Development Economics

Units

1. 1

   Measuring development and poverty

   4 lessons

   1. Income, PPP and the Human Development IndexCompare countries with GDP per capita at purchasing power parity, build the Human Development Index from its health, education and income indices as a geometric mean, and read what the index shows that income alone hides.
   2. Poverty lines and the FGT measuresCount the poor with a poverty line z, then measure how many are poor, how far below the line they fall and how unequal the poor are, using the headcount ratio, the poverty gap and the squared gap, all as members of the FGT family.
   3. Inequality, Lorenz curves and the GiniBuild a Lorenz curve from income shares, read the Gini coefficient as the area A between the line of equality and the curve divided by the whole triangle A + B, and use the Gini and the quintile shares to compare countries.
   4. Inequality and growth: the Kuznets curveExplain Kuznets's hypothesis that inequality first rises and then falls as a country grows, derive an inverted U from a two-sector model, read it against country data, and compute how growth cuts poverty depending on what happens to inequality.
2. 2

   Neoclassical growth

   4 lessons

   1. Stylized facts and growth accountingRead two centuries of GDP per capita on a log scale to see divergence across countries, state Kaldor's stylised facts, and decompose growth as g_Y = α g_K + (1 − α) g_L + g_A into capital, labour and productivity.
   2. The Harrod-Domar modelDerive g = s ÷ v from the saving rate s and the capital-output ratio v, use it to find the saving a growth target requires and the savings gap, and explain the knife-edge instability that the model implies.
   3. The Solow modelBuild the Solow model's law of motion k′ = s f(k) − (n + δ)k, find the steady state k* where saving per worker equals break-even investment, and show what a rise in the saving rate does to k*, output and growth.
   4. Convergence and the golden ruleTest absolute and conditional convergence on scatters of growth against initial income, compute the speed of convergence and its half-life, and find the golden rule saving rate that maximises steady-state consumption.
3. 3

   Endogenous growth and technology

   4 lessons

   1. The AK model and human capitalShows constant returns to broad capital give a sustained growth rate g = s A - d, drawn as a straight production line with no steady state, and the Lucas model of human capital accumulation.
   2. Romer's ideas and nonrivalryTreats ideas as nonrival with increasing returns, A' = d L_A A, with a diagram of the research sector in a flow chart of ideas feeding output, and the scale effect.
   3. Technology transfer and the productivity gapStudies the technology diffusion and catch-up, absorption capacity and appropriate technology, with the gap to the frontier shown as two growth paths and development accounting results.
   4. Growth regressions and the cross-country evidenceReviews Barro regressions of growth on initial income, schooling and institutions, plotting added variable scatter, and the cautions on causation and model uncertainty, with worked regression output.
4. 4

   Structural change and the dual economy

   4 lessons

   1. The Lewis modelBuilds the surplus labor model with a subsistence wage and an expanding modern sector, shown as two panels of a flat labor supply curve and a rising labor demand curve as capital accumulates.
   2. Migration and the Harris-Todaro modelExplains rural-urban migration as expected wage equalization, w_u times employment probability equals w_r, drawn as a diagram of urban and rural wage curves and urban unemployment.
   3. Agriculture and land institutionsAnalyzes farm productivity, land tenure and sharecropping inefficiency with the Marshallian tenancy diagram of output share against effort, and the effect of land reform on yield.
   4. Industrialization and structural transformationCovers import substitution against export orientation, the East Asian miracle and industrial policy, with a chart of sector shares of employment and output against income per person.
5. 5

   Health, education and population

   4 lessons

   1. Population and the demographic transitionExplains the stages of falling death and then birth rates, with a plotted graph of birth and death rate curves and a widening gap, and the quantity-quality tradeoff of children.
   2. Education: enrollment, returns and qualityExamines returns to schooling in poor countries, the learning crisis and demand-side barriers, with a bar chart of enrollment against learning outcomes and a graph of earnings by years of schooling.
   3. Health, nutrition and poverty trapsModels the nutrition-productivity link with an S-shaped income curve crossing the 45 degree line three times, marking a low trap equilibrium and a high one, and health interventions.
   4. Child labor and genderStudies household decisions on child labor and schooling, with a diagram of the wage versus schooling returns and poverty, and evidence on gender gaps and conditional cash transfers.
6. 6

   Credit, risk and institutions

   4 lessons

   1. Informal credit and information problemsExplains high informal interest rates through adverse selection and moral hazard, with a credit supply curve bending backward as rates rise, and the Stiglitz-Weiss rationing diagram.
   2. Microfinance and group lendingDescribes joint liability, peer monitoring and dynamic incentives, with a game matrix of repayment decisions in a group, and the evidence from randomized trials of microcredit.
   3. Risk, savings and insuranceStudies consumption smoothing and informal insurance, with a graph of consumption versus income showing smoothing, savings in kind, and weather index insurance, and why poor households hold buffer assets such as livestock.
   4. Institutions and the colonial origins of developmentPresents the Acemoglu-Johnson-Robinson argument that extractive institutions persist, with a map of settler mortality and the first stage and second stage scatter of institutions and income.
7. 7

   Policy, aid and evidence

   4 lessons

   1. Randomized evaluationsExplains how randomized controlled trials identify causal effects with treatment and control, the difference in means, with a flow diagram of randomization and a bar chart of results, and external validity limits.
   2. Case studies: deworming, bednets and cash transfersReviews landmark trials such as deworming in Kenya, with a chart of attendance gains, bednet pricing and GiveDirectly transfers, and what they teach about demand for health.
   3. Foreign aid and the aid debateSummarizes the Sachs and Easterly positions, the poverty trap view, and the evidence on aid effectiveness, with a scatter of aid against growth and a diagram of aid flows over time.
   4. Governance, corruption and state capacityModels corruption as a bribe-taking official with a probability of detection and a wage, with the expected-penalty diagram, and shows how state capacity and taxation relate to development, with a chart of corruption scores against income.
8. 8

   Trade, resources and the environment

   4 lessons

   1. Trade and development strategyCompares import substitution with export-led growth, with the Prebisch-Singer terms-of-trade trend plotted as a falling line, and a bar chart of export shares for East Asian economies.
   2. Natural resources and the resource curseExplains Dutch disease and rent-seeking with a diagram of the booming sector pulling labor and the real exchange rate up, and a scatter of resource exports against growth.
   3. Environment, pollution and the EKCTests the environmental Kuznets curve with a plot of pollution against income per person as an inverted U, and shows common-property overuse as a tragedy of the commons graph.
   4. Climate change, adaptation and debt reliefExamines climate risk for poor countries, adaptation costs and the debt relief initiatives such as HIPC, with a chart of emissions by income group and a timeline of debt relief.