Introduction to development economics
Part 1 - the facts
World bank development report
Banerjee and Duflo 2007 (in great detail)
Part 2- Determinism and History
Institutions and Scope for action, Under the thumb of history? Banerjee and Duflo (2013)
Economic determinism
Cultural determinism
No de...
Topic 1: Stylized facts and Role of institutions
24/09 , 1/10 and 8/10
Part 1: The facts
Introduction: the facts of economic growth
Before 1750 growth everywhere in the world was almost flat, up until the Industrial
evolution takes place in the UK and Ireland. But GDP is not enough for us to start thinking
about development.
Shanghai: China
In 100 years difference there has been an increase in growth and development in Shanghai.
Rio: Brazil
There isn’t a significant difference in the pictures shown in 100 years. Rio has grown but
relatively is in the same place unlike Shanghai.
Athens: Greece
Same story with Greece, there has been growth but not enough for a significant change.
Millennium development goals (2000)
Goals by the UN: to eradicate extreme poverty, achieve universal primary education,
promote gender equality and empower woman, reduce child mortality, improve maternal
health, combat HIV/Aids malaria and other diseases and finally environmental sustainability.
Introduction
Poor countries around the world are extremely poor. According to the world bank living
under 1$ a fay is defined as being extremely poor. It is essential to countify these matters to
be able to design welfare policies or subsidies targeted to the extremely poor. 86% of
people in Nigeria lived under $2 a day in 1996-1997 even though it is a country with access
to oil.
The story of Abu
Abu is the only earner in his family, and he’s fallen ill. His daughter who is still a child has to
step up but she only gets enough rice to feed the family, Abu therefore can’t afford what he
needs to pay a doctor. Abu had to sold some land he had to take care of his mother who
was sick, the land left was no longer enough to feed the children so they had to borrow
from the money lender at very high rates. In the first visit, Abu had started working for a
landlord and he had to mortgage some land to him, He planted a jackfruit tree hoping it
would give fruits to sell. At the second visit Abu has no land he had sold it to pay the doctor,
he also sold the jackfruit tree which never got the change of bearing fruit. He now has no
work and they are all starving.
Problems in this society pictured:
- lack of affordable healthcare, public goods are extremely necessary for poor people,
government failure.
- no easy access to credit and really high interest rates, market failure
- lack of labour rights
, Stylized facts – World Bank Development Report
Classifies extremely poor as an individual who lives on $1 or less a day. An individual is
classified as poor if they live on less than $2 per person a day.
To put this into perspective the poverty line in the US works out to be something like $13 a
day.
Few facts from UNDP report 2015
Extreme poverty has declined from 1.9 billion from 1990 to 836 million in 2015. The
proportion of undernourished people and mortality rate of children have halved since 1990
and the number of out of school children of primary school fell to 57 million from 100
million. Also important, gender parity has been reached at primary school level in most
countries.
Stylized facts – Indian Government
The Indian government revised the definition of who is a poor person.
A person has to live in a rural area for less than $0.54 a day to be considered poor and less
than $0.67 if they live in a city. The world bank revised its definition to $1.25. The question
then is how can a person live on $0.67 a day?
Banerjee and Duflo (2007)
Banerjee and Duflo (”The Economic Lives of the Poor”, Journal of Economic Perspectives,
2007) – tested for patterns of consumption, income generation of the extremely poor, and
access to markets and public goods.
Source: Living Standard Measurement Surveys (LSMS) of the World Bank, the Family Life
Surveys by the Rand Corporation, and Surveys by authors.
What jumps out from this data is the variation in living standards both within and across the
countries tested for, poor people in Indonesia don’t look like the poor people in Mexico, so
you cannot have the same policies for all the countries, it won’t work. For example, the
relative size of the poor versus the extreme poor varies a lot within countries.
Demography - extremely poor
Within all the countries compared, it is important to know whether females are more likely
to be poor, who’s poorer, rural areas or cities.
Consumption
Expenditure patterns of the extreme poor are really important to account for. Food would
be a major item of expenditure. Yet, interestingly, the extreme poor spend non-trivial sums
on alcohol and tobacco. For example, expenditure on alcohol and tobacco exceed that on
education for a majority of these countries. The extreme poor have a margin of choice and
choose not to exercise it. Perhaps their short life spans make them discount the future
more, they have preferences that are more about the now than the future. There is also a
substantial part of the poor budgets being spent on festivals, as social capital in most of
these societies is significantly high, it is used to improve their social welfare.
In developing countries a 1% increase on overall expenditure translates into about 66%
increase in the total food expenditure even though there is significant extent of
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