Introduction to Development
Fall Semester, 2006
Tuesdays, 8am, Rome 200
Profs. Dornsife, Fukuyama, Macours, Thomas Syllabus (check back for latest version) link to class protected area link to SAIS library reserves (email Reyna Truscott or Prof. Fukuyama for the password; it will also be given out on the first day of class). Readings can be found under the names of any of the course's professors. There is a discussion board available to the class at the ereserves web site. Use this link to register to purchase the Harvard Business School cases. Once you have registered, you should be directed to a page where you can purchase the three HBS cases required for the course. We forgot to add the Hong Kong case to the HBS package, so that will have to be purchased separately here. New as of Oct. 23: We will be using the HBS cases for week 9, Benjamin C. Esty, Carrie Ferman, “The Chad-Cameroon Petroleum Development and Pipeline Project (A) , (B), and (C)” The case for Week 7, ANDA: Transforming El Salvador’s Water Supply, can be purchased from the Kennedy School web site here. The Panda Bond case study can be downloaded from the protected area of the web site. Study Questions: Week 1: Introduction to Development - The role of the state in development has changed dramatically from the 1950s to the present. What are the major shifts that have occurred in the thinking of development policymakers, and why did these occur?
- It is common to say that development is much more than economic growth, defined as increases in per capita GDP. What are those other dimensions? Can you have development in these other dimensions without economic growth?
- How realistic are the Millennium Development Goals? What are the obstacles to achieving them? Are there any downsides to setting these ambitious goals?
- What was the "Washington Consensus"? How does it relate to the economic theory you have learned about the efficiency of market exchange?
Week 2: Growth Theory Week 3: Case: Chinese Economic Growth - How did the conditions facing China in 1978 compare to those faced by the Soviet Union in 1985?
- What was the logic underlying Chinese growth strategy? Why did reforms such as dual prices and the household responsibility system work in the agriculture sector but similar reforms did not work for state-owned firms?
- How important was growth in exports to China’s economic performance? How important was FDI?
- Was China’s growth strategy also a good development strategy?
- How does China’s growth after 1978 compare to India’s growth after 1985, when both are considered in the framework of the neoclassical and/or the endogenous growth models.
- Which of the problems facing Zhu in late 1997 are still relevant today?
Week 4: Case: Global Capital Markets and the Development of Local Currency Bond Markets Describe the trends in the history of development finance, as well as the current trends, dimensions and players in development finance. What has changed and why? Describe the major participants in the global capital market and the role each plays. Why is financial market depth desirable? Which markets play the major role? Where is the fastest growth occurring? Describe the institutional framework for bank regulation – why is bank regulation important? What is the role of each of the major players: politicians, regulators and supervisors, banks, borrowers and counterparties. What is the role of the judicial, legal and regulatory environment? What is the role of market structure? Why must these factors be considered when considering banking regulation? What is the difference between primary and secondary markets? Why is the development of robust domestic bond markets so important to economic growth? What are some key benefits? What have been some key drivers to in the growth of local currency bond markets? On the panda bond issue: who is issuing the bonds? Who is buying the bonds? How does this relate to capital markets development? What are the interesting aspects of this issue? What are the circumstances under which it will be replicated elsewhere?
Week 5: The Microeconomics of Growth How does the micro-economic approach to understanding development differ from the growth theory models? How does the micro-economic literature reviewed by Banerjee and Duflo (2005) – upto p.45 - contribute to the understanding of development? Why might market failures sometimes imply that there is no equity-efficiency trade-off? What are the implications for redistributive policies? What are the important market failures in:
- the credit market? - the insurance market? - the land market? - the market for human capital? And what does this imply for policy?
What is the economic rational of a conditional cash payment for schooling, health and nutrition, such as the PROGRESA (now Opportunidades) program in Mexico? What approach did Schultz (2004) use to evaluate the impact of the program? What do Kremer and Miguel (2004) mean with “the illusion of sustainability”? What can we learn from the empirical evidence provided in their paper?
