Development Economics:
Macro Issues
MIT 14.772; Harvard Economics
EC2390C
Spring 2006
(Last
update:
Schedule
Before
Spring break Professor Townsend will teach the class at MIT
Classes will be held on Mondays
and Wednesdays from
Recitations
will be held on Fridays from
Faculty
Professor Robert
Townsend: MIT, E52-251a, rtownsen@uchicago.edu
Professor Philippe Aghion: Harvard, Littauer Center 231, paghion@fas.harvard.edu
Teaching
Assistants
MIT
Teaching Assistant:
Guy Michaels, Office: MIT, E52-354, guym@mit.edu
Harvard
teaching Assistants:
Dan Wood, Harvard, Office TBA, dhwood@gmail.com
Q-A Do, Office: G27, Littauer
basement, do@fas.harvard.edu
Websites
Web Page at MIT (for the first part of the course): http://web.mit.edu/14.772/www/
Web
Page at Harvard: TBA
Requirements
This class contributes to
the fulfillment of requirements for the development field for Economics Ph.D.
students at both Harvard and MIT. People other than Economics Ph.D. students
should consult with the instructors before enrolling.
1.
Professors Townsend’s part:
a.
A midterm exam, which will be held on Wednesday, March 22, will count for
50 percent of the grade for this part of the course.
b.
Problem sets will count towards 25 percent of the grade for this part of
the course.
c.
A referee report will count towards 25 percent of the grade for this part
of the course.
2.
Professor Aghion’s part:
a.
2 referee reports on two required papers (no more than 2-3 pages, double
spaced): 2/3 of the grade for this part of the course.
b.
1-2 paragraph comment on a paper every week (To be submitted to the
Harvard teaching assistants by email): 1/3 of the grade for this part of the
course.
Reading List
Please be advised that to use the links
to readings from the course webpage, you must agree to the following:
The copyright law of the
1. Introduction: Growth,
Inequality, Poverty and the Evaluation of Financial Systems (1 lecture)
*
Townsend, Robert, The Thai Economy, Chapter 0 and Chapter 1
Townsend,
Robert, Selected slides regarding
2. Conceptual Frameworks for
Measurement (1/2 to 1 lecture)
*
Townsend, Robert, The Thai
Economy, Chapter 2
*
* Samphantharak, Krislert and
Townsend, Robert (2006) “Households as Corporate Firms”
Lim, Youngjae and Townsend, Robert, “General Equilibrium Models
of Financial Systems: Theory and Measurement in Village Economies”, Review of
Economic Dynamics, January 1998, v. 1, iss. 1, pp.
59-118
Deaton,
Angus (1997), The Analysis of Household
Surveys, John Hopkins
Deaton,
M. (2005) “Measuring Poverty in a Growing World (or measuring growth in a poor
world)”, Review of Economics and Statistics, with comments by F. Bourguignon
and M. Kremer
Bertrand,
M., Mehta, P. and Mullainathan, S. (2002), “Ferreting Out Tunneling: An Application to Indian Business
Groups,” Quarterly Journal of Economics, 117(1), 121-148.
3. Regional Economies (1/2 to 1
lecture)
*
Townsend, Robert, The Thai
Economy, Chapter 3
*Danny Quah (1993), “Empirical Cross-Section Dynamics in Economic Growth”,
European Economic Review, April 1993,
v. 37, iss. 2-3, pp. 426-34
* Barro, R, and X. Sala-i-Martin
(2004), Economic Growth, MIT Press,
pp. 31-32, Chapter 11, Chapter 12
John Felkner, GIS handout, Florida presentation
Michael
W. Binford, Tae Jeong Lee
and Robert M. Townsend (2003) “Sampling Design for an Integrated Socio-Economic
and Ecologic Survey Using Satellite Remote Sensing and Ordination,” published
in PNAS
Liu
Yang (2004) “Unequal Provinces But Equal Families? An Analysis of Inequality
and Migration in
Townsend,
Robert (1995), “Consumption Insurance: An Evaluation of Risk-Bearing
Systems in Low-Income Economies.” Journal of Economic Perspectives 9(3), 83–102.
Paxson,
Christina H. (1992) “Using weather variability to estimate the response of
savings to transitory income in Thailand.” American Economic Review 82(1), 15–33.
