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Political economy of development

Syllabus for pre-PhD Distance learning course on International Relations

POLITICAL ECONOMY OF DEVELOPMENT

Tigran Tchorokhyan, PhD, Associate Professor
Yerevan State University, Distance Learning Laboratory

I. Course module description
This course module is devoted to the major issues of political, economic and development theories, as well as policy design and implementation. The subject matter of political economy of development is to address the differences between trajectories of development of countries due to different patterns of interrelation of their political and economic institutions. The relations between democracy and growth with inequality, the issue of political barriers to development of social capital coming in the way of developmental policies undertaken by the government, corruption, fiscal decentralization and political instability are all discussed throughout the course. The course module suggests that inter-relation between political and economic realms of a nation play crucial role in the development of a country.

II. Aims of the course module
The aim of the course is twofold:

- To introduce the main theories and concepts on political economy existing in the discipline to students and to provide relevant methodology for studying political dimension of economic growth.
- To expand students’ empirical knowledge of interaction between economic theories and economic development, as well as to reveal the causes of rapid rates of economic growth by a number of societies and the shortcomings of others which fail to accomplish their developmental goals.

III. Learning outcomes
Upon completion of the course students expected to be able to:

  • Describe and compare main theories and concepts of Development Economics and Political Economy.
  • Explain the importance of good governance and the role of policy in bringing economic growth in a long-term perspective.
  • Integrate a variety of interdisciplinary approaches in development process from political science and economics perspectives.
  • Students will also develop the ability to independently collect and use data on through development of assigned required papers.

IV. Methodology and Assessment
Assessment of performance will be carried out through written assignments, specifically weekly essays and final research paper.
Performance of students will be evaluated as follows:

  • Weekly essays – 60%
  • Final research paper - 40%

VI. Course module content and assigned readings

Class 1 Introduction to Development Economics
Concepts of development, models of economic growth and economic development, causes of poverty and inequalites in welfare, theories of markets and path-dependence, collective action for public good, political and economic conflicts, experimental approach to development economics will be introduced during 1-st class.

Readings:

  • Ray, Debraj. Development Economics, in The New Palgrave Dictionary of Economics, edited by Lawrence Blume and Steven Durlauf (2008).
  • Acemoglu, Daron (2008) Introduction to Modern Economic Growth. Chapter 1. 
  • Angus Deaton (2005). “Measuring Poverty in a Growing World (or Measuring Growth in a Poor World),” Review of Economics and Statistics, 87(1), 1-19. 
  • Banerjee, Abhijit V., and Esther Duflo. (2008). “The Experimental Approach to Development Economics.”
  • Banerjee, Abhijit, and Lakshmi Iyer. "History, Institutions and Economic Performance: the Legacy of Colonial Land Tenure Systems in India." American Economic Review 95, no. 4 (September 2005): 1190-1213.
  • Acemoglu, Daron, Simon Johnson and James Robinson. 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation" American Economic Review, vol. 91 (5) 1369-1401.
  • Nunn, Nathan (2008), "The Long Term Effects of Africa's Slave Trades," Quarterly Journal of Economics, Vol. 123(1), pp. 139-176.
  • Daniel Berger “Taxes, Institutions and Local Governance: Evidence from a Natural Experiment in Colonial Nigeria”.

Assignment 1:
Students should answer the following questions in up to 5 pages:

1. Which institutional and economic factors can be used to explain why are certain countries poor while others are rich?
2. What are the main causes of institutional “failures”?
3. What sustains economic growth over long periods of time, and why did sustained growth start 200 years ago?
4. What are the causes of the current underdevelopment of many developing countries? Substantiate your answer.

Class 2 Role of the states
Political economy in weak and strong states, mechanisms that mediate between economic development and the dynamics of political regimes, benefits of ‘‘limited government’’, distortions created by both weak and strong states, proportional costs of strong and weak states, balanced distribution of power between state and society will be discussed during 2-nd class.

