Spring 2015

Topics in Growth and Development

SA.320.735.01
Professor Aart Kraay
1/28/2015

*Disclaimer: Please note that the syllabus may

change before or during the class. The most upto-date syllabus can be found in Blackboard.

The Johns Hopkins University

School of Advanced International Studies
Topics in Growth and Development
Spring 2015
Course Outline and Reading List
Instructor:

Aart Kraay, The World Bank

(202) 473-5756
akraay@worldbank.org
http://sites.google.com/site/aartkraay/

Class Meetings: TBA

Course Overview:
Economic growth is the process by which poor countries become rich. The
current wide disparities in income and social development outcomes across countries
reflect the fact that the process of development is an uneven one that has not reached
all countries and all people equally. This course begins with a review of these wide
differences across countries, in order to illustrate the potential of economic development
to improve peoples lives. This review also illustrates the centrality of economic growth
in the development process as countries average per capita incomes increase, living
standards improve in many dimensions, and on average these gains are widely shared
even among the poorest in society.
Since economic growth is so important to development, this course next reviews
some of the theory and evidence underlying basic models of economic growth. These
models help us to think about the roles and relative importance of investment in physical
capital, investment in human capital, and improvements in technology defined very
broadly to include true technological advances as well as the policy and institutional
environment in which agents in an economy operate in generating economic growth.
The course also considers how the benefits of growth are shared, reviewing concepts of
inequality and poverty, and their linkages to econmic growth.
An important lesson that emerges from the discussion of models of economic
growth is that differences in the rates at which countries invest in physical and human
capital can explain only a part of differences in countries growth performance. Instead,
much depends on the institutional and policy environment that countries are able to
provide for their citizens, trading partners, and foreign investors. In the third section of
the course we will discuss selected topics in this area, including empirical evidence on
how institutions matter for economic development, the role of foreign aid, and role of
globalization in development.

Throughout the course, we will emphasize both key theoretical insights as well as
empirical evidence. In order to develop a better appreciation for the empirical evidence,
we will briefly review some key econometric ideas related to correlation and the
identification of causal effects and apply them repeatedly throughout the course.
Pre-requisites
Students should have taken International Trade Theory (300.707), International
Monetary Theory (300.708), and Statistical Methods for Business and Economics
(340.709). A background in econometrics is very helpful in interpreting the many
empirical papers we will be covering. Students are therefore also strongly encouraged
to have taken or to take concurrently Econometrics (340.710) Please note that
enrollment is restricted to 25 students.
Course Requirements
Students should read the required materials before each class and come prepared to
discuss them. We will also discuss many things in class that are not explicitly covered in
the readings, so doing the readings is not a substitute for attendance. Class
participation is an important part of the learning process, and will count for 25% of the
final grade. A term paper will count for another 25%, and a final exam will count for the
remaining 50%.

Course Outline and Reading List

Class 1: Introduction and Motivation (Week of January 26, 2015)

Why do we care about economic growth? Motivating facts.

Review of basic models of growth

Required Readings:
Easterly, William. (2001). The Elusive Quest for Growth: Economists Misadventures in
the Tropics. Cambridge: MIT Press. Chapters 1-2.
Jones, Charles. (2002). Introduction to Economic Growth, Second Edition. New York:
Norton. Chapter 1.
Weil, David (2005). Economic Growth. Boston: Addison Wesley. Chapter 1.
Suggested Readings:
Easterly, William, Michael Kremer, Lant Pritchett, and Lawrence H. Summers (1993).
Good Policy or Good Luck: Country Growth Performance and Temporary Shocks.
Journal of Monetary Economics 32 (December): 459-83.

Class 2: Solow Model -- Theory and Evidence (Week of February 2, 2015)

Review of basic models of growth, cont'd

Implications of Solow model for growth and income levels: comparing theory
with evidence

Required Readings:
Easterly, William. (2001). The Elusive Quest for Growth: Economists Misadventures in
the Tropics. Cambridge: MIT Press. Chapter 3.
Suggested Readings:
Jones, Charles. (2002). Introduction to Economic Growth, Second Edition. New York:
Norton. Chapters 2-3.
Mankiw, N. Gregory, David Romer and David Weil (1992). A Contribution to the
Empirics of Economic Growth. Quarterly Journal of Economics. 107: 407-38.
(www.jstor.org)
Pritchett, Lant (1997). Divergence, Big Time. Journal of Economic Perspectives.
11(3): 3-18. (www.jstor.org)
Weil, David (2005). Economic Growth. Boston: Addison Wesley. Chapter 3.3 and 4.2.

