Why “Development” Economics?

Why should there be a separate course on Development Economics?

  1. Pedagogic / learning convenience. Four-fifths of the world’s population lives in low- and middle-income countries, and we have a Poverty Program. But couldn’t we just include a segment in other courses in our curriculum? Perhaps, but that would leave out topics that are important in poorer regions of the world not covered elsewhere, such as agriculture, migration, and infectious diseases.
  2. Intellectual necessity. Development economics requires different concepts: standard models of consumption (Econ 211), macroeconomics (Econ 210), labor markets (Econ 230), and money & banking (Econ 215) aren’t taught in forms that are easy to apply to lower-income societies. For example, there are many qualitative tradeoffs that we don’t typically see in our own lives. They can, for example, be modeled as “corner solutions”, but first you have to know that that is necessary. Many are lower-income economies are “small” in an international trade or macro sense, so global factors impinge in qualitatively different (and often qualitatively more important) ways (Econ 271). And so on. Markets are missing or don’t function, institutions aren’t there, decision-making is on a familial basis, while poverty amplifies risks that we generally ignore when analyzing our own high-income, high-wealth context where various types of national insurance are available.
    Phrased differently, your experience base is representative of only 1 in 5 of the world’s people. For example:
    1. you likely haven’t seen a sibling or two die, or multiple other young relatives;
    2. you’ve not only not had malaria, you’ve not had any other serious infectious disease;
    3. you didn’t start working when you were 12;
    4. you didn’t grow up on a subsistence farm where the lack of nutrition following a poor harvest has left you stunted;
    5. you haven’t finished high school only because your older siblings stopped their schooling to earn money to let you do so.
  3. Conceptual “economic” issues. Here are examples.
    1. you can’t just extrapolate a utility function where lower income gives smaller houses and less food and less expensive college – lots of things drop to zero; that is, economic development is often about qualitative changes, not marginal changes
    2. markets that we take for granted simply don’t exist – if you don’t have access to transportation, you can’t sell your grain or buy fertilizer, much less borrow money to purchase equipment for your farm or inventory for your small business;
    3. “thin” markets are associated with volatility, while “poor” means not just low income but little or no wealth – a negative shock can mean starvation.
    4. decision-making is on an (extended) family basis, including choices of education, work and marriage – individuals are less important, and that’s because zero wealth to fall back on, living within an extended family is essential for survival;
    5. most people live in rural areas and their livelihood is closely tied to agriculture;
    6. institutions don’t work very well. That’s hardly unique to developing countries – it took us 150 years to develop our financial system, and we still experienced the Great Recession. Things are qualitatively worse for much of the world’s population, where financial and macroeconomic crises are both larger and more frequent; and
    7. international trade often plays a different and qualitative more important role, particularly in resource-rich countries such as a Nigeria or a Venezuela. Cheaper or more expensive oil have some impact on the US economy, but commodity price swings can dominate everything else in a developing country.

So how do we go about studying development economics? See the syllabus and accompanying schedule. We must leave much out given the constraints of our 12-week term, but the goal is to lay a good foundation, to indicate the heterogeneity of issues and contexts around the world, while covering central issues that distinguish the rest of the world from the OECD “rich country club” economy in which we live.