills in effectively and professionally communicating your knowledge of economic development. 5. Gain an understanding of role of economics in addressing development challenges, within an interdisciplinary approach of mutual respect and curiosity.

Sustainable Development Statement

For too long economic development has been viewed distinct from environmental objectives. The approach taken in this module is that environmental goals are economic goals, given that economics is defined as enhancing well-being. One class session will be specifically devoted to the relationship between economic development and the environment, but the issue of sustainable development will be relevant at numerous times throughout the module.

Gender Perspective Statement

Similar to environmental issues, the important of gender equity has been neglected among development economists for too long. Thus we recognize that development cannot be considered successful unless it promotes gender equity. The topic of gender and development will be addressed in several readings during the module.

4 Module Outline and Readings

The module is divided into six class meetings of three hours each. To further organize the material, each class meeting is divided into two sessions that may cover slightly different topics. Thus there are a total of twelve sessions for the module. Each session is briefly summarized below, along with the assigned readings for each.

Session #1a: Economic Perspectives on Development

What is economics about? Many students’ preconceived ideas of economics are inaccurate, or at least over-simplifications. Throughout this module, we take the view that the ultimate goal of economics is to improve human well-being. In this first session, we consider what variables can be used to measure well-being, and summarize the data on those variables.

 “Perspectives on Well-Being,” Chapter 0 of Macroeconomics in Context, Second Edition, Neva Goodwin, et al., M.E. Sharpe, 2014.  Executive Summary of “Report by the Commission on the Measurement of Economic Performance and Social Progress,” Stiglitz, Sen, and Fitoussi. 2009.

Session #1b: An Overview of Development Challenges

In this session we take a brief look at current development challenges. The Atlas of Global Development readings provide a macro perspective on economic development. The other readings discuss development on a more micro level.

 “Rich and Poor” and “Economy” sections from Atlas of Global Development, Fourth Edition, World Bank, 2013. Note: Just be familiar with the basic findings of each section, don’t worry about the details.  “The Many Development Benefits of Educating Girls, and the Challenges to Achieving Gender Equity: Pakistan,” Case Studies in Economic Development, Third Edition, Stephen C. Smith, 2003.  “Environment for Development,” Chapter 1 of Global Environmental Outlook 4, United Nations Environment Programme, 2007. Note: Just browse through this reading.

Session #2a: Basic Economic Development Concepts

Economics has traditionally been presented to students as a discipline that focuses on positive, as opposed to normative, issues. In this session we explore whether this perspective is correct. We also introduce some basic economic concepts, including efficiency and opportunity cost. Then we go on to a summary of development economics.

5  “Economic Activity in Context,” Chapter 1 of Microeconomics in Context, Third Edition, Neva Goodwin, et al., M.E. Sharpe, 2014. Note: Just browse Section 4, read the rest of the chapter.  “How Economies Grow and Develop,” Chapter 17 of Macroeconomics in Context, Second Edition, Neva Goodwin, et al., M.E. Sharpe, 2014. Note: Just read Section 2.

Session #2b: Markets

One of the traditional recommendations of development economists has been to promote privatization and free markets. A basic understanding of how markets operate, along with their strengths and weaknesses, is needed to provide context to many current debates in development economics. The Goodwin chapter introduces market analysis. The Westhoff reading illustrates the real-world complexities of market analysis, based on the food crisis of 2007-2008.

 “Supply and Demand,” Chapter 3 of Microeconomics in Context, Third Edition, Neva Goodwin, et al., M.E. Sharpe, 2014.  “Biofuel Boom,” Chapter 1 of The Economics of Food, Patrick Westhoff, FT Press, 2010.

Session #3a: The Theory of Free Trade

The other traditional recommendation of development economics is to advocate for “free trade.” In this session we explore the economic theory in favor of free trade, along with some discussion of the drawbacks of free trade.

 “International Trade and Trade Policy,” Chapter 6 of Microeconomics in Context, Third Edition, Neva Goodwin, et al., M.E. Sharpe, 2014.

Session #3b: Trade in Practice

In this session we continue our discussion of trade and development, further assessing the advantages and disadvantages of globalization as a tool for economic development. Dani Rodrik’s book The Globalization Paradox presents the case for a nuanced approach to globalization.

 “Of Markets and States,” Chapter 1 of The Globalization Paradox, Dani Rodrik, W.W. Norton & Company, 2011.  “Why Doesn’t Everyone Get the Case for Free Trade?” Chapter 3 of The Globalization Paradox, Dani Rodrik, W.W. Norton & Company, 2011.  “Economic Liberalization and Poverty Reduction,” Chapter 7 of Rethinking Poverty, United Nations, 2009.

