Public Policy



Final Exam




Economics 620: Economic Development

Economics is often referred to as "the dismal science." In no field is that statement more appropriate than economic development. In this class we will study how over 75% of the world's population lives. Most of these people live at standards which are well below what we conceive as a poverty level of income; indeed, many poor people in the U.S. would be relatively affluent if their material standards of living were transferred to the third world.

The focus of the course will be on economic strategies which lead to "development." Most of the time we will take for granted that economic development implies a rise in material standard of living. While it seems very appropriate to debate the limits to growth in the U.S. and while material conditions should be only one measure of human welfare, few people who live on $300 a year have any doubt that a higher material standard of living would improve their well-being significantly. Of particular concern to development economists is how to improve the standard of living of roughly 50% of the world's population-- a standard of living which we would best describe as abject poverty.

Text and reading: The main text is Economic Development in the Third World , by Todaro. Additional readings are available on the web and can be accessed through the hyperlinks below.  Many of the articles below are composed as Adobe acrobat PDF files.  In order to read these files you must download the FREE adobe acrobat reader.  I would suggest you do this at night or when you have some time--it will take some time to download the software (do it while making dinner or doing homework or whatever).  I also strongly suggest not waiting until the last minute (e.g., the night before an exam) to download  the readings.  The server may be overloaded with your fellow classmates trying to download the same material.   You can read these articles on-screen or print them out.  (I suggest the latter.)  One Final note:  If an article is no longer available on the web, you are not responsible for it, BUT  if you wait until the last minute and find you cannot download the article because everyone else is--I warned you.

Grading and attendance: Grades in the class will be determined by two midterm examinations, a final exam, either a class presentation from an assigned article or a synopsis of the readings (see below), and class participation. Attendance is considered an important part of participation (if you don't attend you're not participating). The grade breakdown is as follows:

2 Midterm Exams 20% each
Final Exam 30%
Class Presentation or Synopses 15%
Class Participation 15%
Total 100%

Class presentations/Readings synopsis: Everyone is expected either to give a short class presentation or to write a short (2-3 paragraph) synopsis of each of the presentations made to the class. First choice for presentations will be given to students who get an A on the first midterm. If you decide to give a presentation, you may be able to do it with a partner. The presentations should be short and to the point: roughly 10-15 minutes long. I expect about 10 presentations will be given. (This works out to one per week after the first exam.)

If you have any questions, feel free to e-mail me.

Course Outline

Optional readings are noted.  All other readings are required.

I. Introduction: How the other 75% of the world lives

  1. Common characteristics of third world countries
  2. Productivity levels
  3. Rural-Urban dichotomies

Reading: Todaro, ch. 1,2

The World Bank's "Countries and Regions Page" provides an excellent overview of world economic development

Also see the World Bank's "Myths about Nutrition" and the FAO's recent report on World Hunger

(Optional) For a great source of data on developing countries, see the World Bank's  Development Data page.

(Optional) Also look at UNICEF's Facts and Figures 2000

II. Theories of Development and Underdevelopment

  1. Rostow's linear stages model
  2. The Harrod-Domar model and growth theory
  3. The Solow growth model
  4. The Lewis (Ranis-Fei) model
  5. Dependency models
  6. Kuznet's historic model

Reading: Todaro, ch. 3,4; Handout #1

Growth in East Asia: What We Can and What We Cannot Infer

(Optional) Geography and Economic Development, by Gallup, John and Jeffrey Sachs with Andrew Mellinger

The Mystery of Capital

III. Growth, poverty, and Income Distribution

  1. Relative v absolute poverty
  2. Some simple poverty measures
  3. The Lorenz curve
  4. The Gini coefficient
  5. Other measures of inequality
  6. Is inequality necessary for growth?
  7. The Trickle down theory and development
  8. A rebuttal to trickle economics
  9. Empirical studies on inequality and development

Case studies [Taiwan, Brazil, Sri Lanka, The U.S.]