Blundell,
Richard; Pistaferri, Luigi and
Vickery,
James Ian and Townsend, Robert “Commodity Price Shocks, Consumption and Risk
Sharing in Rural
Chiquiar, Daniel and Hanson, Gordon H. (2005) “International Migration, Self-Selection,
and the Distribution of Wages: Evidence from
Garcia Verdú, Rodrigo (2005) “Income, Mortality, and Literacy
Distribution Dynamics Across States in
Chiquiar Cikurel, Daniel (2002) “Why Mexico’s regional income convergence broke down?”, working paper, Department of Economics University of
California,
McKenzie,
David J. (2003) “How Do Households Cope with Aggregate Shocks? Evidence from the Mexican
Peso Crisis,” World Development, July
2003, v. 31, iss. 7, pp. 1179-99
4. Decompositions: Macro TFP and Micro Kuznets (1/2 to 1 lecture)
*Townsend,
The Thai
Economy, Chapter 4
* “Bourguignon,
Francois; Ferreira, Francisco H. G.; Lustig, Nora,
eds. (2005), “The microeconomics of income distribution dynamics in East
Asia and Latin America,”
* Cunha, F. and J. J. Heckman (2005) “A framework for the analysis of inequality,”
Journal of Macroeconomics,
forthcoming.
Sergio
Samuel Urzua (2004), “Poverty and Inequality: A Review”
Banerjee, Abhijit, and Esther Duflo
(2003), “Inequality and growth: What can the data say?”
Journal of Economic Growth, 8(3): 267-299.
Young, Alwyn (1995) “The
Tyranny of Numbers: Confronting the Statistical Realities of the East Asian
Growth Experience”, Quarterly Journal of Economics, v. 110, iss.
3, pp. 641-80
Barro,
R, and X. Sala-i-Martin (2004), Economic Growth, MIT
Press, pp. 346-347 and Chapter 10 more generally
Hyeok Jeong (2001) "An Assessment of Relationship Between
Growth and Inequality Using Micro Data from Thailand,”
Gollin,
Orozco,
Monica, and Baez, Sirenia “Inequality in
Santaella , Julio A. (1998) “Economic Growth in Mexico: Searching for clues of its
slowdown”
Bouillon,
Cesar Patricio; Legovini, Arianna;
Lustig, Nora (2003) “Rising Inequality in
Cesar
Patricio Bouillon, Arianna Legovini
and Nora Lustig, rising Inequality in
Rodrigo
Garcia-Verdu (2005) “Factor Shares from Household Survey Data,”
working paper, Banco de Mexico
5. Driving Forces: Occupation,
Financial Access, Education (1 lecture)
*
Townsend, The Thai
Economy, Chapter 5
Townsend,
Robert M. and Yaron, Jacob (2001) “The Credit
Risk-Contingency System of an Asian Development Bank,” Federal Reserve Bank of Chicago Economic Perspectives, v. 25, iss. 3, pp. 31-48
International Monetary Fund (2003) “Tanzania: Financial System Stability Assessment, including
Reports on the Observance of Standards and Codes on Banking Supervision”
Bancarization- notes
* International Monetary Fund (2001) “Mexico: Financial System Stability Assessment, including Reports on the
Observance of Standards and Codes on the following topics: Monetary and
Financial Policy Transparency; Payment Systems; Banking Supervision; Securities
Regulation; and Insurance Supervision”
*
Cuevas, Carlos E. and
World
Bank (2005) “Mexico: Broadening Access to Financial Services Among The Urban Population: Mexico City’s Unbanked”
6. Integrated Micro/Macro Models
with Dual Financial Sectors (2 lectures)
*
Townsend, The Thai
Economy, Chapter 6
Townsend
(1978) “Intermediation with Costly Bilateral Exchange,” Review of Economic Studies, v. 45, iss.
