Debraj Ray

Office Hours: T 2.00 pm -- 4.15 pm and always happily available by appointment
#1125, International Affairs Building

Debraj.Ray@nyu.edu

Homepage for this course: http://www.econ.nyu.edu/user/debraj/Courses/GrDev13/13DEV.htm

——————————————————

Course Summary

Syllabus

Introduction and Background Reading

Ray, D. (2010), "Uneven Growth: A Framework for Research in Development Economics," Journal of Economic Perspectives 24, No. 3 (Summer 2010), 45--60.

While my course will be built around the themes in this article, the rest of this Journal of Economic Perspectives Symposium Issue on "The Agenda for Development Economics" is worth reading.

Ray, D. (2008), "Development Economics," [online version here] in L. Blume and S. Durlauf, The New Palgrave Dictionary of Economics, is another article that covers many of the issues raised in this course.

Ray, D. (1998), Development Economics, Princeton University Press (referred to as DE). An updated version of Chapter 2 can be found here.

Aggregative Growth Models and Some Back-Of-The Envelope Calculations

Lucas, R. (1990), "Why Doesn't Capital Flow From Rich to Poor Countries?" American Economic Review 80, 92--96.

Pritchett, L. (1997), "Journal of Economic Perspectives 11, 3--17.

Parente, S. and E. Prescott (2000), Barriers to Riches, Cambridge, MA: The MIT Press.

A. Banerjee and E. Duflo (2005), "Growth Theory through the Lens of Development Economics," Handbook of Development Economics, Vol. 1a. Amserdam: Elsevier, 473-552.

Here are two recent papers that seek to span the large observed differentials:

C. Jones (2010), "Intermediate Goods and Weak Links in the Theory of Economic Development,"

A. Erosa, T. Koreshkova and D. Restuccia (2010), "How Important Is Human Capital? A Quantitative Theory Assessment of World Income Inequality," Review of Economic Studies 77, 1421--1449.

You should be familiar, of course, with the basic Solow model, as well as standard empirical implementations of it, such as this paper by Mankiw, Romer and Weil or this paper by Barro. Durlauf and Quah's survey does a great job with this literature.

The following sections depart from the standard growth model, allowing for expectations-driven coordination failure and history-dependence.

Expectations and Theories of Multiple Equilibrium

DE, Chapter 5.

Murphy, K., Shleifer, A. and R. Vishny (1989), "Industrialization and the Big Push,'' Journal of Political Economy 97, 1003--1026. . Perhaps the first formalization of the Rosenstein-Rodan argument.

Morris, S. and H. Shin (1998), "Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks," American Economic Review 88, 587--597. An attempt to resolve the question of multiplicity while still allowing for various regimes within the same model.

Munshi, K. and J. Myaux (2006), "Social Norms and the Fertility Transition," Journal of Development Economics 80, 1--38.

Notes: The JDE special issue on coordination failures (1996) has a number of articles on multiplicity. Notable among them is the paper by Ciccone and Matsuyama. Similar arguments appear in a paper on financial deepening by Acemoglu and Zilibotti. This paper by Hoff is a nice survey of multiple-equilibrium arguments.

Read the classics: Rosenstein-Rodan, P. (1943), "Problems of Industrialization of Eastern and Southeastern Europe,'' Economic Journal 53, 202-211 is the original paper on coordination failure. Albert Hirschman's The Strategy of Economic Development, New Haven: Yale University Press (1958) is an insightful book. You can still mine it for fresh ideas. The distinction between technological and pecuniary externalities used in my lectures was first made in this paper by T. Scitovsky. (Warning: This paper raises the correct question but I don't think it provides the right answer!)

On equilibrium transitions: Morris and Shin in turn rely on this paper by Carlsson and Van Damme. A variation of this idea is to be found in this paper by Frankel and Pauzner. The paper by Adsera and Ray is yet another attempt to resolve multiplicity.

History, Inequality and Development: Overview

Sokoloff, K. and S. Engerman (2000), "History Lessons: Institutions, Factor Endowments, and Paths of Development in the New World," Journal of Economic Perspectives 14, 217--232.