Class 3: Development and Growth Accounting (Week of February 9, 2015)

Development accounting: how much do cross-country differences in factors of

production account for cross-country differences in income levels?
Growth accounting: can we measure productivity growth?

Required Readings:
Caselli, Francesco (2005). "Accounting for Cross-Country Income Differences", in
Aghion, Philippe and Steven Durlauf, eds. Handbook of Economic Growth. Elsevier.
Caselli, Francesco and James Feyrer (2007). "The Marginal Product of Capital".
Quarterly Journal of Economics. 122(2):535-568.
Hsieh, Chang-Tai and Peter J. Klenow (2009). "Misallocation and Manufacturing TFP in
China and India". Quarterly Journal of Economics. 124(4):1403-1448.
Jones, Benjamin F. (2014). The Human Capital Stock: A Generalized Approach.
American Economic Review. 104(11):3752-3777.

Suggested Readings:
Young, Alwyn (1995). The Tyranny of Numbers: Confronting the Statistical Realities of
the East Asian Growth Experience. Quarterly Journal of Economics. 100(3):640-680.
(www.jstor.org)
Young, Alwyn (2003). "Gold Into Base Metals: Productivity Growth in the People's
Republic of China During the Reform Period". Journal of Political Economy.
111(6):1220-1261.

Class 4: Growth and Poverty Reduction (Week of February 16, 2015)

Measures of poverty
Decomposing changes in poverty into growth and distributional effects
Empirical evidence on growth and poverty reduction

Required Readings
Kraay, Aart (2006). "When Is Growth Pro-Poor? Evidence From a Panel of Countries".
Journal of Development Economics. 80(1):198-227.
Pritchett, Lant (2006). Who Is Not Poor: Proposing a Higher International Poverty
Standard. World Bank Research Observer. 21(1):1-23.
Dollar, David, Tatjana Kleineberg and Aart Kraay (2015). Growth, Inequality and Social
Welfare. Forthcoming, Economic Policy. (latest version on my website).

Suggested Readings
Datt, Gaurav and Martin Ravallion (1992). Growth and Redistribution Components of
Changes in Poverty Measures: A Decomposition with Applications to Brazil and India in
the 1980s. Journal of Development Economics. 38(2): 275-95
Dollar, David and Aart Kraay (2002). Growth is Good for the Poor. Journal of
Economic Growth. 7:195-225.
Banerjee, Abhijit and Esther Duflo (2006). "The Economic Lives of the Poor". Journal of
Economic Perspectives. 21(1):141-167.

Class 5: Global Inequality (Week of February 23, 2015)

Data problems in poverty and inequality measurement: case of India

Trends in global poverty and inequality

Required Readings
Ravallion, Martin and Shaohua Chen (2010). The Developing World is Poorer Than We
Thought But No Less Successful in the Fight Against Poverty. Quarterly Journal of
Economics. November.
Sala-i-Martin, Xavier (2006). The World Distribution of Income: Falling Poverty ... And
Convergence, Period. Quarterly Journal of Economics. 121(2):351-397.
Atkinson, Andrew and Andrea Brandolini (2010). On Analyzing the World Distribution of
Income. World Bank Economic Review. 24(1):1-37.
Suggested Readings
Deaton, Angus and Valerie Kozel (2005). "Data and Dogma: The Great Indian Poverty
Debate". World Bank Research Observer. 20:177-1999.
Bourguignon, Francois and Christian Morrisson (2002). Inequality among World
Citizens: 1820-1992. American Economic Review 92(4): 727-44.
Milanovic, Branko (2001). True World Income Distribution, 1988 and 1993: First
Calculation Based on Household Surveys Alone. Economic Journal 112: 51-92.

Class 6: Trade and Growth (Week of March 2, 2015)

Review of instrumental variables estimation

Empirical evidence on trade and growth

Required Readings
Frankel, Jeffrey A. and David Romer (1999). Does Trade Cause Growth? The
American Economic Review, (June) 379-399. (www.jstor.org)
Wacziarg, Romain and Karen Horn Welch (2008). "Trade Liberalization and Growth:
New Evidence". World Bank Economic Review. 22(2): 187-231.
Feyrer, James (2014). Trade and Income: Exploiting Time Series in Geography.
Manuscript, Dartmouth University. Latest version at http://www.dartmouth.edu/~jfeyrer/.
Suggested Readings
Sachs, Jeffrey D. and Andrew Warner (1995). Economic Reform and the Process of
Global Integration. Brookings Papers on Economic Activity, (1), 1-118. (www.jstor.org)
Rodriguez, Francisco and Dani Rodrik (2000). Trade Policy and Economic Growth: A
Skeptics Guide to the Cross-National Evidence. NBER Macroeconomics Annual, Ben
Bernanke and Kenneth Rogoff, eds., MIT Press for NBER.
Dollar, David and Aart Kraay (2004). Trade, Growth, and Poverty. The Economic
Journal. 114(493):22-49.