3, pp. 417-25
Bond, Philip (2004) “Bank and Nonbank
Financial Intermediation,” Journal of Finance, v. 59, iss. 6, pp. 2489-2529
* Jeong, Hyeok and Townsend, Robert
M. (2005) “Sources of TFP Growth: Occupation choice and Financial
Deepening”
* Banerjee, Abhijit and Esther Duflo, “Growth theory through the lens of development economics”
Gine,
Xavier; Townsend, Robert M. (2004) “Evaluation of Financial Liberalization: A
General Equilibrium Model with Constrained Occupation Choice,” Journal of Development Economics, v. 74,
iss. 2, pp. 269-307
Piketty,
Thomas (1997) “The Dynamics of the Wealth Distribution and the Interest Rate
with Credit Rationing,” Review of
Economic Studies, v. 64, iss. 2, pp. 173-89
Evans,
David S.; Jovanovic, Boyan
(1989) “An Estimated Model of Entrepreneurial Choice under Liquidity
Constraints,” Journal of Political
Economy, v. 97, iss. 4, pp. 808-27
Lloyd-Ellis, Huw; Bernhardt, Dan (2000) “
Banerjee, A. and A. Newman, “Occupational Choice and the Process of Development”
Journal of Political Economy, 101
(2), 1993, pp. 274-298.
Galor,
O. and J. Zeira, “Income Distribution and Macroeconomics”,
Review of Economic Studies, 60 (1), 1993, pp. 35-52.
Townsend,
Robert M; Ueda, Kenichi (2003) “Financial Deepening, Inequality, and Growth: A
Model-Based Quantitative Evaluation,” forthcoming Review of Economic Studies
Acemoglu, Daron; Zilibotti, Fabrizio (1997) “Was Prometheus Unbound by Chance? Risk,
Diversification, and Growth,” Journal of
Political Economy, August 1997, v. 105, iss. 4,
pp. 709-51
King,
Robert G.; Levine, Ross (1993) “Finance and Growth: Schumpeter Might Be Right,”
Quarterly Journal of Economics, v.
108, iss. 3, pp. 717-37
Bencivenga, Valerie R.; Smith, Bruce D.
(1991) “Financial Intermediation and Endogenous Growth,” Review of Economic Studies, v. 58, iss.
2, pp. 195-209
Forbes, Kristin J. (2000) “A reassessment of the relationship between inequality and
growth,” American Economic Review 90(4), 869–887.
Burgess, Robin; Pande, Rohini (2004) “Do Rural
Banks Matter? Evidence from the Indian Social Banking Experiment,” C.E.P.R.
Discussion Papers, CEPR Discussion Papers: 4211
Felkner, John and Townsend,
Robert M., " The Wealth of Villages: An Application of GIS and Spatial Statistics
to Economic Models," August 2004
Jeong, H. and R.M.
Townsend, "Growth and Inequality: Model Evaluation Based on an
Estimation-Strategy" mimeo,
7.
Neoclassical Benchmarks and Anomalies for Those with Access (1 lecture)
* Townsend, The
Thai Economy, Chapter 7
* Townsend, Robert (1995), “Financial Systems in Northern Thai
villages,” Quarterly Journal of Economics 110(4), 1011–1046.
Schulhofer-Wohl, Sam “Testing for credit constraints in Entrepreneurship,” August 2004,
manuscript
Townsend, Robert (1994), “Risk and Insurance in Village
*
Kaplan, Steven N.; Zingales, Luigi (1997) “Do
Investment-Cash Flow Sensitivities Provide Useful Measures of Financing
Constraints,” Quarterly Journal of Economics, February 1997, v. 112, iss. 1, pp. 169-215
Comment:
Fazzari, Steven M.; Hubbard, R. Glenn; Petersen,
Bruce C. (2000) “Investment-Cash Flow Sensitivities are Useful: A Comment,”
Quarterly Journal of Economics, v. 115, iss. 2, pp.
695-705
Rejoinder:
Kaplan, Steven N.; Zingales, Luigi, (2000)
“Investment-Cash Flow Sensitivities are Not Valid Measures of Financing
Constraints,” Quarterly Journal of Economics, v. 115, iss.
2, pp. 707-12
Alem
Mauro and Robert M. Townsend (2004) “An Evaluation of Safety Nets and Financial Institutions in Crisis and
Growth”
Samphantharak, Krislert (2002) “Internal Capital Markets in
Business Groups”
Suri, Tavneet (2005) “Spillovers in Village Consumption: Testing
the Extent of Partial Insurance”
Fafchamp, Marcel and
Browning,
Martin and Pierre-Andre Chiappori (1998),
"Efficient Intra-household Allocations: A General Characterization and
Empirical Tests," Econometrica, Vol. 66 (6), pp.
1241-1278.
