Syllabus

Economic Development (Economics 586)

Fall 1998

Office: 166C, Heady Hall

Phone and voice-mail : 294 5811

Office hours: Tuesday 12- 1 PM, and Thursday 1-2 PM, or by appointment.

Class time and location: Tuesday and Thursday, 8-9:15 AM in Heady 162.

E-mail: beghin@iastate.edu (easiest way to communicate)

Objectives of the Course

The objective of this course is to foster a better understanding of forces shaping, promoting or compromising economic development in developing economies. Development economics is a fuzzy and large field with substantial intersections with environmental economics, international trade, agricultural economics and many other sub-fields. Hence, I have to be selective to provide some knowledge depth. The course has two parts: The first part emphasizes micro-economic foundations of economic development and the role of distortions, market interventions and failures (missing markets and government failures). The second part looks at linkages between allocative efficiency, outward orientation and sustainability (a topic of personal interest for the last 5 years). This second part still deals with distortions, policy reform analysis and with failures, but with a different emphasis (trade and environmental distortions). The course will present a balanced mix of analytics and empirics. The course will also emphasize the importance of institutions and the scarce institutional capacity faced by governments in developing economies.

The methodological and quantitative aspects addressed in this course are taught at the advanced master level/early Ph.D. level, and assume that students have a good understanding of master-level microeconomics and basic statistics. The course has an important applied and quantitative dimension, without being intimidating. After completion of the course, students should be able to apply some of the tools and tricks learned in this course, to analyze policy in other contexts. Ph.D. students are very welcome in the course. With them in mind, during lectures, I will outline extensions of the material, indicate potential research topics and ideas for papers, and provide sources for further readings.

Requirements for the Course

1. Students are responsible for the readings. The lectures will provide exposition and "spoon-feeding" of concepts and issues, but participation of students, based on the readings, is expected.

2. Students will have to take a midterm and final exams. Review questions will be provided. The exams are based on the review questions.

3. A term paper, due at the end of the semester, is the most important requirement for this course. Master students can write a literature survey, but are also encouraged to work on their thesis if they are enrolled in a thesis program. Original papers are good but challenging for master students. Ph.D. students should provide an original research effort towards a publishable piece. I do not require any empirical work for the term paper. A conceptual effort to analyze a well-defined problem is sufficient for a paper.

By the end of September, you should have chosen a topic; you are encouraged to discuss your potential topic choice with me prior to that date. By the end of October, you should provide an outline and a list of references. During the last week of the semester (December), you will make a short class presentation of your term paper project (20 minutes conference format). The paper itself is due by the day of the final exam. There is a tax on late papers (1/2 grade penalty per week late).

4. Two other activities are not required but strongly encouraged.

a. Solving the applied problems in the required textbook is a good way to practically learn how to "get numbers" when quantifying a problem. The learning process is a combination of passive and active stages (lectures, reading, manipulating through exercise, discussion). Relying solely on lectures will miss a substantial part of the potential knowledge acquisition.

b. Further interaction beyond the lectures is also encouraged. Attendance to the development workshop initiated by Professors Huffman and Orazem is encouraged. I am also available during office hours to discuss/clarify the course material and interact on related research ideas you may have. Take advantage of the large pool of talent around you to enrich your knowledge.

Grading

Midterm exam 20%

Final exam 30%

Term paper 40%

Participation and paper presentation 10%

Reading List.

The readings will be available in the Library on the 3d floor of Heady Hall. The required book is Sadoulet, E. and A. de Janvry. Quantitative Development Policy Analysis. Oxford University Press, 1995. It is a very useful and self-contained book, although it may be hard to read at first (great book for quick reviews on consulting trips). Other book references are provided. The North-Holland Handbook series is good but expensive.

