The Determinants of Wealth and Poverty
Term 8 2007-2008
Professor Todd Knoop
Office: 201 College Hall
Telephone: 895-4208 (voice mail)
Class Times: 9:15-11:30 Monday-Friday
1:00-2:30 Monday-Thursday (possibly)
Office Hours: 11:30-12:00 Monday-Friday
(except the first and second Tuesdays of the block)
1:00-1:30 Monday-Thursday when we do not meet for class
and by appointment
Required Texts: Charles I. Jones, Introduction to Economic Growth, second edition, W.W. Norton.
William Easterly, The Elusive Quest for Growth: Economists’ Adventures and Misadventures in the Tropics, first edition, MIT Press.
Since 1900 the U.S. has experienced a ten-fold increase in income. It can be argued that this phenomenal increase in standards of living, which is the direct result of economic growth, is the single most important aspect of U.S. history. This increase in income in the U.S. is even more impressive when compared to the economic performance of other areas of the world. For instance, per-capita income in the U.S. is more than 30 times greater than in Sub-Saharan Africa, which has not seen an increase in its per-capita income in nearly 50 years.
The nature and causes of economic growth have been an important focus of economics research since the inception of economics as a field of study, most importantly dating back to the works of Adam Smith (1776) and Thomas Malthus (1798). Nonetheless, other than Solow’s (1957) important contributions, knowledge on the subject of economic growth changed very little over the next 150 years. However, since the early 1980’s there have been some important advances in both the theory and the empirics of economic growth.
Our primary focus in this class will be to review both classical and new research regarding economic growth in an effort to understand how and why some countries grow and others do not. We will focus our investigation on the following three important questions:
(1) Why are the rich rich and the poor poor?
(2) Why do various countries grow at different rates, and what variables appear to be significant in explaining these growth differences?
(3) How do we explain the “growth miracles” recently experienced in East Asia, and can other countries follow their example and transform themselves from poor to rich?
Note that each of these questions have both a theoretical element and an empirical element. As a result, in this class we will attempt to not only develop a theory that explains economic growth, but we will also closely examine the cross-country data on economic growth in order to test our theory. To accomplish this, we will spend the first half of this term developing a model of economic growth, primarily focusing on the model developed by Solow (1957) and extensions of this model that have followed. In the second half of the term, we will survey the existing empirical literature on growth through a series of student presentations and other readings. These additional readings will often take us outside the traditional scope of economics and into the realms of culture, religion, history, and ethnic diversity as possible factors that play roles in determining which countries develop into rich countries and which do not.
Food for thought:
“It is quite wrong to try founding a theory on observable magnitudes alone....It is the theory which decides what we can observe.”
- Albert Einstein
“I do not see how one can look at figures like these without seeing them as representing possibilities. Is there some action a government of India could take that would lead the Indian economy to grow like Indonesia’s or Egypt’s? If so, what exactly?.....The consequences for human welfare involved in questions like these are simply staggering: Once one starts to think about them, it is hard to think about anything else.”
- Robert Lucas
Grading: Course grades will be determined by four classes of assignments and will be based on 350 possible points. I reserve the right to use my discretion at the margin and things such as class participation and improvement will be considered in borderline cases.
(1) Exams: A midterm and a final will be given. The midterm will be worth 100 points and the final will be worth 75 points. These exams will be given in class.
(2) Empirical Assignment: A short empirical assignment will be due during the second week of class that asks you to familiarize yourself with the Penn World Tables of cross-country macroeconomic data.
(3) Panel Presentation/Paper: Each student will be asked to summarize a professional published article, articles, or book on a topic relating to economic growth. This research may come from the reading list in this syllabus or from another article approved by the instructor.
Journal articles and books for all student presentations in the attached reading list can be found outside my office. Please be considerate to your classmates when it comes to handling the articles on reserve, both in terms of returning copies as quickly as possible and also by not mutilating copies.
There are two requirements regarding this assignment. First, each student will be required to write a summary of his or her chosen paper. This summary should be at least seven pages long and should:
(1) identify the topic of your paper in a clear and coherent manner,
(2) discuss the importance of the questions addressed in the paper, including any relevance to previous material discussed in class or current events,
(3) summarize all of the important results from the paper, including the intuition (not just the technical details) behind the results obtained, and
(4) discuss the major public policy implications of the paper.