Duflo,
Esther and Christopher Udry (2001), "Intrahousehold Resource Allocation in
Sam Schulhofer-Wohl (2006) “A Test of Consumption Insurance
With Heterogeneous Preferences”
Rodrigo
Garcia-Verdu (2002) “An Evaluation of Conditional
Income Support Programs: the Case of Progressa in
Attanasio, Orazio P. and Székely,
Miguel (2001) “Wage Shocks and Consumption Variability in
McKenzie,
David J. and Woodruff, Christopher (2003) “Do Entry Costs Provide an Empirical
Basis for Poverty Traps? Evidence from Mexican Microenterprises”
8. Impact: experimental and
econometric program evaluation (2 lectures)
*
Townsend, The Thai Economy, Chapter 8
Kaboski,
J. and Townsend, R. (2004) “The Impact of Credit: An Early Evaluation of a
Large-Scale Government Credit Injection”, mimeo,
Kaboski,
Joseph P.; Townsend, Robert M. (2005) “Policies and Impact: An Analysis of
Village-Level Microfinance Institutions,” Journal of the European Economic
Association, v. 3, iss. 1, pp. 1-50
Tambunlertchai, Suchanan (2004) “The Government’s Helping
Hand: A Study of Thailand’s Agricultural Debt Moratorium,” Senior Honors
Thesis, Harvard
Maksimovic, Vojislav; Demirguc-Kunt, Asli,
and Beck, Thorsten (2002) “Financial and legal
constraints to firm growth - Does size matter?”
* Rosenzweig, Mark R.; Wolpin,
Kenneth
*
Sergio Samuel Urzua and Robert M. Townsend (2006) “Occupation
Choice and the Impact of Financial Intermediation: Linking Mechanism Design and
Choice Theory with Econometric Practice”
Kaboski,
Joe and Townsend, Robert M. “Consumption Investment and Saving Under Credit Constaints: Testing Structural Theory Using a Large Scale
Micro Finance Experiment”
* Imbens, Guido W.; Angrist, Joshua
D. (1994) “Identification and Estimation of Local Average Treatment Effects,” Econometrica, March 1994, v. 62, iss.
2, pp. 467-75
Heckman,
J. and E. Vytlacil (2005) "Structural Equations,
Treatment Effects and Econometric Policy Evaluation," Econometrica,
May 2005, 73(3): 669-738.
Aportela, F. (1998) "Effect of Financial Access on Savings by Low-Income
People." mimeo, Massachusetts Institute of Technology
Gelos,
R. Gaston, and Werner, Alejandro (1999) “Financial liberalization, credit
constraints, and collateral: Investment in Mexican manufacturing sector,”
International Monetary Fund Research Department Working Paper WP/99/25, March
9. Obstacles to trade, enhanced
models of selection and the impact of policy variation (3 lecturers)
*
Townsend, The Thai Economy, Chapter 9
Paulson,
Anna L.; Townsend, Robert M. and Karaivanov, Alexander (2006) “Distinguishing Limited
Liability from Moral Hazard in a Model of Entrepreneurship,” forthcoming,
Journal of Political Economy
Karaivanov, Alexander (2001) “Computing Moral Hazard Programs With Lotteries Using Matlab”
Prescott,
Edward S. (1999) “A Primer on Moral-Hazard Models”
Aghion, Philippe;
Phelan,
Christopher; Townsend, Robert M. (1991) “Computing Multi-period,
Information-Constrained Optima,” Review of Economic Studies, v. 58, iss. 5, pp. 853-81
Paulson
A., Townsend R., and Karaivanov A. (2006)
“Distinguishing Limited Liability from Moral Hazard in a Model of
Entrepreneurship,” forthcoming, Journal of Political Economy
Buera,
Francisco (2002) “A Dynamic Model of Entrepreneurial Choice with borrowing
Constraints,” Manuscript,
Gine,
Xavier (2005) “Access to capital in rural
Ahlin,
Christian and Townsend, Robert (2005) "Using Repayment Data to Test Across
Models of Joint Liability Lending,”
Banerjee, Abhijit V.; Besley,
Timothy; Guinnane, Timothy W. (1994) “Thy Neighbor's
Keeper: The Design of a Credit Cooperative with Theory and a Test,” Quarterly
Journal of Economics, v. 109, iss. 2, pp. 491-515
Besley,
Timothy; Coate, Stephen (1995) “Group Lending,
Repayment Incentives and Social Collateral,” Journal of Development Economics,
v. 46, iss. 1, pp. 1-18
Ghatak,
Maitreesh (2000) “Screening by the Company You Keep:
Joint Liability Lending and the Peer Selection Effect,” Economic Journal, v.