Acemoglu, D., Johnson, S. and J. Robinson (2001), "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review 91, 1369--1401.

Barro, R. (2000), "Inequality and Growth in a Panel of Countries," Journal of Economic Growth 5, 5--32.

Forbes, K. (2000), "A Reassessment of the Relationship Between Inequality and Growth," American Economic Review 90, 869--887.

Banerjee, A. and E. Duflo (2003), "Inequality And Growth: What Can The Data Say?," Journal of Economic Growth 8, 267-299.

Inequality and Markets

Banerjee, A. and A. Newman (1993), "Occupational Choice and the Process of Development,'' Journal of Political Economy 101, 274-298.

Galor, O. and J. Zeira (1993), "Income Distribution and Macroeconomics,'' Review of Economic Studies 60, 35-52.

Mookherjee, D. and D. Ray (2003), "Persistent Inequality," Review of Economic Studies 70, 369--393.

Mookherjee, D. and D. Ray (2010), "Inequality and Markets," AEJ Microeconomics 2, 38-76 (2010).

Notes: Loury's (1981) "Intergenerational Transfers and the Distribution of Earnings'' is an excellent starting point that describes the ahistoric, ergodic model with no persistent historical influences. You can also read the Becker and Tomes papers. The Banerjee-Newman and Galor-Zeira papers break with this tradition, as do others. [See this more recent exposition by Ghatak and Jiang.] The Mookherjee-Ray papers argue these sort of history-dependence is hard to sustain when occupational structure is rich.

There is a secondary theme in this section: is unequal development an inevitability? This is the sort of question studied in the two Mookherjee-Ray papers; see also this variant. You can also look at Lars Ljungqvist, "Economic Underdevelopment: The Case of a Missing Market for Human Capital,'' Journal of Development Economics 40, 219--239.

Credit and Insurance Markets

DE, Chapters 14 and 15.

Stiglitz, J. and A. Weiss (1981), "Credit Rationing in Markets with Incomplete Information," American Economic Review 71, 393-410.

Ghosh, P., Mookherjee, D. and D. Ray (2000), "Credit Rationing in Developing Countries: An Overview of the Theory," Chapter 11 in Readings in the Theory of Economic Development, edited by D. Mookherjee and D. Ray, London: Blackwell.

Coate, S. and M. Ravallion (1993), "Reciprocity Without Commitment: Characterization and Performance of Informal Insurance Arrangements,'' Journal of Development Economics 40, 1-24.

Banerjee, A. and E. Duflo (2004), "Do Firms Want to Borrow More? Testing Credit Constraints Using a Directed Lending Program," mimeo.

Karlan, D. and J. Zinman (2009), "Observing Unobservables: Identifying Information Asymmetries with a Consumer Credit Field Experiment,"Econometrica 77, 1993-2008. (Link to longer version.)

Notes: Stiglitz and Weiss lay out the adverse selection model in their classic paper on credit rationing. The Ghosh et al survey discusses two other sources of credit rationing, one based on moral hazard, and one based on enforcement constraints. Karlan-Zinman run an ingenious field experiment to test some implications of different assumptions concerining informational asymmetries. Banerjee and Duflo look at the case for credit rationing. Also relevant is this classic by Udry, C. (1994), "Risk and Insurance in a Rural Credit Market: An Empirical Investigation in Northern Nigeria," Review of Economic Studies 61, 495--526.

The partial equilibrium models of incomplete information miss out on one additional source of asymmetry, which arises in a general equilibrium setting. This has to do with the possibility that past borrower histories may be unknown to new lenders. This sort of issue is explored in Ghosh, P. and D. Ray (1996), "Cooperation in Community Interaction without Information Flows,'' Review of Economic Studies 63, 491--519.

The Coate-Ravallion paper does not capture the blend of credit and insurance that arises when history-depedendent mechanisms are in place. For leading examples of this kind of research, see Kocherlakota, N. (1996), "Implications of Efficient Risk Sharing without Commitment," Review of Economic Studies 63, 595-609, and Ligon, E., Thomas, J. and T. Worrall (2002), "Mutual Insurance and Limited Commitment: Theory and Evidence in Village Economies,'' Review of Economic Studies 69, 209-244.

