If you are instructor in a course that uses Development Economics and wish to have access to the end-of-chapter problems in Development Development Economics Debraj Ray. Editions. Hardcover. Chapter 1 [ PDF]. Ray, Debraj, Development Economics, Princeton University Press, . Ruttan, Vernon () The New Growth Theory and Development Economics: A Survey caite.info Read Development Economics by Debraj Ray for free with a 30 day free trial. Publisher: Princeton University Press; Released: Jan 12, ; ISBN.
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By Debraj Ray, New York University. March Stiglitz (), Ray (), Bardhan and Udry (), Mookherjee and Ray (), and. Sen ()). of economic development, and how can we learn from the failures? How do we make. Debraj Ray. Version , Page 2. Page 3. CHAPTER 1. Introduction. Open a book — any book —on the economics of developing countries, and it will begin productive economic betterment, or to despair and frustration (Ray ( Editorial Reviews. Review. "An elegant, insightful, and extremely effective textbook on Amartya Sen, Winner of the Nobel Prize for Economics, Harvard.
Streeten  2. Screening and sharecropping Exercises Chapter National income for a country is then estimated by valuing its outputs at these international prices. Development Economics: More about this item Statistics Access and download statistics.
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Please note that corrections may take a couple of weeks to filter through the various RePEc services. Economic literature: Nonmonitored tasks Casual tasks Credit The limits to credit and insurance Sources of demand for credit Rural credit markets Who provides rural credit?
Some characteristics of rural credit markets Theories of informal credit markets Default and fixed-capital loans Default and collateral 10 Default and credit rationing Informational asymmetries and credit rationing Default and enforcement Interlinked transactions Hidden interest Interlinkages and information Interlinkages and enforcement Interlinkages and creation of efficient surplus Alternative credit policies Vertical formal—informal links Microfinance Insurance Basic concepts The perfect insurance model Theory Testing the theory Limits to insurance: Information Limited information about the final outcome Limited information about what led to the outcome Enforcement Enforcement-based limits to perfect insurance Enforcement and imperfect insurance International Trade World trading patterns Comparative advantage Sources of comparative advantage Technology Factor endowments Preferences Economies of scale Trade Policy Gains from trade?
Overall gains and distributive effects Overall losses from trade? Trade policy: Import substitution 11 More detail Export promotion Effect on the exchange rate The instruments of export promotion: The move away from import substitution The eighties crisis Structural adjustment Multilateral Approaches to Trade Policy Restricted trade Second-best arguments for protection Protectionist tendencies Explaining protectionist tendencies Issues in trade liberalization Regional agreements: Basic theory Regional agreements among dissimilar countries Regional agreements among similar countries Multilateralism and regionalism Exercises Summary Appendix 1: Elementary Game Theory A1.
Introduction A1. Basic concepts A1. Nash equilibrium A1. Games over time Appendix 2: Elementary Statistical Methods A2. Introduction A2. Summary statistics A2. Regression References Author Index 12 Subject Index 13 Preface This book provides an introduction to development economics, a subject that studies the economic transformation of developing countries.
My objective is to make a large literature accessible, in a unified way, to a student or interested individual who has some training in basic economic theory. It is only fair to say that I am not fully satisfied with the final product: Nevertheless, I do believe that the book goes quite far in attaining the original objective, within the limitations created by an enormous and unwieldy literature and the constraints imposed by my own knowledge and understanding.
The primary target for this book is the senior undergraduate or masters level student with training in introductory or intermediate economic theory. I also recommend this book as background or supplementary reading for a doctoral course in development economics, along with the original articles on the subject. Mathematical requirements are kept to a minimum, although some degree of mathematical maturity will assist understanding of the material.
In particular, I have eschewed the use of calculus altogether and have attempted to present theoretical material through verbal argument, diagrams, and occasionally elementary algebra. Because the book makes some use of game-theoretic and statistical concepts, I have included two introductory appendixes on these subjects. I begin with an overview of developing countries Chapter 2. I discuss major trends in per capita income, inequality, poverty, and population, and take a first look at the important structural characteristics of development.
Chapters 3—5 take up the study of economic growth from several aspects. Chapters 6—8 shift the focus to an analysis of unevenness in develepment: In turn, these inequalities may influence aggregate trends.