Second, each student will be required to present a summary of their paper in class as part of a panel comprised of other students in the class discussing papers on similar subjects. Students on each panel should meet together before their presentation in order to discuss their papers and integrate their discussions.
Each student’s presentation should be roughly 20-30 minutes long, including questions, and should focus on helping other students in the class understand the important contributions of their chosen paper to our understanding of economic growth. Student papers will be due on the date of the student’s class presentation.
The paper and presentation (graded together) will be worth 50 points each for a total of 100 points.
You are encouraged to consult with me during the process of choosing a paper and especially during your preparation of the class presentation.
(4) Class Participation: Class participation will count for 50 points toward the final grade and will be assigned on the basis of both quantity and quality of participation. Given that this is a seminar class, we will devote a substantial amount of classroom time to discussing reading assignments. For all of the assigned readings (including the paper presentations of your fellow class members) you should be able to:
(1) summarize the reading assignments,
(2) answer questions regarding the reading assignments,
(3) raise questions regarding the reading assignments,
(4) understand how the reading assignments relate to previous reading assignments.
You may be asked to provide a written review of certain assigned readings throughout the course.
If you miss a class it is your responsibility to find out what announcements and other materials or assignments were presented in class.
Academic Dishonesty: Academic dishonesty will not be tolerated and will be dealt with in the harshest manner that is still in accordance with Cornell’s regulations in the student handbook. Academic dishonesty can include the failure to properly document sources of information used in your work.
Learning Disabilities: Cornell College is committed to providing equal educational opportunities to all students. If you have a documented learning disability and will need any accommodation in this course, you must request the accommodation(s) from [the instructor of the course] as early as possible and no later than the third day of the term. Additional information about the policies and procedures for accommodation of learning disabilities is available on the Cornell web site at http://cornellcollege.edu/academic_affairs/disabilities/.
OUTLINE OF TOPICS AND READINGS
Also, additional articles, topical readings, and papers associated with student presentations will be assigned throughout the term.
Section 1: The Theory of Economic Growth
Monday #1: The Facts of Economic Growth J: Chapter 1
Tuesday #1: Mathematical Review J: Appendix A
The Solow Model J: Chapter 2
E: Chapter 1
Wednesday #1: Solow Model, cont. E: Chapter 2, 5
Thursday #1: Applications of Solow Model J: Chapter 3
E: Chapter 3
Friday #1: Applications, cont. E: Chapter 4
Macro for the 21st century Lucas (2000)
Monday #2: Endogenous Growth J: part of Chapter 8
The Benefits of Tax Reform Knoop (2000)
Tuesday #2: The Economics of Ideas J: Chapter 4
E: Chapter 8, 9
Wednesday #2: Infrastructure J: Chapter 7
E: Chapter 11, 12
Thursday #2: Midterm Exam
Section 2: The Empirics of Economic Growth
Friday #2: Brief Review of Econometrics
Monday #3: The Empirics of Growth Barro (1997) Chapter 1
Aid and Debt E: Chapter 6, 7
Tuesday #3: Begin Student Presentations
Natural Resources J: Chapter 9
Wednesday #3: Student Presentations
Disasters E: Chapter 10
Thursday #3: Student Presentations
Diversity E: Chapter 13
Friday #3: Student Presentations
Democracy Barro (1997) Chapter 2
Monday #4: Student Presentations
VISIT: David Klaus, World Bank, Cornell Alumni
Tuesday #4: Student Presentations
Conclusions J: Chapter 10
E: Chapter 14
VISIT: David Klaus, World Bank, Cornell Alumni
Wednesday #4: Final Exam
General Cross-Country Growth Relationships
Acemoglu, Daron, and Fabrizio Zilibotti, 2001, “Productivity Differences.” The Quarterly Journal of Economics (May): 563-606.
Barro, Robert J. and Xavier Sala-I-Martin, 1991. “Convergence Across States and Regions.” Brookings Papers on Economic Activity pp. 107-158.