Readings:

  • Przeworski, A. and F. Limongi (1997). “Modernization: Theories and Facts.” World Politics 49(2).
  • Carles Boix and Susan C. Stokes Source: “Endogenous Democratization” World Politics, Vol. 55, No. 4 (Jul., 2003), pp. 517-549.
  • Acemoglu, Daron (2005) “Politics and Economics in Weak and Strong States” Journal of Monetary Economics, 52, 1199-1226.
  • Acemoglu, Daron, Johnson, Simon and Robinson, James (2006) “Institutions as a Fundamental Cause of Long-Run Growth” in Handbook of Economic Growth, Aghion, Philippe and Durlauf, Steven, eds. Amsterdam; North-Holland.
  • Acemoglu, Daron (2008) Introduction to Modern Economic Growth, Chapter 22-23.

Assignment 2:
Students should answer the following questions in up to 5 pages:

  • Can states heavily taxing domestic producers be considered functioning better than those not following that policy? Substantiate your answer.
  • Is inequality harmful for growth and why? 
  • When and why do states invest in socially productive public goods?
  • Why is balanced distribution of power between state and society important?

Class 3 Institutional Change and Democratization
Interrelations of economic institutions and economic development, as well as economic development and transition to democracy, natural experiments in history, role of political institutions and the preconditions of distribution of resources in societies are discussed during 3-rd class.

Readings:

  • Przeworski, A. and F. Limongi (1997). “Modernization: Theories and Facts.” World Politics 49 (2).
  • Acemoglu, Daron and Robinson, James (2006) Economic Origins of Dictatorship and Democracy, Cambridge University Press, Chapters 5 and 6.
  • Acemoglu, Daron, Johnson, Simon and Robinson, James (2006) “Institutions as a Fundamental Cause of Long-Run Growth” in Handbook of Economic Growth, Aghion, Philippe and Durlauf, Steven, eds. Amsterdam; North-Holland.
  • Lagunoff, Roger (2006) “Dynamic Stability and reform of Political Institutions”, http://www.georgetown.edu/faculty/lagunoff/
  • Acemoglu, Daron and Robinson, James A. (2000) “Why Did the West Extend the Franchise? Growth, Inequality and Democracy in Historical Perspective”, Quarterly Journal of Economics, CXV, 1167-1199.

Assignment 3:
Students should answer the following questions in up to 5 pages:

  • Why do economic institutions differ across countries? 
  • Do democracies emerge as a direct consequence of economic development?
  • What and why is the determinant of the distribution of political power in society?
  • What are the preconditions for economic institutions to encourage economic growth?

Class 4 International Aid and Participation
The best and worst practices in foreign aid, the effects of IMF and WB programs on economic growth and development, the role of community participation and collective action vs. political leaders in the process of economic development are discussed during 4-th class.

Readings:

  • Abouharb, M. Rodwan, and David Cingranelli. 2006. “The Human Rights Effects of World Bank Structural Adjustment Lending, 1981-2000.” International Studies Quarterly (June) 50: 233-262.
  • William Easterly and Tobias Pfutze, “Where Does the Money Go? Best and Worst Practices in Foreign Aid" Journal of Economic Perspectives, Vol. 22, No.2, Spring 2008.
  • James Vreeland and Adam Przeworski.”The Effect of IMF Programs on Economic Growth “The Journal of Development Economics Vol. 62”, No. 2, pp. 385-421, 2000.
  • Ray, Debraj and Esteban, Joan Maria (2001) Collective Action and the Group Size Paradox, American Political Science Review, 95, 663-672.
  • Khwaja, Asim Ijaz, Can Good Projects Succeed in Bad Communities? Forthcoming, Journal of Public Economics.
  • Khwaja, Asim Ijaz. 2004. Is Increasing Community Participation Always a Good Thing? Journal of the European Economic Association, Apr-May (2-3):427-436.
  • Olken. February 2007 Political Institutions and Local Public Goods: Evidence from a Field Experiment in Indonesia.
  • Humphreys, Masters, and Sandbu. 2006. “The Role of Leaders in Democratic Deliberations: Results from a Field Experiment in São Tomé and Príncipe.” World Politics 58 (4).

Assignment 4:
Students should answer the following questions in up to 5 pages:

  • Do societes benefit from international aid and how?
  • Can good projects succeed in “bad” communities? Substantiate your answer.
  • Is increasing community participation always a good thing? Substantiate your answer.
  • What role do the political leaders have in economic development?

Class 5 Experimental Methods in Development Studies
Instrumental variables and natural experiments in labor economics, randomized experiments and their credibility, econometric analysis in development economics, recent trends in development experimentation, evaluation of theoretical mechanisms are discussed during 5-th class.