This interaction is studied from many angles. Chapter 9 extends this discussion to population growth, where the relationship between demography and economics is explored in some detail. Chapter 10 studies unevenness from the viewpoint of structural transformation: This chapter motivates a careful study of the agricultural sector, where a significant fraction of the citizens of developing countries, particularly the poor, live and work.
Chapters 11—15 study informal markets in detail, with particular emphasis on the rural sector. We analyze the land, labor, credit and insurance markets. Chapter 16 introduces the study of trade and development. Chapter 17 motivates and studies the instruments of trade policy from the point of view of a single country. Finally, Chapter 18 studies multilateral and regional policies in trade. For programs that offer a single semester course in economic development, two options are available: A year-long course should be able to adequately cover the book, but some supplementary material may be required for international economics, as well as financial issues in development, such as inflation and monetary policy.
This book could not have been written without my students and the many classes I have taught in development economics over the years: I would also like to thank the many people who have read and commented on earlier drafts of this book and have used them in courses they have taught, among them Jean-Marie Baland, Abhijit Banerjee, V.
Chief among them is Parikshit Ghosh, my intrepid and thoroughly uncontrollable research assistant, whose contributions to this book are too numerous to mention. I thank Margaret Chapman, Administrative Assistant to the Institute, for covering for my many administrative lapses during this period. I am very grateful to Peter Dougherty, my publisher at Princeton University Press, for his help and encouragement.
Chapters 3—5 take up the study of economic growth from several aspects. Chapters 6—8 shift the focus to an analysis of unevenness in develepment: In turn, these inequalities may influence aggregate trends. This interaction is studied from many angles. Chapter 9 extends this discussion to population growth, where the relationship between demography and economics is explored in some detail.
Chapter 10 studies unevenness from the viewpoint of structural transformation: This chapter motivates a careful study of the agricultural sector, where a significant fraction of the citizens of developing countries, particularly the poor, live and work. Chapters 11—15 study informal markets in detail, with particular emphasis on the rural sector. We analyze the land, labor, credit and insurance markets. Chapter 16 introduces the study of trade and development. Chapter 17 motivates and studies the instruments of trade policy from the point of view of a single country.
Finally, Chapter 18 studies multilateral and regional policies in trade. For programs that offer a single semester course in economic development, two options are available: A year-long course should be able to adequately cover the book, but some supplementary material may be required for international economics, as well as financial issues in development, such as inflation and monetary policy.
This book could not have been written without my students and the many classes I have taught in development economics over the years: I would also like to thank the many people who have read and commented on earlier drafts of this book and have used them in courses they have taught, among them Jean-Marie Baland, Abhijit Banerjee, V. Several people have made contributions to this text.
Chief among them is Parikshit Ghosh, my intrepid and thoroughly uncontrollable research assistant, whose contributions to this book are too numerous to mention. I thank Margaret Chapman, Administrative Assistant to the Institute, for covering for my many administrative lapses during this period. I am very grateful to Peter Dougherty, my publisher at Princeton University Press, for his help and encouragement. I would like to record my deep appreciation to a smaller set of people who have shaped the way I think about economics: Finally, I owe gratitude to Angela Bhaya Soares who always wanted me to write a magnum opus but will have to be content with what she gets, to Bissera Antikarova and Farahanaaz Dastur for seeing me safely through bad times, to Nilita Vachani for creating unforeseen but happy delays, and to Jackie Bhaya for getting me started on it all.
I invite you to study what is surely the most important and perhaps the most complex of all economic issues: A definition of developing countries is problematic and, after a point, irrelevant.
Despite the many caveats and qualifications that we later add to these numbers, the ubiquitous fact of these astonishing disparities remains. There is economic inequality throughout the world, but much of that is, we hope, changing. This book puts together a way of thinking about both the disparities and the changes.
There are two strands of thought that run through this text. First, I move away from although do not entirely abandon a long-held view that the problems of all developing countries can be understood best with reference to the international environment of which they are a part. There is much that is valid in this viewpoint, but I wish to emphasize equally fundamental issues that are internal to the structure of developing countries.
Although a sizeable section of this book addresses international aspects of development, the teacher or reader who wishes to concentrate exclusively on these aspects will not find a comprehensive treatment here.