Barro, Robert J., 1997, “The Determinants of Economic Growth” in Determinants of Economic Growth: A Cross- Country Empirical Study, First edition. In Class
Bourguignon, Francois and Christian Morrisson. 2002. “Inequality Among World Citizens: 1820-1992.” American Economic Review 96 (Sept.): 727-744.
Clark, Gregory, 2007, A Farwell to Alms Princeton University Press: Princeton, NJ.
De Soto, Hernando, 2000, The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else Basic Books: New York, NY.
Durlauf, Steven N., Andros Kourtellos, and Artur Minkin. 2001. “The Local Solow Growth Model.” European Economic Review 45: 928-940.
Easterly, William, 2005, “Reliving the ‘50s”: the Big Push, Poverty Traps, and Takeoffs in Economic Development,” Center for Global Development Working Paper No. 65.
Friedman, Benjamin M., The Moral Consequences of Economic Growth Knopf: New York, NY.
Hall, Robert E. and Charles I. Jones, 1999. “Why Do Some Countries Produce So Much More Output Per Worker Than Others?” The Quarterly Journal of Economics 83-116. In Class
Krugman, Paul, 1994, “The Myth of Asia’s Miracle.” Foreign Affairs (Nov/Dec): 62-78. In Class
Landes, David S., 1998, The Wealth and Poverty of Nations, Second edition.
Lucas, Robert E. Jr., 2000. “Some Macroeconomics for the 21st century.” Journal of Economic Perspectives 14: 159-174. In Class
Malthus, Thomas R. 1798. An Essay on the Principle of Population. London: W. Pickering, 1986.
Mankiw, N. Gregory, David Romer, and David Weil. 1992. “A Contribution to the Empirics of Economic Growth.” Quarterly Journal of Economics 107 (May): 407-438. In Class
Nelson, Richard R. and Howard Pack, 1999. “The Asian Growth Miracle and Modern Growth Theory.” The Economic Journal 109: 416-436.
Sachs, Jeffrey D., 2005, The End of Poverty: Economic Possibilities for Our Time Penguin Press: New York, NY.
Smith, Adam. 1776 (1981). An Inquiry into the Nature and the Causes of the Wealth of Nations. Indianapolis: Liberty Press.
Solow, Robert M. 1956. “A Contribution to the Theory of Economic Growth.” Quarterly Journal of Economics 70 (Feb.): 65-94. In Class
Young, Alwyn. 1992. “A Tale of Two Cities: Factor Accumulation and Technological Change in Hong Kong and Singapore.” NBER Macroeconomics Annual, MIT Press.
Barro, Robert J.,1997,”Inflation and Growth.” in Determinants of Economic Growth: A Cross- Country Empirical Study, First edition.
Bruno, Michael and William Easterly, 1998. “Inflation Crises and Long-Run Growth.” Journal of Monetary Economics 41: 3-26.
Burnside, Craig and David Dollar, 2000. “Aid, Policies, and Growth.” American Economic Review 90:847-868.
Grilli, Vittorio, Donato Masciandaro, and Guido Tabellini. 1991. “Political and Monetary Institutions and Public Finance Policies in the Industrial Countries.” Economic Policy 13 (Oct.): 341-392.
Hulten, Charles R., 1996. “Infrastructure Capital and Economic Growth: How Well You Use It May Be More Important Than How Much You Have.” NBER Working Paper #5847.
Karras, Georgios, 1999. “Taxes and Growth: Testing the Neoclassical and Endogenous Growth Models.” Contemporary Economic Policy 17: 177-188.
Knoop, Todd A. 1999. “Growth, Welfare, and the Size of Government.” Economic Inquiry 37:103-119. In Class
Schmitz, James A., 1996, “The Role Played by Public Enterprises: How Much Does it Differ Across Countries?” Federal Reserve Bank of Minneapolis Quarterly Review (Spring): 2-15.
Human Capital and Growth
Adams, James D. 1990. “Fundamental Stocks of Knowledge and Productivity Growth.” Journal of Political Economy 98, pp. 673-702.
Beine, Michel, Frederic Docquier, and Hillel Rapoport, 20001. “Brain Drain and Economic Growth: Theory and Evidence.” Journal of Development Economics 64: 275-289.
