Econ 414/514 Economic Development: Policy Analysis Lecture Notes PDF

ECON 414/514 ECONOMIC DEVELOPMENT: POLICY ANALYSIS What is development economics? Development economics is the study of how economies are transformed from stagnation to growth and from low-income to high- income status and overcome problems of extreme poverty. (Todaro and Smith) Institutions are...

ECON 414/514 ECONOMIC DEVELOPMENT: POLICY ANALYSIS What is development economics? Development economics is the study of how economies are transformed from stagnation to growth and from low-income to high- income status and overcome problems of extreme poverty. (Todaro and Smith) Institutions are formal rules, informal norms, shared understandings and “ways of doing things” that shape and constrain interactions. A social system is the organizational and institutional structure of a society (values, attitudes, power structures) What is development economics? Development is the process of improving the quality of all human lives and capabilities by raising people’s levels of living, self-esteem, and freedom. (Todaro and Smith) Capabilities Approach (Amartya Sen) What matters for well-being goes beyond the availability and characteristics of commodities to consider their use. There is a difference between measured income and the advantages of that income. What is economic development? Economic growth The reduction or elimination of poverty, inequality Amartya Sen’s Capabilities Approach Functionings What a person can do or does with the commodities they posses. A functioning is a valued being or doing Examples: being healthy, being well-nourished. A functioning is different from having goods A functioning is different from having utility (happiness) Capabilities Capabilities are freedoms that people have, given their personal characteristics and control over their commodities. How to we measure well-being? Indicators of development - gross national income (PPP-adjusted) - inequality (multiple dimensions) - poverty - health - education - and more https://www.youtube.com/watch?v=ahp7QhbB8G4 Figure 2.2 Income Comparisons for Selected Countries, 2017 Source: World Development Indicators source: Banerjee, Abhijit, V., and Esther Duflo. 2007. "The Economic Lives of the Poor." Journal of Economic Perspectives, 21 (1): 141-168 Figure 2.4 Under-5 Mortality Rates, 1990 and 2017 Source: World Development Indicators Table 2.7 Primary School Enrolment and Pupil–Teacher Ratios, 2017 Source: World Development Indicators Human Development Index Dimension Indexes - health: life expectancy at birth - education: average of index for adult average yrs of schooling and children expected yrs of schooling - income: natural logarithm of ppp adjusted GNI Human Development Index Overall Index (HDI) - geometric mean - imperfect substitutability https://hdr.undp.org/data-center/human-development- index#/indicies/HDI Banerjee and Duflo, 2007 “The Economic Lives of the Poor” -world bank living standard measures survey, RAND family life surveys Living arrangements of the poor - median family size: 7-8 (includes children, parents, extended family) - median adults: 3 (sometimes multiple child-bearing adults) How the poor spend their money - 56-78% of income on food (rural, urban is similar) - 1-8% alcohol, tobacco - some money on festivals (weddings etc) - very little money on entertainment, tvs, etc Banerjee and Duflo, 2007 “The Economic Lives of the Poor” Ownership of assets - great variation across countries - radios, televisions, bicycles - land Health and well-being - bottom decile < 1400 calories a day - various measures show inadequate calories (BMI, anemia, etc) - prevalence of sickness - low reporting of unhappiness Banerjee and Duflo, 2007 “The Economic Lives of the Poor” Education - around 2% of budget spent on education (0.8%-6%) - 50-80% enrollment public schools Earnings -substantial fraction of poor are entrepreneurs/self-employed -many household with multiple occupations - agricultural work makes up large percentages of income Banerjee and Duflo, 2007 “The Economic Lives of the Poor” Barriers - lack of specialization of skills (risk-spreading) - small scale businesses - lack of safe places to keep savings (physical safety, inflation) - informal loans/lack of access to formal credit - little access to insurance - incomplete land records, no titles to land, imperfect enforcement - poor infrastructure - low quality teaching in public schools