The second strand is methodological: It is not that markets are intrinsically bad or intrinsically good: These conditions, I argue, can be understood best by a serious appreciation of subjects that are at the forefront of economic theory but need to permeate more thoroughly into introductory textbooks: Few people would disagree that these considerations lie at the heart of many observed phenomena.
Because I take these two strands to heart, my book differs from other textbooks on development in a number of respects. Most of these differences stem from my approach to exposition and choice of subject matter.
Although I do not neglect the historical development of a line of research or inquiry, I bring to bear a completely modern analytical perspective on the subject. Here are some instances of what I mean. The landlord lends to his tenant farmer, accepting labor as collateral, but a formal credit market is missing.
Villagers insure each other against idiosyncratic shocks using their greater information and their ability to impose social sanctions, but a formal insurance market is missing. Institutions as diverse as tied labor, credit cooperatives, and extended families can be seen as responses to market failure of some sort, precipitated in most cases by missing information or by the inability of the legal system to swiftly and efficiently enforce contracts.
This common thread in our understanding is emphasized and reemphasized throughout the book. One is the creation of widespread externalities. Proper classification of these externalities provides much insight into a variety of economic phenomena, which appear unconnected at first, but which in this sense are just the common expression of a small variety of external effects.
Again, the common features of the various problems yield a mental classification system—a way of seeing that different phenomena stem from a unified source. However, what has recently begun to receive systematic analytical treatment is the functional role of inequality: The emphasis on the functional role of inequality runs through the book.
I do this because I believe that much of this new work has new things to teach us. Some important models of economic growth, of income distribution and development, of coordination failures, or of incomplete information are theories that have been developed over the last decade.
Work on these models continues apace. Although some of the techniques are inaccessible to a student with little formal training, I do believe that all the ideas in this literature that are worth teaching and there are many can be taught in an elementary way.
In this sense this book coincides with existing texts on the subject: Partly because other development texts have been around for a good while, and perhaps in part because of a different approach, this text departs significantly from existing development texts in the points cited in the preceding text and indeed in its overall methodological approach.
Combining the complementary notions of incomplete information, a weak legal structure so far as implementation goes , and the resulting strategic and economic considerations that emerge, we begin to have some idea of what it is that makes developing countries somehow different.
Economic theorists never tire of needling their friends with questions in this regard. Why is the study of developing countries a separate subject? Another way to do so is to recognize that developing countries, in their different spheres of activity, display again and again these common failures of information and legal structures, and therefore generate common incentive and strategic issues that might benefit from separate, concentrated scrutiny.
This approach also serves, I feel, as an answer to a different kind of objection: Although this sort of viewpoint can be applied recursively as well within countries, regions, districts and villages until it becomes absurd, there is some truth to it. A final bias is that, in some basic sense, the book is on the theory of economic development. However, there is no theory without data, and the book is full of empirical studies. At the same time, I am uninterested in filling up page after page with tables of numbers unless these tables speak to the student in some informative way.
So it is with case studies, of which there will be a number in the text. I started off writing a textbook for undergraduates, for the course that I have loved the most in my fourteen years of teaching.
I see that what emerged is a textbook, no doubt, but in the process something of myself seems to have entered into it. I see now that the true originality of this book is not so much the construction of new theory or a contribution to our empirical knowledge, but a way of thinking about development and a way of communicating those thoughts to those who are young, intelligent, caring, and impressionable.
If a more hard-bitten scholar learns something as a by-product, that would be very welcome indeed. My commitment as the author is the following: Narrower economic classifications are employed by several international organizations such as the World Bank. A composite index that goes beyond per capita income is described in Human Development Report United Nations Development Programme . There is substantial agreement across all these classifications.
By the problem of economic development I mean simply the problem of accounting for the observed pattern, across countries and across time, in levels and rates of growth of per capita income. This may seem too narrow a definition, and perhaps it is, but thinking about income patterns will necessarily involve us in thinking about many other aspects of societies too, so I would suggest that we withhold judgement on the scope of this definition until we have a clearer idea of where it leads us.
But these two sets of indicators are not very closely related. This truth is accepted almost without controversy To raise the income, well-being, and economic capabilities of peoples everywhere is easily the most crucial social task facing us today. Every year, aid is disbursed, investments are undertaken, policies are framed, and elaborate plans are hatched so as to achieve this goal, or at least to step closer to it. How do we identify and keep track of the results of these efforts? What characteristics do we use to evaluate the degree of development a country has undergone or how developed or underdeveloped a country is at any point in time?