Week 6: Case: Trade and Growth in Brazil 1) What are the arguments in favor and against import substitution strategies? Did import substitution strategy work in Brazil? Why or why not? 2) What were the advantages and disadvantages from regional integration through Mercosur for Brazil? Within Brazil, who were the winners and losers from Mercosur? What are the possible advantages and disadvantages of broader regional integration (e.g. including more countries in Latin America)? 3) What are the possible channels through which trade liberalization can affect growth, poverty, and inequality in developing countries? Is there conclusive evidence on any of these channels? How has trade liberalization affected economic growth, poverty, and inequality in Brazil? 4) While Brazil has grown rapidly in the past, it is also one of the world’s most unequal countries. Why does this inequality exist, and what might be done to ameliorate it? How does inequality affect not just the quality but the quantity of economic growth? 5) The case study refers to the “Brazil cost” of doing business that reduces the competitiveness of Brazilian products on international markets, apart from the nature of the trade regime Brazil faces. What are these costs, and why do they exist? 6) In what ways does Brazil’s political system affect its economic performance? Week 7: Public Goods Provision 1) What concerns are there about the status quo with respect to water availability? 2) For each of the three options for reform of water service delivery - privatization, centralized with reform, or decentralized - answer the following questions. a. What are the economic arguments in favor and against this approach? What would be the likely effects on efficiency and equity? What are the trade-offs involved? b. What type of empirical evidence is provided in the readings that support the relevance of the different arguments? What, if any, lessons can be drawn for El Salvador, from this empirical evidence? c. What government capacity at the central and local levels is needed to make the option successful? Based on the facts of the case, how capable do you think the government is likely to be? d. What is the objective function of the implementing agency/person (e.g. ANDA’s manager, the local government or a private contractor)? What considerations might be important for social policy that the implementing agency is not likely to take into consideration? e. How would a household that is dissatisfied with the quality of the service make itself heard after the reform? Who would hear their complaints and why would they care? How likely are the households to have their complaints satisfied? 3) Under what conditions would each option be optimal? Are those conditions likely to be met in El Salvador? What institutional or structural model is best suited to El Salvador's situation? Why do you argue that? Is water a “special case” – a public good that is so critical that delivery should not be privatized even if privatization works for most public goods? Week 8: Social Aspects of Development - What is social capital? It could have been labeled "social relations"; does the economic metaphor help or hurt our understanding?
- In what ways does the state deplete social capital? Can the state create social capital, and if so, how? Consider examples both from Scott and Jacobs.
- How would one go about measuring social capital? Is it something that can be put into formal economic models?
- Is social capital necessarily a good thing, such that having more is always better?
Week 9: Beating the Oil Curse? the Chad-Cameroon Pipeline - What were the potential benefits of helping Chad to exploit its oil? Consider the benefits from the perspectives of a) the government of Chad, b) the oil consortium, c) the World Bank, d) a Chadian citizen living along the pipeline, e) the owner of a Chadian trucking company, f) the average Chadian citizen, g) the international NGO community? What evidence supports your analysis? (Note: If you are writing a short paper on this question, you should address key risks, and you should not cover all of the perspectives of all the listed actors.)
- What is the “resource curse”? What risk mitigation measures were put in place to address risks related to the resource course?
- What were the potential risks of helping Chad to exploit its oil? Consider the risks from the perspectives of a) the government of Chad, b) the oil consortium, c) the World Bank, d) a Chadian citizen living along the pipeline, e) the owner of a Chadian trucking company, f) the average Chadian citizen, g) the international NGO community? What evidence supports your analysis? (Note: If you are writing a short paper on this question, you should address key risks, and you should not cover all of the perspectives of all the listed actors.)
- What additional risk mitigation measures, if any, should have been considered?
- What is likely to happen now, and why?
Week 10: Paying Civil Servants—Harder Than It Looks - What are the different elements of public sector compensation?
- Why might development practitioners care about levels of public sector compensation?
- What are some of the considerations to keep in mind when setting public sector salaries?
- In what ways do the Vietnam reforms resemble New Zealand reforms? In what ways are they different? What do you think is likely to happen as a result of these reforms? What alternative actions might the government have taken?
- What was the problem with the Hong Kong civil service pay structure? What reforms did Hong Kong introduce? What might Hong Kong have done differently?
Week 11: Poor Countries, Poor Data: Statistical Capacity and Aid Effectiveness - Why might countries have missing or unreliable data?
- What are the implications of data problems for the effectiveness of aid?
- What are development practitioners doing to address these problems? Are their efforts likely to work? Why or why not? What else should they be doing?
- Is it possible to have standardized global statistics? What are the consequences for development if it isn’t possible?
- What will the consequences be for foreign aid if this problem is not addressed effectively?
Week 12: Case: The IFIs and Malaysia Did the currency and capital controls work? Were the controls appropriate behavior by a government committed to openness in world markets? Did the Malaysian experience hold lessons for other developing countries facing financial crisis? Asian financial crisis: Was the crisis caused by weak fundamentals or investor panic? What was the role of the international financial institutions? Did the international financial institutions exacerbate the crisis or did they help to contain the crisis as much as possible? Looking to the future, did the programs prescribed by the international financial institutions put into place mechanisms and policies for avoiding future crises? Outside of the IFIs, what additional steps have been taken regionally to avoid future crises? How would you evaluate their effectiveness?
Week 13: Putting it All Together | 