Class 7: Institutions and Growth, Part 1 (Week of March 9, 2015)

What do we mean by "institutions" and how do we measure them?

How do we know that institutions matter for growth across countries?
How do we know that institutions matter for growth within countries?

Required Readings:
Kaufmann, Daniel and Aart Kraay (2008). "Governance Indicators: Where Are We and
Where Should We Be Going?". World Bank Research Observer. 23(1):1-30.
Acemoglu, Daron, Simon Johnson, and James A. Robinson (2001). The Colonial
Origins of Comparative Development: An Empirical Investigation. American Economic
Review. 91(5):1369-1401. (www.jstor.org).
Michalopoulos, Stelios and Elias Papaioannou (2013). Pre-colonial Ethnic Institutions
and Contemporary African Development. Econometrica. 81(1): 113-152.

Suggested Readings
Banerjee, Abhijit and Lakshmi Iyer (2005). "History, Institutions, and Economic
Performance: The Legacy of Colonial Land Tenure Systems in India". American
Economic Review. 95(4):1190-1213.

Feyrer, James and Bruce Sacerdote (2009). "Colonialism and Modern Incomes: Islands
as a Natural Experiment". Review of Economics and Statistics. May (2009)
Hall, Robert E., and Charles Jones (1999). Why Do Some Countries Produce So Much
More Output per Worker than Others? Quarterly Journal of Economics, volume 114 n 1
February, pp. 83-116. (www.jstor.org)
Knack, Stephen and Philip Keefer (1995). "Institutions and Economic Performance:
Cross-Country Tests using Alternative Institutional Measures". Economics and Politics.
7(3):207-227.
Leeson, Peter (2007). An-arrgh-chy: The Law and Economics of Pirate Organization.
Journal of Political Economy. 115(6):1049-1094.

SPRING BREAK (Week of March 16, 2015)

Class 8: Institutions and Growth, Part 2 (Week of March 23, 2015)

Which dimensions of institutions matter?

How important are institutions relative to other determinants of growth?
Do leaders matter more than institutions?

Required Readings:
Acemoglu, Daron and Simon Johnson (2005). "Unbundling Institutions". Journal of
Political Economy. 113(5):949-995.
Dollar, David and Aart Kraay (2003). Institutions, Trade, and Growth. Journal of
Monetary Economics. 50:133-162.
Jones, Benjamin and Benjamin Olken (2005). "Do Leaders Matter? National
Leadership and Growth Since World War II". Quarterly Journal of Economics.
120(3):835-865.

Class 9: Foreign Aid and Growth (Week of March 30, 2015)

What are the patterns of foreign aid across donors and recipients
How do we know that foreign aid "works" (or not)?

Required Readings:
Clemens, Michael, Steve Radelet, and Rikhil Bavnani (2012). "Counting Chickens When
They Hatch: The Short-Term Effect of Aid on Growth". The Economic Journal.
122(561): 590-617.

Dollar, David and Craig Burnside (2000). Aid, Policies and Growth. American
Economic Review. 90(4):847-68.
Werker, Eric (2009). "How Is Foreign Aid Spent?". American Economic Journal:
Macroeconomics. 1(2):225-44
Nunn, Nathan and Nancy Qian (2012). "US Food Aid and Civil Conflict. American
Economic Review. 104(6):1630-1666.
Suggested Readings:

Brautigam, Deborah and Stephen Knack (2004). "Foreign Aid, Institutions, and
Governance in Sub-Saharan Africa". Economic Development and Cultural Change.
52(2):255-285.
Easterly, William; Ross Levine and David Roodman (2004). Aid, Policies, and Growth:
Comment. American Economic Review 94(3):774-80.
Galiani, Sebastian, Steven Knack, Colin Xu and Ben Zou (2014). The Effect of Aid on
Growth: Evidence from a Quasi-Experiment. World Bank Policy Research Working
Paper No. 6865.
Isham, Jonathan and Daniel Kaufmann (1999). The Forgotten Rationale for Policy
Reform: The Performance of Investment Projects. Quarterly Journal of Economics
114(1):149-184. (www.jstor.org)
Rajan, Raghuram and Arvind Subramanian (2008). "Aid and Growth: What Does the
Cross-Country Evidence Really Show?". Review of Economics and Statistics.
90(4):643-665.

