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Development Economics Fall 2015 Economics 2390 Monday and Wednesday 1:00-2:30Pm Class Location: Sever Hall 102 Version: September 2, 2015

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Development Economics Fall 2015 Economics 2390 Monday and Wednesday 1:00-2:30Pm Class Location: Sever Hall 102 Version: September 2, 2015 Development Economics Fall 2015 Economics 2390 Monday and Wednesday 1:00-2:30pm Class Location: Sever Hall 102 Version: September 2, 2015 Michael Kremer M-20, Littauer Center Department of Economics [email protected] Office Hours: Mondays 4:00-5:00 Email Jeanne Winner [email protected] for appointment Shawn Cole 271 Baker Library, HBS [email protected] Office Hours: By appointment (please email Brian O’Connor: [email protected]) Teaching Assistant: Jack Willis [email protected] Skype: Jack.J.Willis Office Hours: TBA Prerequisites: This will be a technical class and non-Ph.D. students are not permitted to enroll. Ph.D. students are required to have taken or be concurrently taking PhD level microeconomics and econometrics. If you are not a Ph.D. student in economics or public policy then please contact us before enrolling. This class contributes to the fulfillment of requirements for the Development field for Economics Ph.D. students Broad Overview: This class is intended to teach the foundations for doing research in Development Economics. As such it will teach in detail empirical methods and theoretical models which are applied widely across the discipline. Part 1 (taught by Michael Kremer) will set the scene for the class. It will begin with a look at global differences in living standards and then present classical empirical work in macro development which attempts to quantify the roles of differences in capital, human capital and productivity. Next the class will focus in on capital and introduce a research agenda which aims to bridge the gap between growth theory and modern micro development research. This research agenda will motivate much of the rest of the course. 1 Part 2 (taught by Shawn Cole) is intended to bring students to the forefront of research on finance in emerging markets. Topics will include the relationship between financial development and economic growth, consumer finance; small and medium enterprise finance; debt and equity markets; the role of management and corporate governance; and the political economy of finance. Part 3 (taught by Robert Townsend) will introduce canonical models of risk-sharing and contracting under asymmetric information and limited commitment. These lectures will show how to formulate and analyze models of village (and larger) economies, in particular how notions of Pareto efficient or constrained-efficient allocations place restrictions onto data and how to test. Part 4 (taught by Michael Kremer) will first consider another key input to production: human capital. These four classes will be structured to teach common empirical strategies in development research and methods for causal inference. Then there will be a class on household economics, followed by a class which will introduce a recent literature on the misallocation of factors of production. Next the course will cover empirical evidence and theoretical models for a number of proposed explanations for productivity gaps: technology adoption and the flow of information, reputations, and land and property rights. Finally there will be a class on strategic complementarities and a particular production function: the O-Ring theory. Requirements: Assignments: There will be 5-6 assignments in total, one of which will be an empirical exercise and one of which will be a referee report. The due dates of these assignments will be filled in on the schedule below. Final Exam: There is a final exam for the course that will take place in the finals week. The exam is 90 minutes long and will cover material from the full semester. All material from the starred readings or covered in class may be on the exam. Grading: In assessing grades, the following breakdown will be used: Class Participation 20%, Assignments 40 %, Final Exam 40%. Disclaimer: Professor Cole has worked as a contingent employee for the Bill and Melinda Gates Foundation, working on topics related to digital financial services. 2 Schedule: DATE TOPIC & TEACHER ASSIGNMENTS (TBA) Part 1: Michael Kremer September 2 Accounting for Income Differences I September 9 Accounting for Income Differences II September 14 Returns to Capital Part 2: Shawn Cole September 16 Financial Development and Growth September 21 Household Finance / Insurance Problem set 1 due September 23 Small and Family Firms September 28 Firms I: Debt September 30 Firms II: Equity, Management, and Boards October 5 Political Economy and Finance October 7 Corruption Problem set 2 due October 14 ICT and Development Part 3: Robert Townsend October 19 Risk Sharing in Village Economies October 21 Modeling and Testing Obstacles to Trade Problem set 3 due Part 4: Michael Kremer October 26 Human Capital, Experimental Methods I October 28 Human Capital, Experimental Methods II November 2 Human Capital, Non-experimental Methods I November 4 Human Capital, Non-experimental Methods II