The paper by Genicot, G. and D. Ray (2003), "Group Formation in Risk-Sharing Arrangements," Review of Economic Studies 70, 87--113, allows groups to jointly violate the enforcement constraint instead of only individuals.

Political Economy

Banerjee, A. and L. Iyer, "History, Institutions, and Economic Performance: The Legacy of Colonial Land Tenure Systems in India," American Economic Review 95, 1190--1213.

J. Robinson (1998), "Theories of Bad Policy," Policy Reform 1, 1--46. A very nice summary of theories of policy, coming to the conclusion that probably the best theory of bad policy is the one in which a policymaker shies away from good policy becaise it also increases political competition.

D. Acemoglu and J. Robinson (2000), "Political Losers as a Barrier to Economic Development," American Economic Review 90, 126--134. Followup on the Robinson paper.

Poverty, Distribution and Conflict

Miguel, E., Satyanath, S. and E. Sergenti (2004), "Economic Shocks and Civil Conflict: An Instrumental Variables Approach," Journal of Political Economy 112, 725--753.

Esteban, J. and D. Ray (2011), "Linking Conflict to Inequality and Polarization," American Economic Review 101(4), 1345–74.

Montalvo, J. and M. Reynal-Querol (2005), "Ethnic Polarization, Potential Conflict and Civil Wars," American Economic Review 95, 796--815.

Esteban, J., Mayoral, L. and D. Ray (2012), "Ethnicity and Conflict: An Empirical Investigation," American Economic Review 102, 1310-1342.

Esteban, J., Mayoral, L. and D. Ray (2012), "Ethnicity and Conflict: Theory and Facts," Science 336, 858 - 865.

Dal Bó, E., and P. Dal Bó (2011), "Workers, Warriors and Criminals: Social Conflict in General Equilibrium," Journal of the European Economic Association 9, 646-677.

Dube, O. and J. Vargas (2013), "Commodity Price Shocks and Civil Conflict: Evidence from Colombia," forthcoming, Review of Economic Studies.

Mitra, A. and D. Ray (2013), Implications of an Economic Theory of Conflict: Hindu-Muslim Violence in India.

Notes: For a survey on conflict, read Blattman and Miguel (2010). For more on the relationship between per-capita income and conflict, see Collier and Hoeffler (2004) or Miguel (2005). For more on the measurement of polarization, see Esteban and Ray (1994), or Duclos, Esteban and Ray (2004). The theoretical link between polarization and conflict is first explored in Esteban and Ray (1999). On the salience of ethnic conflict, see Esteban and Ray (2008).

Inequality and Public Goods

Bergstrom, T., Blume, L., and H. Varian (1984), "On the Private Provision of Public Goods," Journal of Public Economics 29, 25--49.

Ray, D., and K. Ueda (1996), "Egalitarianism and Incentives," Journal of Economic Theory 71 (2), 324--348.

Ray, D. Baland, J-M. and O. Dagnelie (2007), "Inequality and Inefficiency in Joint Projects," Economic Journal 117, 922--935.

Bardhan, P., Ghatak, M., and A. Karaivanov (2006), "Inequality and Collective Action," in P. Bardhan, S. Bowles and J. M. Baland (ed.) Economic Inequality, Collective Action, and Environmental Sustainability, Princeton University Press.

Benabou, R. (2000), "Unequal Societies: Income Distribution and the Social Contract," American Economic Review 90, 96--128.

————————————————————

Download lecture notes. These notes are updated, but only sporadically. They contain some material that is relevant to the current course, but there is other material as well from previous courses. There are also typos and possible errors, and I would be grateful if you would bring these to my attention. Use the material at your own risk.

A rough update of Chapter 2 of Development Economics; read up to page 47.

Slides 1 (and a printable version) to accompany Lectures 1 and part of 2.

Slides 2 (and a printable version) to accompany Lecture 2.