World Bank (1998). Assessing Aid: What Works, What Doesnt, and Why. Oxford:
Oxford University Press. (http://www.worldbank.org/research/aid/aidpub.htm)

Class 10: Debt, Debt Relief, and Growth (Week of April 6, 2015)

Is debt an obstacle to growth in developing countries?

Can debt relief improve growth prospects in developing countries?

Required Readings:
Chauvin, Nicholas Depetris and Aart Kraay (2005). "What Has 100 Billion Dollars Worth
of Debt Relief Done for Low-Income Countries?". Manuscript, The World Bank.
Raddatz, Claudio (2011). Multilateral Debt Relief Through the Eyes of Financial
Markets. Review of Economics and Statistics. November, Vol. 93, No. 4: 12621288.
Suggested Readings:

Gautam, Madhur (2003): Debt Relief for the Poorest: An OED Review of the HIPC
Initiative. World Bank Operations Evaluation Department. Available at
http://lnweb18.worldbank.org/oed/oeddoclib.nsf/0/86DD1E3DCA61E0B985256CD70066
5B1C?opendocument
Krugman, Paul (1988). Financing vs. Forgiving a Debt Overhang, Journal of
Development Economics, No. 29, pp. 253-268.
Henry, Peter Blair and Serkan Arslanalp (2005). "Is Debt Relief Efficient?". Journal of
Finance. 60(2): 1017-51.

Class 11: Poverty Traps (Week of April 13, 2015)

What are poverty traps?

Are poverty traps empirically important in accounting for underdevelopment?

Required Readings:
Kraay, Aart and Claudio Raddatz (2007). "Poverty Traps, Aid, and Growth". Journal of
Development Economics. 82(2):315-347.
Kraay, Aart and David McKenzie (2014). Do Poverty Traps Exist? Assessing the
Evidence. Journal of Economic Perspectives. 28(3): 127-148.

DeMel, Suresh, David McKenzie and Christopher Woodruff (2008). Returns to Capital in
Microenterprises: Evidence from a Field Experiment. Quarterly Journal of Economics.
123(4): 1329-72.
Suggested Readings:
Graham, Bryan S. and Jonathan Temple (2006). Rich Nations, Poor Nations: How
much can multiple equilibria explain?, Journal of Economic Growth. 11(1):5-41.
McKenzie, David and Christopher Woodruff (2004). Do Entry Costs Provide and
Empirical Basis for Poverty Traps? Evidence from Mexican Microenterprises". Economic
Development and Cultural Change. 55(1):3-42.
Quah, Danny T, (1997), Empirics for Growth and Distribution: Stratification, Polarization,
and Convergence Clubs. Journal of Economic Growth 2 (1997), pp. 2759.
Sachs, Jeffrey, John W. McArthur, Guido Schmidt-Traub, Margaret Kruk, Chandrika
Bahadur, Michael Faye, and Gordon McCord, (2004), Ending Africas Poverty Trap,
Brooking Papers on Economic Activity, 2004 (1).

Class 12: Disease and Development (Week of April 20, 2015)

Does disease matter for development?

What are the mechanisms?

Required Readings:
Acemoglu, Daron and Simon Johnson (2007). "Disease and Development: The Effect
of Life Expectancy on Economic Growth". Journal of Political Economy. 115:925-985.
Bloom, David, David Canning and Gunther Fink (2014). Disease and Development
Revisited. Journal of Political Economy. 122(6): 1355-1366.
Acemoglu, Daron and Simon Johnson (2014). Disease and Development: A Reply to
Bloom, Canning and Fink. 122(6):1367-1375.
Lorentzen, Peter, John McMillan, and Romain Wacziarg (2008). "Death and
Development". Journal of Economic Growth. 13(2):81-124.

Suggested Readings:
Young, Alwyn (2005). "The Gift of the Dying: The Tragedy of Aids and the Welfare of
Future African Generations". Quarterly Journal of Economics. 120(2):423-466.

Class 13: TO BE ANNOUNCED (Week of April 27, 2015)

Required Readings:

Suggested Readings: