DEVELOPING COUNTRY GROWTH AND THE CHANGING STRUCTURE AND CHALLENGES IN THE GLOBAL ECONOMY
DRAFT
Professor Michael Spence, Professor David Brady, Professor Peter Henry Office: Kaufman Management Center: Economics, 7th Floor, 7-83 Email: [email protected] +1 917 678 1920
Professor Peter Henry Dean’s Office [email protected]
Professor David Brady Office: Kaufman Management Center: Economics, 7th Floor, 7-83 [email protected]
TEACHING FELLOW TBD
INTRODUCTORY NOTE
The course this year is the same length as other courses in terms of number of classes but is compressed into half the number of weeks, with two classes on Tuesday and Thursday in the weeks when the classes meet. This is the format we used last year. We realize this is not ideal as it does not mesh well with the regular schedules, but given the commitments of each of us, it was the only way to do it.
The course meets on Tuesday and Thursday in the following weeks, identified by the Tuesday/Thursday dates.
Oct 4,6 Spence Oct 11,13 Spence Oct 25,27 Spence Nov 1,3 Henry Nov 8,10 Brady Dec 6 All
You will have a little over three weeks to prepare the final presentation and paper. The presentations will be on Dec 6 to the entire class. Based on past experience, this last class will be long, based on past experience. We will aim to start promptly at 6pm and continue until we are finished. So please hold that entire evening for your presentations. We have experimented with alternatives in the past by splitting this up. But the effect is to have only some of the class present for some of the presentations and it does not work very well.
There may be some additions and a few changes to the syllabus as we go through the course.
1 CONTENT OF THE COURSE
The first part of the course deals mainly with developing country growth. Based on experience and research, we will attempt to identify key ingredients in developing country growth. For this we will need to spend a little time on where growth comes from in general, and how it is in various ways constrained. With this framework we will talk about what impedes growth.
The second section of the course deals with developing countries in the past ten years including five years of crisis and post crisis adaptation to imbalances, attempted recoveries and slower than normal growth in the advanced or industrialized countries. In this section we will deal with middle income transitions (roughly the challenge of sustaining growth) when per capita incomes reach the 4000- 10000 dollar range. We will talk about China’s crucial middle income transition which is underway and spend some time on India’s high growth, its growth slowdown and the issues associated with reversing recent trends.
The third section will focus on issues of structural change, adverse distributional trends and growth challenges in developed countries that are related in part to the rising size, impact, and systemic importance of the developing countries, as well as to important trends in technology. We will also identify and discuss some of the new challenges associated with completing the second half of the century of convergence that began after World War II when significant growth in developing countries began for the first time.
The fourth section of the course lead by Professor David Brady will deal with, leadership, governance, and political economy. It will focus on the key role of leadership in shifting the expectations, behavior and dynamics associated with a shift from a no growth or low growth to a high growth equilibrium. It will also discuss how economic development and political structures evolve together. And it will deal with important distributional and equity issues and their interaction with political systems and policy choices.
The fifth section of the course, with Professor Peter Henry taking the lead role will deal with complex issues associated with financial sector openness, with the importance of strategy and policy choices in relation to institutional development, and with lessons of general applicability (including to advanced countries) of the experiences of growth or its absence in developing country. This last is the subject of his recent book, Turnaround: Third World Lessons for First World Growth, Basic Books, March 2013.
ASSIGNMENTS AND REQUIREMENTS
1. Try to the readings prior to class. We can’t cover them all but they are useful background, and will make the discussion more lively. Participate in class discussion.
2. Be prepared to lead the discussion on some aspect of the readings during class. 3. There will be a short written assignment in the second half of the course (a page or two), on the subject of what causes governments to fail to act in cases when the range of reasonable policy choices is relatively obvious and agreed on. This assignment will be done in the same groups as the final paper and presentation (see item 6) 4. For the end of the course: in groups of 5 or 6 students, prepare a concise paper (between 8 and 10 pages using double-space) analyzing some issue relevant to the course. Each group
2 will also prepare a power point presentation summarizing the key points and present the analysis a the final class on Dec 10th. 5. The focus can be policy (domestic or international), investment, multinational business, entrepreneurship (private and social), or Civil Society Organization strategy and impact. In other words it is wide open. I will say more about this in class. Preparation for this should start fairly early and include a visit with me and with the TF to get our thoughts and input. The TF will help you get organized into groups. I suggest that we aim to have the groups formed and the topics set by the end of the third week of October (at the class of Oct 22th the groups should already be decided) so that you have a month and a bit to work together on the project. 6. I will read and grade the papers and send back comments after the end of the course.