In short, how do we measure development? The issue is not easy to resolve. We all have intuitive notions of development. When we speak of a developed society, we picture in our minds a society in which people are well fed and well clothed, possess access to a variety of commodities, have the luxury of some leisure and entertainment, and live in a healthy environment.
We think of a society free of violent discrimination, with tolerable levels of equality, where the sick receive proper medical care and people do not have to sleep on the sidewalks.
In short, most of us would insist that a minimal requirement for a developed nation is that the physical quality of life be high, and be so uniformly, rather than being restricted to an incongruously affluent minority. Of course, the notion of a good society goes further. We might stress political rights and freedoms, intellectual and cultural development, stability of the family, a low crime rate, and so on.
However, a high and equally accessible level of material well-being is probably a prerequisite for most other kinds of advancement, quite apart from being a worthy goal in itself. It is, of course, tempting to suggest that the state of material well-being of a nation is captured quite accurately in its per capita gross national product GNP: In the last few decades, this practice increasingly has come under fire from various quarters. The debate goes on, as the quotations at the beginning of this chapter suggest.
We must be careful here. No one in their right mind would ever suggest that economic development be identified, in a definitional sense, with the level or growth of per capita income. It is perhaps universally accepted that development is not just about income, although income economic wealth, more generally has a great deal to do with it.
For instance, we noted previously that economic advancement should not be restricted to a small minority. This means, in particular, that development is also the removal of poverty and undernutrition: There is an entire multitude of yardsticks.
At first they appear narrow, perhaps even missing the point, whereas the more holistic scenario sketched in the foregoing paragraphs seems pretty much the way to go. In thinking this we would be wrong. Neither Lucas nor any intelligent person believes that per capita income is development. It is really a belief about the world, which is that the universal features of economic development—health, life expectancy, literacy, and so on—follow in some natural way from the growth of per capita GNP , perhaps with the passage of time.
Implicit here is a belief in the power of aggregate economic forces to positively affect every other socioeconomic outcome that we want to associate with development. This outlook may be contrasted with the view that a correlation between GNP and other desired features is not automatic, and that in many cases such connections may not be present at all.
According to this view, per capita GNP fails as an adequate overall measure and must be supplemented by other indicators directly. The debate implicit in the two quotations is not about what development means , on which there is possibly widespread agreement.
It is really about a view of the world—about the possibility of finding a smaller set of variables that correlates well with the multifaceted process of development. Note well that, in a way, saying too much is saying too little.
It may be that per capita income does not capture all aspects of development, but a weighty assertion that no small set of variables ever captures the complex nature of the development process and that there are always other considerations is not very helpful. In this sense, the view that economic development is ultimately fueled by per capita income may be taking things too far, but at least it has the virtue of attempting to reduce a larger set of issues to a smaller set, through the use of economic theory.
This book implicitly contains a reduction as well, although not all the way to per capita income alone. In part, sheer considerations of space demand such a reduction. Moreover, we have to begin somewhere , so we concentrate implicitly on understanding two sets of connections throughout this book.
One is how average levels of economic attainment influence development. To be sure, this must include an analysis of the forces that, in turn, cause average levels such as per capita GNP to grow. The other connection is how the distribution of economic attainment, across the citizens of a nation or a region and across the nations of the world, influences development.
The task of understanding these two broad interrelationships takes us on a long journey. In some chapters the relationships may be hidden in the details, but they are always there: This is not to say that the basic features of development will be ignored.
Studying them is our primary goal, but our approach to them lies through the two routes described in the previous paragraph. We begin, then, with a summary of the historical experience of developing countries over the past few decades.
We pay attention to per capita income, then to income distribution, and then consider other indicators of development. We then try to understand how these manifold characteristics of development correlate with the smaller set of features: This chapter ends with an overview of the structural characteristics of developing countries. We describe the occupational distribution of the population, the share of different sectors such as agriculture and services in national income, the composition of imports and exports, and so on.
Per capita incomes are, of course, expressed in takas, reales, yuan, and in the many other world currencies. This conversion scheme is called the exchange rate method, because it uses the rates of exchange between the local and the common currencies to express incomes in a common unit.