Chaudhury, Nazmul, Jeffrey Hammer, Michael Kremer, Karthik Muralidharan, and F. Halsey Rogers, 2006, “Missing in Action: Teacher and Health Worker Absence in Developing Countries, ?” Journal of Economic Perspectives 20, pg. 91-116.
Cutler, David, Angus Deaton, and Adriana Lleras-Muney, 2006, “The Determinants of Mortality,” Journal of Economic Perspectives 20, pg. 97-120.
Hanushek, Eric A. and Dennis D. Kimko, 2000. “Schooling, Labor-Force Quality, and the Growth of Nations.” American Economic Review 90: 1184-1208.
Mammen, Kristen and Christina Paxson, 2000. “Women’s Work and Economic Development.” Journal of Economic Perspectives 14: 141-164.
Trade and Growth
Frankel, Jeffrey A. and David Romer, 1999. “Does Trade Cause Growth?” American Economic Review 89: 379-399.
Miller, Stephen M. and Mukti P. Upadhyay, 2000. “The Effects of Openness, Trade Orientation, and Human Capital on Total Factor Productivity.” Journal of Development Economics 63: 399-423.
Sachs, Jefferey and Andrew Warner. 1995. “Economic Reform and the Process of Global Integration.” Brookings Papers on Economic Activity 1: 1-95.
Sharma, Subhash C. and Dharmendra Dhakal. 1994. “Causal Analysis Between Exports and Economic Growth in Developing Countries.” Applied Economics 26: 1145-1157.
Wei, Shang-Jin, 2000. “Local Corruption and Global Capital Flows.” Brookings Papers on Economic Activity 2: 303-354.
Winters, L. Alan, Neil McCulloch, and Andrew McKay, 2004, “Trade Liberalization and Poverty: The Evidence So Far,” Journal of Economic Literature vol. 42, pg. 72-115.
Acemoglu, Daron, Simon Johnson, and James A. Robinson. 2001. “The Colonial Origins of Comparative Development: An Empirical Investigation.” American Economic Review 91 (Dec.): 1369-1401.
_____, _____, _____, 2001, “An African Success Story: Botswana,” MIT Working Paper 01-37.
Block, Steven A., 2001, “Does Africa Grow Differently?” Journal of Development Economics 65: 443-467.
Collier, Paul, 2007, The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About It Oxford University Press: Oxford, UK.
_____, 2006, “African Growth: Why a ‘Big Push’,” Journal of African Economics 00, pg. 188-211.
_____, and Jan Willem Gunning, 1999. “Explaining African Economic Performance.” Journal of Economic Literature 37 (March): 64-111.
de Haan, Jakob and Ross Levine. 1997. “Africa’s Growth Tragedy: Policies and Ethnic Divisions.” The Quarterly Journal of Economics 1203-1250.
Sachs, Jeffrey D. 2001. “Tropical Development.” NBER Working Paper 8119.
Baily, Martin Neil. 2002. “The New Economy: Post Mortem or Second Wind?” Journal of Economic Perspectives 16 (Spring): 3-22.
Bosworth, Barry and Susan M. Collins, 2008, “Accounting for Growth: Comparing China and India,” Journal of Economic Perspectives 22, pg. 45-66.
David, Paul A., 1985, “Clio and the Economics of Qwerty,” American Economic Review 75, pg. 332-337.
Gordon, Robert J., 2000. “Does the ‘New Economy’ Measure Up to the Great Inventions of the Past?” Journal of Economic Perspectives 14: 49-74.
Jorgenson, Dale. W., Mun S. Ho, and Kevin J. Stiroh, 2008, “A Retrospective Look at the U.S. Productivity Growth Resurgence,” Journal of Economic Perspectives 22, pg. 3-24.
Kremer, Michael, 1993, “Population Growth and Technological Change: One Million B.C. to 1990,” The Quarterly Journal of Economics pg. 681-716.
Oliner, Stephen D. and Daniel E. Sichel, 2000. “The Resurgence of Growth in the Late 1990’s: Is Information Technology the Story?” Journal of Economic Perspectives 14, pg. 3-22.
