14.74 | Spring 2009 | Undergraduate

Foundations of Development Policy


There are many readings for this class. You are not expected to read every single article in detail, but you are expected to understand the methods used by the authors to reach their conclusions. Required readings are starred.


The textbook for this class is Debraj Ray’s Development Economics. However, we will rely mostly on articles.

[Ray] = Ray, Debraj. Development Economics. Princeton, NJ: Princeton University Press, 1998. ISBN: 9780691017068.


Introduction: the vicious circle of poverty

a) World development report 2009

b) A quiet violence: view from a Bangladesh village: Hartmann (1983)

c) “Economic Lives of the Poor”: Banerjee and Duflo (2007)

d) “What is Middle Class About the Middle Classes?”: Banerjee and Duflo (2008)

e) “Aging and Death under a Dollar a Day”: Banerjee and Duflo (2007)

World Development Report 2009

*Hartmann, Betsy, and James K. Boyce. “The Trials of a Poor Peasant Family.” Chapter 12 in A Quiet Violence: View from a Bangladesh Village . Oakland, CA: Food First, 1985. ISBN: 9780935028164.

*Banerjee, A. V., and E. Duflo. “The Economic Lives of the Poor.” Journal of Economic Perspectives 21, no. 1 (2007): 141-167.

———. “What is Middle Class about the Middle Classes around the World?” Journal of Economic Perspectives 22, no. 2 (2008): 3-28.

———. “Aging and Death Under a Dollar a Day.” National Bureau of Economic Research Working Paper No. 13683, December 2007.


Nutrition and productivity: interrelationships

a) Theoretical model 
Poor nutrition leads to low productivity. Low productivity leads to unemployment and low incomes. Low income leads to poor nutrition. This theoretical model can be applied to education, health, nutrition, gender and inter-generational discrimination, and many other issues: Ray, pp. 272-279 and 489-504

b) Empirical evidence

> i) From income to nutrition:

> > (1) Income to nutrition: a study of Maharashtra, India: Subramanian and Deaton (1996)
> > 
> > (2) Monetary transfer to the elderly can lead to better nutrition for children. A study of old age pension in South Africa: Duflo (2003)

> ii) From nutrition to income:

> > (1) Ray, chapter 8. In particular, sections 8.3 and 8.4
> > 
> > (2) Thomas et al. (2004)

*[Ray] pp. 272-279.

———, pp. 489-504.

Subramanian, S., and A. Deaton. “The Demand for Food and Calories.” Journal of Political Economy 104, no. 1 (1996): 133-162.

Duflo, E. “Grandmothers and Granddaughters: Old-Age Pensions and Intrahousehold Allocation in South Africa.” World Bank Economic Review 17, no. 1 (2003): 1-25.

*[Ray] chapter 8, especially sections 8.3 and 8.4.

*Thomas, D., E. Frankenberg, J. Friedman, J.-P. Habicht, N. Jones, C. McKelvey, G. Pelto, B. Sikoki, J. P. Smith, C. Sumantri, and W. Suriastini. “Causal Effect of Health on Labor Market Outcomes: Evidence from a Random Assignment Iron Supplementation Intervention.” California Center for Population Research On-Line Working Paper Series (April 1, 2004). Paper CCPR-022-04.



a) An overview of the problems: educational choice in India. Why are the levels of education so low? Do parents care about education? Can they afford it? What is education good for?: The probe report on basic education in India (1999)

b) Improving access: An example of an effective program of school construction in Indonesia: Duflo (2001)

c) Holding teachers accountable: Duflo and Hanna (2005); Kremer and Glewwe (2003)

d) An example that it is possible to improve the quality of education: Banerjee, Cole, Duflo, and Linden (2004)

*The PROBE Team in association with the Centre for Development Economics. Public Report on Basic Education in India. New York, NY: Oxford University Press, 1999. ISBN: 9780195648706.

*Duflo, E. “Schooling and Labor Market Consequences of School Construction in Indonesia: Evidence from an Unusual Policy Experiment.” American Economic Review 91, no. 4 (2001): 795-813.

Duflo, E., and R. Hanna. “Monitoring Works: Getting Teachers to Come to School.” National Bureau of Economic Research Working Paper No. 11880, December 2005.

Glewwe, P., N. Ilias, and M. Kremer. “Teacher Incentives.” National Bureau of Economic Research Working Paper No. 9671, May 2003.

Banerjee, A. V., S. Cole, E. Duflo, and L. Linden. “Remedying Education: Evidence from Two Randomized Experiments in India.” Quarterly Journal of Economics 122, no. 3 (August 2007): 1235-1264.


Health: a case study from Rajasthan

Health status in Rajasthan: A case study (and a movie) that looks at various aspects of health delivery and health status: Banerjee, Deaton, and Duflo (2003)

*Banerjee, Abhijit V., Angus Deaton, and Esther Duflo. “Wealth, Health, and Health Services in Rural Rajasthan.” American Economic Review 94, no. 2 (2003): 326-330.