Class Structure
We will meet at 6 pm and continue (with a break) to 9 pm or whenever we run out of gas. Generally we will have a presentation from Professors Spence, Brady or Henry and sometimes an outside guest speaker, a break, and then a discussion and debate. Notwithstanding the presentation of some ideas by me or Professors Henry and Brady, or a guest, we encourage and enjoy discussion throughout the class. It is more fun, interesting and engaging that way. We will have some guests – see Course Meetings and Topics. I am being opportunistic about this so we may have some additions, and I may juggle the order of the material.
Additional Research Seminar (Optional) The TF may offer to teach a session on the standard models of Growth Theory and another one on STATA programming and quantitative analysis (correlation vs. causation, key statistics, regression analysis…). The dates for those sessions as well as the topics to be covered depend on student’s interests and will be determined after discussion with the class, early in the course.
Office Hours Given schedules, it is probably best to arrange to see us by sending an email and scheduling a time. For me, the best times are the Tuesday- Thursday of the weeks in which I am here for the class.
3 Course Meetings and Topics
Oct 4: The Evolving Structure of the Global Economy & Sustained High Growth in Developing Countries
Readings: . Commission on Growth and Development. (2008). The Growth Report: Strategies For Sustained Growth And Inclusive Development. The International Bank for Reconstruction and Development / The World Bank. The Growth Report . Spence, Michael, The Next Convergence: The Future of Economic Growth in a Multispeed World. Preface, Introduction, Chapters 1-12 . Capital in the Twenty First Century, Thomas Piketty, March 2014, Introduction, chapters 1 and 2 . Review global economic and demographic data by country looking at poverty levels, GDP, per capita GDP, population, and Gini coefficients (a standard measure of income inequality). For example: Per capita GDP: http://data.worldbank.org/indicator/NY.GDP.PCAP.CD GDP: http://data.worldbank.org/indicator/NY.GDP.MKTP.CD Population: http://data.worldbank.org/indicator/SP.POP.TOTL Gini: http://data.worldbank.org/indicator/SI.POV.GINI
Oct 6: 6:00-7:30 Sustained Growth in Developing Countries Challenging Policy Areas in Growth Strategies
Readings: . Spence, The Next Convergence, chapters 13-29
7:30-8:30 Possible Guest
Brief Bio
Readings: forthcoming
Oct 11:
6:00 - 9:00 Spence: Continuation of Developing Country Growth Dynamics and Issue
Readings: . Post Crisis Growth in Developing Countries (Commission on Growth and Development – Special Report) . “Can the Emerging Economies Save the Global Economy” (Mohamed El-Erian and Michael Spence) in Project Syndicate
4 http://www.project- syndicate.org/series/the_new_wealth_of_nations/description?page=2&nipp=10
October 13:
Middle Income Transitions China and India
Readings:
Medium and Long-term Development and Transformation of the Chinese Economy: The Synthesis Report, prepared by Edwin Lim, Ian Porter, Paul Romer and Michael Spence China 2030: Building a Modern, Harmonious, and Creative High Income Society, The World Bank and the Development Research Center of the State Council, PRC, 2012
“Increasing the Proportion of Middle-Income Earners and Enlarging the Domestic Market:The Basic Logic of the Proposal for the 12th Five-year Plan,” Liu He
The Next Convergence, Spence, Chapters 30-41
Observation:
By October 22 you should have already formed your group and communicated it to the TF. At this date, each group will be assigned a number. Please observe that when you hand in your assignment, the assignment should state in the front page both the number assigned by Michael Spence and the TF to the group as well as all the group students’ names and numbers.