Suggested books

Basu, K. Analytical Development Economics. MIT Press, 1997. (Basu thereafter)

Chenery, H., and T.N. Srinivasan (eds.), The Handbook of Development Economics, Vol I and II, (1988, 1989), North-Holland. (HDE thereafter)

Srinivasan, T.D., and J. Behrman (eds.), Handbook of Development Economics, Vol III 1996 (out of print)

Low P., (ed.), International Trade and the Environment World Bank Discussion Papers No 159, (1992).

Anderson, K. and R. Blackhurst (eds.), The Greening of World Trade, University of Michigan Press, (1992).

References by Topic

Section I. Development Policy Analysis

Micro Foundations for Development Policy Analysis (2-3 lectures)

Sadoulet and de Janvry, Chapters 2, 3, and 6.

Renkow, M. "Household Inventories and Marketed Surplus in Semisubsistence Agriculture." American Journal of Agricultural Economics 72 (1990): 664-675.

Vousden, N. The Economics of Trade Protection, Cambridge University Press, 1990, Appendix 2

Measures of Distortions and Market Interventions (3 lectures)

Sadoulet and de Janvry, Chapters 7 and 8.

Anderson, J.E., G.J. Bannister, and J. P. Neary. "Domestic Distortions and International Trade," International Economic Review 36-1 (1995): 139-157.

Masters, W.A., and A. Winter-Nelson. "Measuring the Comparative Advantage of Agricultural Activities: Domestic Resource Costs and the Social Cost-Benefit Ratio," American Journal of Agricultural Economics 77 (May 1995 ): 243-250.

Impact of Distortions (efficiency and income distribution) (5 lectures)

Byerlee, Derek and Gustavo Sain. 1986. "Food Pricing Policy in Developing Countries: Bias against Agriculture or for Urban Consumers?" American Journal of Agricultural Economics 68: 961-969.

Lau, L. et al.. "The Microeconomics of Distribution: A Simulation of the Farm Economy," Journal of Policy Modeling 3(2) 1981: 175-205

Lipton, Michael and Martin Ravallion. 1995. "Poverty and Policy." Chapter 41 in HDE volume 3, pp. 2551-2657.

Vousden, N. The Economics of Trade Protection, Cambridge University Press, 1990, Chapter 2.

Sadoulet and de Janvry, Chapters 6 and 11

Anderson, J.E., G.J. Bannister, and J. P. Neary. "Domestic Distortions and International Trade," International Economic Review 36-1 (1995): 139-157.

Anderson J.E. "The Theory of Protection," in Greenway and Winters, eds., Surveys in International Trade," Blackwell 1994, pp. 107-133.

Protectionism and Political Economy of Distortions (2-3 lectures)

Becker, G. "A Theory of Competition Among Pressure Groups for Political Influence,: Quarterly Journal of Economics XCVIII (1983):373-99.

De Gorter, H. "Political Economy of Agricultural Policy,’ forthcoming in B.L. Gardner and G.C. Rausser, eds. Handbook of Agricultural Economics, North-Holland.

Sadoulet and de Janvry, op citum, Chapter 7

Krueger, A.O., "Trade Policies in developing Countries," in Jones and Kenen (eds.), Handbook of International Economics North-Holland, 1984, pp. 520-530.

Distortions in land Markets (2-3 lectures)

Basu, Chapters 11 and 12

Binswanger, H.P., K. Deininger, and G. Feder. "Power, Distortions, Revolt and Reform in Agricultural Land Relations, " in HDE, Vol 3, chapter 42.

Sadoulet and de Janvry, chapter 9.

Binswanger, Hans P., Deininger, Klaus, Feder, Gershon" "Agricultural Land Relations in the Developing World," American Journal of Agricultural Economics 75 (5) December 1993: 1242-48. See also comment on this paper by T. Roe (pp 1260-2 in same issue).

Synthesis on Market Interventions and Government (1 lecture)

Binswanger, H.P., K. Deininger. "Explaining Agricultural and Agrarian Policies in Developing Countries" Journal of Economic Literature vol 35 December 1997.