Gender discrimination

a) Evidence of gender discrimination in India: Dreze and Sen (1995)

b) Gender discrimination can arise due to economic reasons: Ray, pp. 279-288

c) How can we prove that there is gender discrimination in everyday life?: Deaton (1997)

d) Consumption smoothing and excess female mortality in rural India: Rose (1999)

e) The “Marriage Market”: Rao (1993)

f) Discrimination and the value of girls: Qian (2005)

*Dreze, Jean, and Amartya Sen. “Gender Inequality and Women’s Agency.” Chapter 7 in India: Economic Development and Social Opportunity. New York, NY: Oxford University Press, 1999, pp. 140-178.

[Ray] pp. 279-288.

Deaton, Angus. The Analysis of Household Surveys: A Microeconometric Approach to Development Policy. Washington, DC: World Bank, International Bank for Reconstruction and Development, 1997. ISBN: 9780801852541. [Preview in Google Books]

Rose, E. “Consumption Smoothing and Excess Female Mortality in Rural India.” Review of Economics and Statistics 81, no. 1 (1999): 41-49.

Rao, V. “The Rising Price of Husbands: A Hedonic Analysis of Dowry Increases in Rural India.” Journal of Political Economy 101, no. 4 (1993): 666-677.

Qian, Nancy. “Missing Women and the Price of Tea in China: The Effect of Relative Female Income on Sex Imbalance.” Mimeograph, Massachusetts Institute of Technology, 2005.


Bargaining within families

a) Income is not spent in the same way by women and by men: evidence from Brazil (Thomas (1990)), the United Kingdom Child Benefit allowance (Lundberg, Pollak, and Wales (1996)), a pension program in South Africa (Duflo (2003))

b) Competition within the family is not limited to sharing the resources. It leads to lower productivity and lower welfare for all members in the family: Udry (1996); Duflo and Udry (2004)

Thomas, D. “Intra-Household Resource Allocation: An Inferential Approach.” Journal of Human Resources 25, no. 4 (1990): 635-664.

Lundberg, S. J., R. A. Pollak, and T. J. Wales. “Do Husbands and Wives Pool Their Resources? Evidence from the United Kingdom Child Benefit.” Journal of Human Resources 32, no. 4 (1996): 463-480.

Duflo, E. “Grandmothers and Granddaughters: Old-Age Pensions and Intrahousehold Allocation in South Africa.” World Bank Economic Review 17, no. 1 (2003): 1-25.

*Udry, C. “Gender, Agricultural Production, and the Theory of the Household.” Journal of Political Economy 101, no. 5 (1996): 1010-1045.

*Duflo, E., and C. Udry. “Intrahousehold Resource Allocation in Cote d’Ivoire: Social Norms, Separate Accounts and Consumption Choices.” National Bureau of Economic Research Working Paper No. 10498, May 2004.

15-16 In-class student presentations  


a) Theoretical background: Ray, chapter 12

b) Why land reform?: Banerjee (1999)

c) A successful limited land reform in India: Banerjee, Gertier, and Ghatak (2002)

[Ray] chapter 12.

*Banerjee, A. V. “Land Reforms: Prospects and Strategies.” Mimeograph, Massachusetts Institute of Technology, 1999.

Banerjee, Abhijit V., Paul Gertier, and Maitreesh Ghatak. “Empowerment and Efficiency: Tenancy Reform in West Bengal.” Journal of Political Economy 110, no. 2 (April 2002): 239-280.



a) Do poor people save in good times in anticipation of bad times? Savings by rice farmers in Thailand: Paxson (1992)

b) Have poor people access to savings instruments: A micro-savings experiment in Mexico: Aportela (1998)

*Paxson, C. H. “Using Weather Variability to Estimate the Response of Savings to Transitory Income in Thailand.” American Economic Review 82, no. 1 (1992): 15-33.

Aportela, F. “The Effects of Financial Access on Savings by Low-Income People.” Mimeograph, Massachusetts Institute of Technology, 1998.



Agricultural incomes fluctuate enormously during the year and from year to year. Do consumption and investments fluctuate as well, or are households protected from these fluctuations?

a) Ray, chapter 15

b) Insurance is only partial: the consumption of household members in Cote d’Ivoire is linked to their income: Deaton (1997), pp 372-383

c) In bad times are children taken out of school, and given less to eat? An example from Cote d’Ivoire: Jensen (2000)

d) In West Africa, villagers lend to each other and achieve a certain degree of insurance: Udry (1990)

e) Mutual insurance in the village does not happen in the void. It depends on the strength of local institutions: Townsend (1995)

*[Ray] chapter 15.

Deaton, Angus. The Analysis of Household Surveys: A Microeconometric Approach to Development Policy. Washington, DC: World Bank, International Bank for Reconstruction and Development, 1997, pp. 372-383. ISBN: 9780801852541. [Preview in Google Books]

Jensen, R. “Agricultural Volatility and Investments in Children.” American Economic Review 90, no. 2 (2000): 399-405.