Reading: Todaro, ch. 5

Economic Growth and Income Inequality: Reexamining the Links, by KLAUS DEININGER AND LYN SQUIRE

For information on gender inequality see Gender Disparity in South Asia, the World Bank and WOMEN AND DEVELOPMENT The Importance of Gender Equality

(Optional) The State of the World's Children, 1998,  UNICEF

(Optional) Full Paper on Gender Disapity in South Asia by Filmer, King and Pritchett

(Optional) Improving Women's Health in India

(Optional) Strengthening India's Strategy for Economic Growth, by  Nirupam Bajpai and Jeffrey D. Sachs

(Optional) Inequality, Poverty and Socio-Economic Performance

(Optional) Why is Inequality Back on the Agenda?, by Ravi Kanbur and Nora Lustig

IV. The economics of population and development

  1. An overview: is there a population explosion
  2. Population growth since the dawn of man
  3. Malthus' theory of population and neo-Malthusian theories
  4. Becker's theory of marriage and fertility
  5. Are children a normal good?
  6. Factors effecting fertility
  7. Policy prescriptions
  8. Why birth control alone probably won't work
  9. Women and development and fertility

Case studies [India, China]

Reading: Todaro, ch. 6; Handout #2

(Optional) Population and Development: Implications for the World Bank

V. Unemployment and the labor market

  1. An overview
  2. Basic models of employment and unemployment
  3. Flexible price and wage models
  4. Fixed price and wage models
  5. Keynesian models
  6. Newer theories: Implicit contracts and efficiency wage theories
  7. Appropriate technology and capital labor ratios: Is their a capital bias?
  8. Capital bias: theories and evidence
  9. Rural-urban migration and the Todaro model
  10. The informal sector

Reading: Todaro, ch. 7,8; Handout #3

(Optional) Are Labor Markets in Developing Countries Dualistic?, by William F. Maloney

(Optional) How Extensive Is the Brain Drain?, by William J. Carrington and Enrica Detragiache

VI. Agriculture and Rural development

  1. The structure of third world agrarian systems
  2. Urban bias and government policies toward agriculture in the third world
  3. Land reform [Case studies: El Salvador, Tanzania, Mexico, Taiwan]
  4. The microeconomics of third world agriculture
  5. Economies of scale and scope in third world agriculture
  6. Are peasants rational?
  7. The incentive structure of peasant farming
  8. Renting, owning and sharecropping: a micro-analysis
  9. Credit markets [Case study: The Grameen bank]
  10. The role of fertilizer and irrigation
  11. The Green revolution [Case study: India and Pakistan]
  12. Women and Agricultural development

Policy implications: Land reform by itself means little [Case studies: The former USSR, China]

Reading: Todaro, ch. 9; Handout #4

"China's Rural and Agricultural reforms in Perspectve,"   by D. Gale Johnson

"Implementing the Legal framework for Rural Land Tenure," by Prosterman, Hanstad, and Schwartzwalder

(Optional) Developing Rural financial Markets

(Optional) Rural Development, Agriculture and Food Security

(Optional) After land reform, the market?

(Optional) Land Credit for the Rural Poor: Review of Some Experiences, by Javier Molina C., FAO Land Tenure Consultant

(Optional) Gender, Land and Fertility - Women's Access to Land and Security of Tenure, by Jacques du Guerny,and Daphne Topouzis

(Optional) Rural Development Strategy Update  by The World Bank's Rural Development Group

VII. The Environment and Development

  1. Costs and benefits of environmental protection
  2. Externallities and pollution abatement
  3. Sustainable development
  4. Issues: Deforestation, the Greenhouse effect
  5. Valuing Economic resources: Case Study: The Marshall islands