Brautigam, D. "Governance and Economy. A Review." World Bank Policy and Review Working paper WPS 815, 1991.

Bardhan, P. "Symposium on the State and Economic Development," Journal of Economic Perspectives 4 (1990): 3-8.

Krueger, A.O. "Government Failures in Development," Journal of Economic Perspectives 4 (1990): 9-23.

Midterm exam

Section II. Environment, Growth and Trade.

Growth, Trade and International Division of Labor in Polluting Activities (Pollution Heaven) (4-5 lectures)

Chichilnisky, G. "North-South Trade and the Global Environment," American Economic Review 84 (1994): 851-74.

Brander J.A., and M.S. Taylor. "International Trade and Open Access Renewable Resources: The Small Open Economy Case," Canadian Journal of Economics XXX (1997): 526-552.

Copeland, B.R., and S.M. Taylor. "North-South Trade and the Environment" Quarterly Journal of Economics 109 (1994): 755-87.

Copeland, B.R., and S.M. Taylor. "Trade and the Environment. A Partial Synthesis," American Journal of Agricultural Economics 77 (1995): 765-71

Lopez, Ramon. "The Environment as a Factor of Production: The Effects of Economic Growth and Trade Liberalization, Journal of Environmental Economics and Management 27(2) 1994: 163-84.

Trade and Environmental Policy Analysis (2 lectures)

Copeland, B.R. "International Trade and the Environment: Policy Reform in a Polluted Small Open Economy," Journal of Environmental Economics and Management 20 (1994): 44-65.

Beghin J., D. Roland-Holst and D. van der Mensbrugghe. ""Trade and Environment Linkages. Piecemeal Reform and Optimal Intervention," Canadian Journal of Economics XXX (1997): 442-55.

Empirical Studies on Trade Liberalization and Environment linkages (3-4 lectures)

Grossman, G.M., and A.B. Krueger, "Environmental Impact of a NAFTA," CEPR Discussion Paper 644, London, (1992).

Beghin, J., D. Roland-Holst, and D. van der Mensbrugghe, "Trade Liberalization and the Environment in the Pacific Basin: Coordinated Approaches to Mexican Trade and Environment Policy," American Journal of Agricultural Economics 77 (1995): 778-785.

Lee, H. and D. Roland-Holst. (1997). "The Environment and Welfare Implications of Trade and Tax Policy," Journal of Development Economics 52(1): 65-82.

Beghin J., B. Bowland, S. Dessus, D. Roland-Holst, and D. van der Mensbrugghe. "Trade, Environment, and Public Health in Chile. Evidence from an Economywide Model," in P. Fredriksson ed., Trade, Global Policy and the Environment. World Bank Discussion Paper, The World Bank, in press.

Pargal, S., and D. Wheeler. "Informal Regulation of Industrial Pollution in Developing Countries: Evidence from Indonesia," Journal of Political Economy 104(6), December (1996): 1314-27.

Inverted U-shape Hypothesis and Trade Orientation (2 lectures)

Low, chapter 5 "Economic Development, Environmental Regulation and the International Migration of Toxic industrial Pollution: 1960-1988.

Low, chapter 10. "Trade policy and Industrial Pollution in Latin America: Where are the Pollution Havens?"

Grossman Gene, M., and Alan B. Krueger, "Economic Growth and the Environment," Quarterly Journal of Economics 110 (2) (1995): 353-357.

Rock M.T. "Pollution Intensity of GDP and Trade Policy: Can the World Bank Be Wrong?," World Development 24(3) (1996) : 471-479.

Hettige M., R.E.B. Lucas, and D. Wheeler, "The Toxic Intensity of Industrial Production: Global Patterns, Trends, and Trade Policy," American Economic Review. Papers and Proceedings 82 (1992): 478-81.

Synthesis on Trade and Environment Linkages and Policy in Developing Economies (1 lecture)

Paper presentations (2 lectures)

Final exam (December 17)