Readings:

  • Banerjee, Abhijit V., and Esther Duflo. (2008). “The Experimental Approach to Development Economics.” Mimeo, MIT.
  • Duflo, Esther, Rachel Glennerster, and Michael Kremer, “Using Randomization in Development Economics Research: A Toolkit”, ttp://econwww.mit.edu/files/806.
  • Deaton, A (2009) Instruments of development: Randomization in the tropics, and the search for the elusive keys to economic development, NBER Working Paper 14690.
  • Guido W. Imbens Better LATE Than Nothing: Some Comments on Deaton (2009) and Heckman and Urzua (2009).

Assignment 5:
Students should answer the following questions in up to 5 pages:

  • Does econometric analysis resolve the issue of measuring the effectiveness of foreign aid and why?
  • How effective are randomized experiments in development? 
  • How to analyze data from randomized evaluations when there are departures from the basic framework?
  • In what way randomized experiments allow the estimation of parameters that it would not otherwise be possible to evaluate?

Class 6 Political Accountability and Corruption
Theories of bad governance and corruption, dynamics of the latter in different societes, interconnections between access to information and political accountability, inefficient distribution and prevalence of corruption, failing markets, the presence of agency problems within the government and red tape, the costs and benefits of corruption are discussed during 6-th class.

Readings:

  • Daron Acemoglu and James Robinson, “Inefficient Redistribution.” American Political Science Review 95 (September 2001): 649-661.
  • Niehaus, Paul and Sandip Sukhtankar (2009), "Corruption Dynamics: The Golden Goose Effect," BREAD WP 223.
  • Banerjee, Abhijit (1997) “A Theory of Misgovernance”, Quarterly Journal of Economics,112, 1289-1332.
  • Bjorkman, Martina and Jakob Svensson (forthcoming), “Power to the People: Evidence from a Randomized Field Experiment of Community-Based Monitoring in Uganda”, Quarterly Journal of Economics.
  • Tim Besley and Robin Burgess. (2002). “The Political Economy of Government Responsiveness: Theory and Evidence from India”, QJE, 117(4).
  • Claudio Ferraz and Fred Finan. (2008). “Exposing Corruption politicians: The Effects of Brazil’s Publicly Released Audits on Electoral Outcomes”, QJE, 123(2), 703-745.

Assignment 6:
Students should answer the following questions in up to 5 pages:

  • How does politically active electorate strengthens incentives for governments to be responsive?
  • What is the role of the media in reducing informational asymmetries in the political process?
  • Why are government bureaucracies often associated with corruption?
  • Do higher daily wages lead to lower theft from piece rate projects? Substantiate your answer.

Class 7 Conflict and Its Economic Effects
Theoretical framework, economic causes and consequences of civil wars, relationship between political instability and investments, application of event study methodology in political science to study markets’ reactions to the initiation of violent conflicts, estimating the impact of economic conditions on the likelihood of civil conflicts are discussed during 7-th week.

Readings:

  • Guidolin, Massimo and Eliana La Ferrara (2007), "The Economic Effects of Violent Conflicts: Evidence from Asset Market Reactions," mimeo, Bocconi University.
  • Powell, Robert (2004), "The Inefficient Use of Power: Costly Confliict with Complete Information," American Political Science Review 98 (2), May 2004.
  • Esteban, Joan and Debraj Ray (2008), "On the Salience of Ethnic Conáict", AER 98 (5), pp. 2185-2202.
  • Blattman, Christopher and Edward Miguel. (2009). “Civil War”, http://www.econ.berkeley.edu/~emiguel/pdfs/miguel_civilwar.pdf
  • Miguel, E., S. Satyanath and E. Sergenti (2004), “Economic Shocks and Civil Conflict: An Instrumental Variables Approach,” Journal of Political Economy, 112(4), 725-753.
  • JD Fearon, DD Laitin. 2003. Ethnicity, insurgency, and civil war. American Political Science Review, 2003.

Assignment 7:
Students should answer the following questions in up to 5 pages:

  • What are the causes of inefficient use of power?
  • To what extent does political instability affect economic environment?
  • How is growth related to civil conflicts in different societes?
  • What are the results of application of growth theoretic approach to the study of conflict consequences?

Class 8 Closing exam
Based on your interest, choose any topic discussed within this course module and write an analytic essay (13-15 pages).

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