6 Session #4a: Development and Inequality

The relationship between economic development and inequality has been extensively studied by economists since the 1950s. However, a consensus has failed to emerge on whether economic development leads to higher or lower inequality. As the Moran article illustrates, economic debates are often immersed in a political and ideological context.

 “How Economies Grow and Develop,” Chapter 17 of Macroeconomics in Context, Second Edition, Neva Goodwin, et al., M.E. Sharpe, 2014. Note: Just read Section 4.  “Kuznets's Inverted U-Curve Hypothesis: The Rise, Demise, and Continued Relevance of a Socioeconomic Law,” Timothy Patrick Moran, Sociological Forum, 20(2): 209-244, 2005. Note: Read up to page 216, then read pages 219-226, and 229-236.  “Global Trends in Income Inequality,” Robert Wade, Challenge, 54(5):54-75, 2011. Note: Read up to page 57, and pages 70-73, then just browse the rest of the article.

Session #4b: Development and the Environment

In this session we explore the relationship between economic development and the environment. Does economic growth automatically lead to increased environmental damage? Can we design development policies that are also environmentally sustainable?

 “Greening the Economy,” Chapter 17 of Environmental and Natural Resource Economics, Third Edition, Jonathan Harris and Brian Roach, M.E. Sharpe, 2013.  “Poverty, Inequality, and Sustainability,” paper for Growth vs. Sustainability Conference, Brian Roach, 2013.  “Natural Resources and the Poor,” Rasmus Heltberg, Journal of Natural Resources Policy Research, 2(1):1-6, 2010.  “Overview: Changing the Climate for Development,” from World Development Report 2010: Development and Climate Change, World Bank, 2010.

7 Session #5a: Microfinance

For the rest of the module, we primarily focus on assessing what policies and approaches can result in true human development. One of the most discussed approaches to development in recent years is microfinance. In this session we explore the potential for, and limitations of, microfinance.

 “Microfinance-Hope for the Poor: The Grameen Bank of Bangladesh,” Case Studies in Economic Development, Third Edition, Stephen C. Smith, 2003.  “Poverty Reduction Programmes,” Chapter 8 of Rethinking Poverty, United Nations, 2009. Note: Just read pages 135-143.  “Microfinance as a Poverty Reduction Tool—A Critical Assessment,” Anis Chowdhury, United Nations, DESA Working Paper No. 89, 2009.

Session #5b: Experimental Approaches to Development

Along with microfinance, the other recent “buzzworthy” approach to economic development is to use experimental approaches, specifically randomized controlled trials, to determine what does and doesn’t work. The most famous advocates of this approach are Abhijit Banerjee and Esther Duflo.

 “Think Again, Again,” “A Billion Hungry People,” and “Low-Hanging Fruit for Better (Global) Health?” Chapters 1-3 of Poor Economics, Abhijit Banerjee and Esther Duflo, PublicAffairs, 2011. Note: Read the first two chapters, just browse Chapter 3.  “The Marketplace of Perceptions,” Craig Lambert, Harvard Magazine, pages 50-57 and 93-95, 2006. Note: Just browse this article, focus on the section “Marketing Prudence” on pages 56-57.

Sessions #6a: The Debate over Development Aid

Perhaps no debate about development has been as lively as the debate over the effectiveness of international aid. Advocates of aid argue that aid provides the financing necessary to allow developing countries to make the needed investments that lead to growth. Critics note that there seems to be no empirical relationship between aid and growth, and that aid is typically squandered. In this session we consider both sides of the debate.

 “Can Foreign Aid Reduce Poverty?” Chapter 3 of Controversies in Globalization, Peter Haas, CQ Press, 2009.  “Sachs, Easterly and the Banality of the Aid Effectiveness Debate: Time to Move On,” Daniel Miller, Mapping Politics, 3: 72-86, 2010/2011.

8  “Aid, Policies, and Growth: Revisiting the Evidence,” Craig Burnside and David Dollar, World Bank Policy Research Working Paper 3251, 2004.

Session #6b: Policies for Just and Sustainable Development

In our final session we’ll consider what policy changes are needed to produce just and sustainable development.

 “Kicking Away the Ladder: ‘Good Policies’ and ‘Good Institutions’ in Historical Perspective,” Ha-Joon Chang, in Putting Development First, Kevin Gallagher (editor), Zed Books, 2005. Note: Just browse this reading.  “Policies, Politics,” Chapter 10 of Poor Economics, Abhijit Banerjee and Esther Duflo, PublicAffairs, 2011.  “Rising to the Policy Challenges,” Chapter 5 of Human Development Report 2011—Sustainability and Equity: A Better Future for All, United Nations, 2011.

Session 7: Final Exam