*Udry, C. “Credit Markets in Northern Nigeria: Credit as Insurance in a Rural Economy.” World Bank Economic Review 4, no. 3 (1990): 251-269.

Townsend, R. “Financial Systems in Northern Thai Villages.” Quarterly Journal of Economics 110, no. 4 (1995): 1011-1046.


Credit markets

Why does formal credit fail to reach the poor? Why has targeted lending organized by the government not worked? Why do the poor borrow from local moneylenders at very high rates?

a) Theoretical background: Ray, chapter 14

b) Why do informal money lenders charge interest rates that are so high? Aleem (1990)

c) An innovative form of lending: micro-credit: Morduch (1999)

[Ray] chapter 14.

*Aleem, I. “Imperfect Information, Screening and the Costs of Informal Lending: A Study of a Rural Credit Market in Pakistan.” World Bank Economic Review 4, no. 3 (September 1990): 329-349.

Morduch, J. “The Microfinance Promise.” Journal of Economic Literature 37, no. 4 (1999): 1569-1614.


Formal and informal institutions

a) Collective action: Banerjee, Iyer, and Somanathan (2007)

b) Social networks: no policy happens in the void. What role do informal institutions and norms play?

> i) Norms helped to sustain long distance trade among Maghribi traders: Greif (1993)

> ii) However, successful informal institution can be an obstacle to the development of formal institutions: Greif (1994)

> iii) Social norms as an obstacle to the demographic transition: Munshi (2000)

c) Formal institutions

> i) Institutions differ widely around the world: La Porta, de Silanes, Shleifer, and Vishny (1998)

> ii) Good institutions are important for economic performance: aggregate approach: Acemoglu, Johnson, and Robinson (2001)

> iii) Historical approach: In India, colonial history continues to impact today’s outcomes: Banerjee and Iyer (2002); Iyer (2003)

> iv) The mechanics of why institutions matter. A poor institutional environment may makes business difficult. A study of contracting and reputation in the Indian Software industry: Banerjee and Duflo (2000)

Banerjee, A., L. Iyer, and R. Somanathan. “Public Action for Public Goods.” National Bureau of Economic Research Working Paper No. 12911, February 2007.

Greif, A. “Contract Enforceability and Economic Institution in Early Trade: The Maghribi Traders Coalition.” American Economic Review 83, no. 3 (1993): 525-548.

———. “Cultural Beliefs and the Organization of Society: A Historical and Theoretical Reflection on Collectivist and Individualist Societies.” Journal of Political Economy 102, no. 5 (1994): 912-950.

Munshi, K. “Social Norms and Individual Decisions During a Period of Change: An Application to the Demographic Transition.” Mimeograph, University of Pennsylvania, 2000.

La Porta, R., F. L. de Silanes, A. Shleifer, and R. Vishny. “Law and Finance.” Journal of Political Economy 106, no. 6 (1998): 1113-1155.

*Acemoglu, D., S. Johnson, and J. Robinson. “The Colonial Origins of Comparative Development: An Empirical Investigation.” American Economic Review 91, no. 5 (2001): 1369-1401.

Banerjee, A. V., and L. Iyer. “History, Institutions and Economic Performance: The Legacy of Colonial Land Tenure Systems in India.” American Economic Review 95, no. 4 (2005): 1190-1213. (PDF)

Iyer, L. “The Long-term Impact of Colonial Rule: Evidence from India.” Mimeograph, Massachusetts Institute of Technology, 2003. (PDF)

Banerjee, A. V., and E. Duflo. “Reputation Effects and the Limits of Contracting: A Study of the Indian Software Industry.” Quarterly Journal of Economics 115, no. 3 (2000): 989-1017.


Limits to social policy: corruption

a) Why is corruption costly? Shleifer and Vishny (1993)

b) The cost of corruption: drivers’ licenses in New Delhi (Bertrand, Djankov, Hanna, and Mullainathan (2006)) and trucking in Indonesia (Olken and Barron (2007))

c) Fighting Corruption: road in Indonesia: Olken (2005)

Shleifer, A., and R. W. Vishny. “Corruption.” The Quarterly Journal of Economics 108, no. 3 (1993): 599-617.

Bertrand, M., S. Djankov, R. Hanna, and S. Mullainathan. “Does Corruption Produce Unsafe Drivers?” National Bureau of Economic Research Working Paper No. 12274, June 2006.

Olken, B., and P. Barron. “The Simple Economics of Extortion: Evidence from Trucking in Aceh.” National Bureau of Economic Research Working Paper No. 13145, June 2007.

Olken, B. “Monitoring Corruption: Evidence from a Field Experiment in Indonesia.” National Bureau of Economic Research Working Paper No. 11753, November 2005.

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