Oct 25:
6:00 – 9:00 Advanced Country Structure and Challenges Advanced Countries in the Post-Crisis Period
Readings
“The Evolving Structure of the American Economy and the Employment Challenge,” Sandile Hlatshwayo and Michael Spence, Council on Foreign Relations, Working Paper, February 2011
“Globalization and Unemployment: The Downside of Integrating Markets,” Michael Spence, Foreign Affairs, July-August 2011
5 The Second Machine Age: Work, Progress, and Prosperity in a Time Brilliant Technologies by Erik Brynjolfsson and Andrew McAfee, chaps 1-4
Capital in the Twenty First Century, Thomas Piketty, March 2014, chaps 6-10
”Why Are There So Many Jobs: The History and Future of Workplace Automation,” Davi Autor, Journal of Economic Perspectives, Summer 2015
”New World Order: Labor, Capital, and Ideas in the Power Law Economy,” Erik Brynjolfsson, Andrew McAfee, Michael Spence, Foreign Affairs, July/August 2014
Oct 27: Spence Selected Topics on Growth Slow Growth in Europe What are Sustainable Growth Patterns Climate Change and Future Growth
Readings: The New Climate Economy, Synthesis Report, The Global Commission on The Economy and Climate, September , 2014
Climate Change, Mitigation, and Developing Country Growth, Commission on Growth and Development, Working Paper #64
Nov 1: Dean Peter Henry Lessons from Developing Country Experience Policy Choices and Institutions; Financial Sector Development
Professor Peter Henry, the Dean of the Stern School of Business, will join the class. The subject matter is twofold. One is the importance of policy choices, in the context of the policy versus institutional development debate. The other is financial sector development and growth.
Short CV Peter Blair Henry Is the William R. Berkley Professor of Economics and Finance, Richard R. West Dean, New York University Leonard N. Stern School of Business, and
6 Professor of Economics (by courtesy), Faculty of Arts and Science, New York University. Previously he was the Konosuke Matsushita Professor of International Economics, Stanford University Graduate School of Business, April 2008- January 2010. He is a member of the Board of Directors, Council on Foreign Relations, the Board of Directors, Kraft Foods, the Board of Directors, National Bureau of Economic Research, the World Economic Forum, Global Agenda Council on New Growth Models. He is a member of the Economic Club of New York, and Ghana Country Adviser, International Growth Centre.
Readings: . Peter Blair Henry, Turnaround: Third World Lessons for First World Growth, Basic Books, March 2013, Introduction, Chapters 1, 2, and 10
. “The two Mexicos” The Economist, September 19, 2015
Nov 3: Continuation of the Discussion of Nov 3
Readings Turnaround, Chapters 7 and 8
Wigglesworth, Robin “Markets: The Road to Redemption,” Financial Times, January 31, 2013.
. Harrison, Edward (2015). “In Praise of Capital Controls,” Foreign Policy June 25, 2015
FIRST ASSIGNMENT (to be prepared for and handed in Nov 8 in class)
Leadership, while difficult to measure, clearly matters when analyzing countries’ economic growth and development. Spence and Brady (2009) outline some of the conditions which enhance leadership opportunities. The current economic situation and the lack thus far of solutions has generated a plethora of headlines and stories about government paralysis and a lack of leadership. On August 29, 2012, we typed into Google “government paralysis over economy” and got over four million hits in thirty seconds. The first few pages included Greece, Italy, India, United Kingdom, France, USA, Georgia, Japan, China, Russia and seven other countries where paralysis over the economy generated stories. The same experiment on September 15, 2015 generated over five million hits with many of the same countries featured and new ones like Syria added.
Leadership was often cited as a cause of the paralysis. Spence and Brady (2012) argue that leadership is a “catchall explanation” which fails to analyze why
7 politicians and government officials have produced so little change. The authors then proceed to analyze possible explanations for the lack of policy responses. One explanation is risk aversion given complexity, another is out of date policy instruments and institutions, and a third is vested interests who prefer the status quo. Structural explanations, including constitutional systems like the U.S. which make building majorities for change difficult, also can constrain leadership. Additionally, the technocratic elements of government must be balanced against democratic accountability at a time when elites are not trusted. Given this list, plus other items not included, makes analyzing “leadership failure” difficult. Add to that the fact that the combination of explanatory variables will differ across countries.
Your team is to pick a country or the European Union and analyze its leadership in light of the complexity of leadership paralysis. Your report should weigh the relative factors and in three Power point slides summarize the results of your analysis. The group should prepare, based on the three slides, a short five minute class presentation. The November 12 class will not have presentations rather on the 17h of November we will have each group present their results which then leads into a general discussion of globalization, political instability and policy instability. We suggest you consider focusing on the country or institution that you have selected for your final paper, though this is not a requirement. If you type in the website www.policyuncertainty.com/about.html you will find data and information about measuring policy uncertainty that may be of use in your reports. It ,is of course, not required that you use the website.