Romer, Paul M., 1993. “Two Strategies for Economic Development: Using Ideas and Producing Ideas.” Proceedings of the World Bank Annual Conference on Development Economics : 63-91.
Institutions and Other Topics
Acemoglu, Daron, Simon Johnson, and James A. Robinson, 2001, “Reversal of Fortune: Geography and Institutions in the Making of the Modern World Income Distribution,” working paper.
Ades, Alberto and Rafael Di Tella, 1999. “Rents, Competition, and Corruption.” American Economic Review 89: 982-993.
Alesina, Alberto and Beatrice Weder. 2002. “Do Corrupt Governments Receive Less Foreign Aid?” American Economic Review 92 (Sept.): 1126-1137.
Allen, Robert C., 2003, “Progress and Poverty in Early Modern Europe,” Economic History Review 56, pg. 403-443.
Arestis, Philip and Panicos Demetriades, 1997. “Financial Development and Economic Growth: Assessing the Evidence.” The Economic Journal 107 (May): 783-799.
Banerjee, Abhijit V. and Esther Duflo, 2006, “The Economic Lives of the Poor,” MIT Working paper.
Baumol, William J. 1990. “Entrepreneurship: Productive, Unproductive, and Destructive.” Journal of Political Economy 98 (Oct.): 893-921.
Collier, Paul and Anke Hoeffler, 2004, “Greed and Grievance in Civil War,” Oxford Economic Papers 56: pg. 563-595.
de Haan, Jakob andJan-Egbert Strum, 2000. “On the Relationship between Economic Freedom and Economic Growth.” European Journal of Political Economy 16: 215-241.
Diamond, Jared, 1997, Guns, Germs and Steel, First edition. New York: W.W. Norton.
Gallup, John Luke, Jeffrey D. Sachs, and Andrew Mellinger. 1999. “Geography and Economic Development.” International Regional Science Review 22: 179-232.
Galor, Oded and Omer Moav. 2002. “Evolution and Growth.” European Economic Review 45: 718-729.
Guiso, Luigi, Paola Sapienza, and Luigi Zingales, 2006, “Does Culture Affect Economic Outcomes?” Journal of Economic Perspectives 20, pg. 23-48.
Knack, Stephen and Philip Keefer. 1995. “Institutions and Economic Performance: Cross-Country Tests Using Alternative Institutional Measures.” Economics and Politics 7 (Nov.): 207-227.
Kuran, Timor, 2004, “Why the Middle East is Economically Underdeveloped: Historical Mechanisms of Institutional Stagnation,” Journal of Economic Perspectives 18, pg. 71-90.
Levine, Ross, 2005, “Law, Endowments, and Property Rights,” Journal of Economic Perspectives 19, pg. 61-88.
Licht, Amir N. and Chanan Goldschmidt, 2007, “Culture Rules: The Foundations of the Rule of Law and Other Norms of Governance,” working paper.
McCleary, Rachel M. and Robert J. Barro, 2006, Religion and Economy, ?” Journal of Economic Perspectives 20, pg. 49-72.
Nelson, Richard R., 2005, “Evolutionary Theories of Cultural Change: An Empirical Perspective,” working paper.
Ó Gráda, Cormac, 2007, “Making Famine History,” Journal of Economic Literature 45, pg. 5-38.
Perotti, Roberto 1996. “Growth, Income Distribution, and Democracy: What the Data Say.” Journal of Economic Growth 1 (June): 149-187.
Putterman, Louis. 2000. “Can an Evolutionary Approach to Development Predict Post-War Economic Growth?” The Journal of Development Studies 36 (Feb.): 1-30.
Sengupta, Rajdeep and Craig P. Aubuchon, 2008, “The Microfinance Revolution: An Overview,” Federal Reserve Bank of St. Louis Review 90, pg. 9-30.
Shleifer, Andrei, and Robert W. Vishny. 1993. “Corruption.” Quarterly Journal of Economics 108 (Aug.): 599-618.
Svensson, Jakob, 2005, “Eight Questions about Corruption,” Journal of Economic Perspectives vol. 19, pg. 19-42.
Zak, Paul J. and Stephen Knack, 2001. “Trust and Growth.” The Economic Journal 111(April): 295-321.