110, iss. 465, pp. 601-31
Ahlin,
Christian and Townsend, Robert (2004) "Selection into and across Credit
Contracts: Theory and Field Research,” forthcoming Journal of Econometrics
Prescott,
Edward Simpson; Townsend, Robert M. (2002) “Collective Organizations versus
Relative Performance Contracts: Inequality, Risk Sharing, and Moral Hazard,”
Journal of Economic Theory, April 2002, v. 103, iss.
2, pp. 282-310
Stiglitz, Joseph E. (1990) “Peer Monitoring and Credit Markets,” World Bank
Economic Review, v. 4, iss. 3, pp. 351-66
Holmstrom, Bengt; Milgrom,
Paul (1990) “Regulating Trade among Agents,” Journal of Institutional and
Theoretical Economics, v. 146, iss. 1, pp. 85-105
Prescott,
Edward Simpson and Townsend, Robert M. (2005) “Firms as Clubs in Walrasian Markets with Private Information”
Legros,
Patrick; Newman, Andrew F. (1996) “Wealth Effects, Distribution, and the Theory
of Organization,” Journal of Economic Theory, v. 70, iss.
2, pp. 312-41
Kilenthong, Tee Weerachart (2005) “Collateralized
Contracts as a Risk Sharing Mechanism”
Karaivanov, Alex and Townsend, Robert M. (2005) “Repeated Moral Hazard with
Investment”
Doepke,
Matthias; Townsend, Robert M (2004) “Dynamic Mechanism Design with Hidden
Income and Hidden Auctions,” Forthcoming, JET
Lehnert,
Andreas; Ligon, Ethan; Townsend, Robert M. (1999)
“Liquidity Constraints and Incentive Contracts,” Macroeconomic Dynamics, v. 3, iss. 1, pp. 1-47
Madeira,
Gabriel A. and Townsend, Robert M. (2005) “Endogenous Risk Sharing Groups and
Dynamic Selection in Mechanism Design”, manuscript
Attanasio, OP, Meghir, C. and Santiago A. (2004)
“Education Choices in Mexico: Using a Structural Model and a Randomized
Experiment to evaluate Progresa”
Todd,
Petra and Wolpin, Kenneth I. (2003) “Using
Experimental Data to Validate a Dynamic Behavioral Model of Child Schooling and
Fertility,” memo,
Supplementary
Readings for working group
Alvarez,
Fernando; Jermann, Urban J. (2000) “Efficiency,
Equilibrium, and Asset Pricing with Risk of Default” Econometrica,
v. 68, iss. 4, pp. 775-97
Bond,
Philip; Krishnamurthy, Arvind (2004) “Regulating
Exclusion from Financial Markets,” Review of Economic Studies, v. 71, iss. 3, pp. 681-707
Ligon,
Ethan; Thomas, Jonathan P.; Worrall, Tim (2000) “Mutual Insurance, Individual
Savings, and Limited Commitment,” Review of Economic Dynamics, v. 3, iss. 2, pp. 216-46
Caballero,
Richardo J.; Krishnamurthy, Arvind
(2001) “International and Domestic Collateral Constraints in a Model of
Emerging Market Crises,” Journal of Monetary Economics, v. 48, iss. 3, pp. 513-48
Geanakoplos, John (2002) “Liquidity, Default and Crashes: Endogenous Contracts in
General Equilibrium,” Cowles Foundation, Yale University, Cowles Foundation
Discussion Papers: 1316R2
Demarzo,
Peter M. and Fishman M. J. (2002) “Optimal Long Term Financial Contracting with
Privately Observed Cash Flows, working paper
Allen,
Franklin; Gale, Douglas (2004) “Financial Intermediaries and Markets,” Econometrica, v. 72, iss. 4, pp.
1023-61
Boyd,
John H.; Prescott, Edward C. (1986) “Financial Intermediary-Coalitions,”
Journal of Economic Theory, v. 38, iss. 2, pp. 211-32
Wallace,
Neil (1996) “Narrow Banking Meets the Diamond-Dybvig
Model,” Federal Reserve Bank of Minneapolis Quarterly Review, v. 20, iss. 1, pp. 3-13