Problem set 4 due November 9 Household Economics November 11 Misallocation November 16 Technology I November 18 Technology II Problem set 5 due November 23 Land and property rights November 30 Reputation December 2 O-Ring Theory Problem set 6 due 3 Other Useful Information: Development Sequence: Ec 2390 is one of four courses in the Development Economics sequence. It will focus on methods and provide a general overview of a variety of topics in the field. The other three courses in the sequence will examine specific topics at the intersection of development economics and other fields. They are: (i) Ec 2325, Comparative Historical Economic Development, taught by James Robinson and Nathan Nunn in fall 2015, (ii) Ec 2392, The Political Economy of Economic Development, taught by Melissa Dell in spring 2016, and (iii) Ec 2338, Behavioral Development Economics, taught by Gautam Rao in spring 2016. Harvard / MIT Development Seminar: The main Development Economics seminar for Harvard and MIT. In the Fall semester it meets on Tuesdays, 2:30-4:00pm in Harvard Hall, Room 104. You can subscribe here. Students interested in taking development as a field should attend as regularly as possible. Harvard Development Lunch: It meets on Thursdays from 12:00-1:00pm (and to 1:30 if there are two presentations) on the 4th floor of Rubenstein Building at Harvard Kennedy School, in the Perkins Room. To sign up for the mailing list, please email Raissa, [email protected], or Jeanne, [email protected]. Harvard Development Tea: An informal meet for students to present early stage work with few to no slides. It meets on Mondays from 3:00-4:00pm in Littauer 219. To sign up for the mailing list, please email Gia Petrakis. Sign-ups are for 15 or 30 minute slots. 4 Part 1: Michael Kremer General References Banerjee, Abhijit and Esther Duflo. Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty. Public Affairs, 2012. Deaton, Angus. The Analysis of Household Surveys: A Microeconometric Approach to Development Policy. World Bank Publications, 1997. Glennerster, Rachel. Running Randomized Evaluations: A Practical Guide. Princeton University Press, 2013. Ray, Debraj. Development Economics. Princeton University Press, 1998. Accounting for Income Differences (Sep 2, 9) *Jones, Charles and Paul M. Romer (2010): “The New Kaldor Facts: Ideas, Institutions, Population, and Human Capital,”AEJ Macroeconomics, Vol. 2 (1), pp. 224-245. *Kaldor, Nicholas (1961): “Capital Accumulation and Economic Growth,” in F.A. Lutz and D.C. Hague, eds., The Theory of Capital, 177-222. New York: St. Martin’s Press. *Lucas, Robert (1988): “On the Mechanics of Economic Development”, Journal of Monetary Economics, Vol. 22, pp. 3-42. *Mankiw, N. Gregory, David Romer, and David N. Weil (1992): “A Contribution to the Empirics of Economic Growth,” Quarterly Journal of Economics, Vol. 107 (2), pp. 407-437. *Klenow, Peter and Andres Rodriguez-Clare (1997): “The Neoclassical Revival in Growth Economics: Has it Gone too Far?” NBER Macroeconomics Annual, pp. 73-114. Jones, Charles and Pete Klenow (2011): “Beyond GDP? Welfare across Countries and Time,” mimeo. Jones, C. (2009) “Intermediate Goods and Weak Links: A Theory of Economic Development.”. Hsieh, Chang-Tai (1999): “Productivity Growth and Factor Prices in East Asia,” American Economic Review P&P, Vol. 89(2), pp. 133-138. Kremer, Michael, and Eric Maskin (2006) “Globalization and Inequality,” mimeo. Lucas, Robert E, Jr. (1993) “Making a Miracle.” Econometrica. Vol. 61 (2). p 251-72. Romer, Paul (1986), “Increasing Returns and Long-Run Growth," Journal of Political Economy,Vol. 94, No. 5 (Oct. 1986), pp. 1002-1037. Sala-i-Martin, Xavier (2006): “The World Distribution of Income: Falling Poverty and Convergence, Period,” Quarterly Journal of Economics, Vol. 121(2), pp. 351–397. Shleifer, Andrei, and K. Murphy and R. Vishny (1989): “Industrialization and the Big Push,” Journal of Political Economy, Vol. 97(5), pp. 1003-1026. 5 Young, Alwyn. (1995) “The Tyranny of Numbers: Confronting the Statistical Realities of the East Asian Growth Experience.” Quarterly Journal of Economics. Vol. 110 (3). p 641-80. Returns to Capital (Sep 14) Macro *Lucas, Robert (1990): “Why doesn’t capital flow from rich to poor countries?” American Economic Review, Vol. 80(2), pp. 92–96. *Banerjee, Abhijit and Esther Duflo, “Growth theory through the Lens of Development Economics”, in Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 3, chapter 1, Elsevier. Caselli, Francesco (2005): “Accounting for Cross-Country Income Differences,” in Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, Edition 1, Volume 1, Chapter 9, pages 679-741. Caselli, Francesco, and James Feyrer (2007): “The Marginal Product of Capital,” Quarterly Journal of Economics, Vol. 122(2), pp. 535-568. Song, Michael, Storlesseten, Kjetil and Zilibotti, Fabrizio (2011) “Growing Like China,” American Economic Review, 101, 196-233. Micro * Udry, Christopher, and Santosh Anagol. 2006. "The Return to Capital in Ghana." American Economic Review, 96(2): 388–393. * Kremer, Michael, Esther Duflo, and Jon Robinson. 2011. Nudging Farmers to Use Fertilizer: Theory and Experimental Evidence from Kenya.
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