Reading: Todaro, ch. 10

The most important environmental issue for the poor is Access to Safe Water

Expanding the Measure of Wealth

Groundwater: the Invisible and Endangered Resource, UNICEF

Greenhouse Gas Emissions    Brookings Policy Brief

(Optional) "Environmental Degradation and the Demand for Children: Searching for the Vicious Circle,"   Deon Filmer, Lant Pritchett     [Note:  This is title # 2 and is available in HTML or PDF]

(Optional) "Deforestation, Shifting Cultivation, and Tree Crops in Indonesia: Nationwide Patterns of Smallholder Agriculture at the Forest Frontier,"  Kenneth M. Chomitz, Charles Griffiths   [Note:  This is title # 4 and is available in HTML or PDF]

(Optional) "Environmental and Resource Economics in the World of the Poor," Partha Dasgupta, Resources for the Future Internet Edition

(Optional) Mainstreaming Biodiversity in Agricultural development

(Optional) Moving Beyond Kyoto, Brookings Policy Papers

VIII. Education and Development

  1. Theories of education
  2. Human capital theories
  3. Screening and sorting theories
  4. Education, inequality and poverty
  5. Cost benefit analysis of education
  6. Elementary vs. secondary vs. university education
  7. Should developing countries spend so much on university education?
  8. The brain drain [Case study: India]

Reading: Todaro: ch. 11

Educational Attainment and Enrollment around the World; The World Bank

(Optional)Does Child Labor Displace Schooling? Evidence on Behavioral Responses to an Enrollment Subsidy

(Optional) Educating Girls   UNICEF

IX. Trade and Development

  1. An overview of basic Trade theory
  2. Ricardian Trade Theory
  3. The Heckscher-Ohlin Samuelson model
  4. Critiques of H-O-S
  5. Balance of Payments
  6. Exchange rate theory and international finance
  7. Trade strategies for development
  8. Export promotion [Case study: Taiwan, South Korea]
  9. Import substitution [Case study: Brazil]
  10. Economic Integration [Case studies: NAFTA, EAC, The Andean Pact]
  11. Autarchy [Case study: China]

Reading: Todaro, ch. 12, 14;

Permanent Normal Trade Relations for China, Brookings Policy Papers

Does Globalization lower wages and export jobs?

(Optional) Natural Resource Abundance and Economic Growth, by Jeffrey D. Sachs and Andrew M. Warner

IX. Foreign Investment and Aid; The debt crisis

  1. Foreign Investment and the multinational corporation
  2. Do MNC's foster development? [Case studies: Jamaica and Indonesia]
  3. The Asian debt crisis
  4. Origins of the debt crises:  Latin America, the U.S. Savings and Loan scandal, the Asian Debt crisis
  5. The problem of sovereign lending
  6. Market based debt reduaction schemes and the Brady plan
  7. Solving the Asian debt crisis

Reading: Todaro, ch. 13, 15;

Asian Problems and the IMF,  Meltzer

Radelet, Steven and Jeffrey Sachs, "The Onset of the East Asian Financial Crisis."  (you must download this at SFSU)

The Mexican Peso Crisis, Whitt

(Optional) Assessing Aid, A World Bank Study,  Overview chapter

(Optional) Worldbank data on External Debt

(Optional) The IMF: A Cure or a Curse?, by Devesh Kapur

X. Macro policy and Planning in the third world

  1. Fiscal policies in developing countries
  2. The welfare economics of tax policy
  3. What forms of taxation are feasible in the third world?
  4. Monetary policy, exchange rates and the IMF
  5. Structural adjestment and the IMF [Case study: Jamaica]
  6. The problem of seignorage [Case study: Argentina]

Reading: Todaro ch. 16, 17, 18

(Optional) TIME TO TERMINATE THE ESF AND THE IMF, by Anna. J. Schwartz, Cato Foreign Policy Briefing No. 48

(Optional) Corruption and Development, by Cheryl W. Gray and Daniel Kaufmann

(Optional) How Tax Systems Treat Men and Women Differently, by Janet G. Stotsky