Observe that when you hand your assignment to be graded, the assignment should state in the first page both the number assigned by Michael Spence and the TF to the group and all the group students’ names and numbers.
Nov 8: Professor Brady
Politics and Leadership in Growth and Development
Short CV David Brady is deputy director and Davies Family Senior Fellow at the Hoover Institution. He is also the Bowen H. and Janice Arthur McCoy Professor of Political Science and Leadership Values in the Stanford Graduate School of Business and a professor of political science in the School of Humanities and Sciences at the university. He has published eight books and more than a hundred papers in journals and books.
Among his most recent publications are Leadership and Growth (World Bank Publications, 2010) coedited with Michael Spence, Revolving Gridlock: Politics and Policy from Carter to Bush II (Westview Press, 2006), and Red and Blue Nation? Characteristics and Causes of America’s Polarized Politics with Pietro Nivola (Brookings Institution Press, 2007).
Brady has been on continuing appointment at Stanford University since 1987. He was associate dean
8 from 1997 to 2001 at Stanford University; a fellow at the Center for Advanced Study in the Behavioral Sciences from 1985 to 1986 and again in 2001–2; and the Autrey Professor at Rice University, 1980–87.
In 1987 he was elected to the American Academy of Arts and Sciences. He won the Dinkelspiel Award for service to undergraduates, the Richard Lyman Prize for service to alumni, and the first Phi Beta Kappa Teaching Award given at Stanford.
Readings: The Role of Leadership & the Political Economy and Politics Of Growth and Development
. Commission on Growth and Development. (2010). Leadership and Growth. Edited by David Brady and Michael Spence. World Bank. Chapters 1,5,6,7
. Michael Spence’s Keynote Address at the A Korea-IMF Conference in July 2010. See http://www.asia21.org/node/168.
. Michael Spence and David Brady, “Why are Governments Paralyzed” Project Syndicate, August 2012. See http://www.project- syndicate.org/commentary/why-are-governments-paralyzed-by-michael-spence- and-david-brady
True Progressivism, The Economist, Oct 2012 True Progressivism
. Presentation on Inequality and Political Polarization (presented in class) – David Brady
Nov 10 Professor Brady Globalization and its relation to political instability , equity and distributional issues.
In this class, all of the group assignments handed in on Nov 12 will be called on to present your analysis
Readings: Borjas, George Immigration and Globalization: A Review Essay forthcoming – available on his web page at Harvard Economics.
Freiden, Jeffry,Global Capitalism:Its Fall and Rise in the Twentieth Century . Norton , 2006. Read –Prologue 1-10, Chapter 1 and chapter 20.
Garlock, Stefanie, How Globlization Begets Inequality, Harvard Magazine , Marcj/April 2015. The article has links to work by Kremer and Maskin that is of interest.
McKibbin, Ross, Labour Vanishes, London Review of Books , …
9 wwwlrb.co.uk/r36/n22
Swaboda, Aaron, Review of the Economics of Climate Change in Journal of Economic Literature, March, 2012 .
These articles may be skimmed
Virmani, Arvind, “Accelerating And Sustaining Growth: Economic and Political Lessons”. International Monetary Fund, Working paper WP/12/185, July 2012
Income and Democracy by Daron Acemoglu, Simon Johnson, James A. Robinson, and Pierre Yared, American Economic Review 2008, 98:3, 808– 842 http://www.aeaweb.org/articles.php?doi=10.1257/aer.98.3.808
Dec. 6 Student presentations (3-120)
We will start at 6 pm sharp to ensure there is enough time and if necessary go on past 9pm I would like everyone to be there for all the presentations please – to provide feedback and ask questions.
The final paper will be due on Dec 4 in the morning. You should send by email the Powerpoint from the class presentation and the paper as a Word document (please – this is important as we will comment on your papers in the text) to the TF and Spence by email. We will both read them and give you comments. Please be sure the paper is a Word document and observe that when you hand in your assignment, it should state in the front page both the number assigned to the group by and John as well as all the group students’ names and numbers.
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