DEPARTMENT OF ECONOMICS

ECON 332: Economic Growth & Development

Michaelmas Term 2006

Course Objectives

To provide an introduction to the theories of economic growth and the problems of economic development. The course covers conceptual issues in development, theories of economic growth, the agricultural sector, industrialisation and trade policies for growth. The focus of the course then shifts to the application of theory to the analysis of the growth success of several emerging economies in Asia, notably China and India.

Key Skills

To provide appropriate theoretical and analytical tools to facilitate a broad understanding of economic development, with particular emphasis on developing and emerging economies.

Course Structure

The course comprises ten lectures and ten seminars of one hour duration each, one of each per week, during the Michaelmas Term. Seminars are compulsory and, as always, commence in Week 1.

Learning Outcomes

By the end of this course students should have an understanding of:

  • Basic economic theories of growth and development.
  • The application of relevant theories to the growth experience of several economies.
  • The range of alternative growth policies that may be used to achieve development.
  • The inter-disciplinary nature of the subject of development economics.
  • Themes in micro- and macro-economics on the basis of specialist knowledge and understanding.

By the end if this course, students should be able to:

  • Plan and manage their time effectively in relation to deadlines whilst displaying individual initiative and enterprise.
  • Conduct individual assignments and perform effectively in a group environment by demonstrating leadership and team-building qualities.
  • Communicate and present complex arguments in oral and written form with clarity and succinctness.
  • Work effectively, both individually and within a team environment.

Course Personnel

Lectures1-7 and 9-10 are given by the Course Director, Dr. Robert Read (, Room B13 MS, ext 94233). Lecture 8 is given by Professor V.N. Balasubramanyam (, Room B45 MS, ext 94231).

Course Assessment

This comprises one compulsory essay of no more than 1,500 words (details at the end of this course paper), to be submitted by 4pm, Thursday 14 December (Week 10) and a Final Examination in May 2006 covering all aspects of the course. The final mark for this course is one third that of the essay and two thirds that of the exam. Coursework will be marked and available for collection from the Economics Department Office before the end of Week 1 of the Lent Term.

Late Coursework Submission

Coursework submitted up to seven days after the essay deadline is subject to a ten-mark penalty. Coursework submitted later than seven days after the deadline is given a mark of zero. Reasonable requests for an extension beyond the coursework deadline require the completion of an Extension Request Form, obtainable from Sue Coughtrey (in Room B34 MS) and must be signed by the Head of Department or nominee.

Communication with Students

The principal means of communication between staff and students concerning administrative matters and to communicate urgent messages will be via university e-mail.

Course Reading

There is no single text that provides the appropriate breadth and depth of coverage required by this course.Instead, students are expected to make good use of the recommended readings. For more recent events and developments, students should read more up-to-date publications such as The Economist, The Financial Times and other sources of current information including the quality press and other media. Students may find the following to be useful supporting texts:

Islam, I & A Chowdhury (2000), Asia-Pacific Economies: a Survey, Routledge, 2nd edition.

Perkins, D.H., et al. (2001), Economics of Development, Norton & Co.,5th edition.

Thirlwall, A.P. (2006), Growth & Development, Macmillan, 8th edition.

van den Berg, H (2001), Economic Growth & Development, McGraw-Hill.

Data & Information Sources

World Bank, The World Development Report (WDR). Anannual publication with useful data and information on special issues.

World Bank, Human Development Report. An annual publication with useful health, education and social data that includes the human development indices (HDI).

World Bank, World Development Indicators, includes useful country-level data on CD-ROM.

Part I: Economic Growth & Development

Lecture 1: Introduction to Economic Growth & Development

Conceptual and definitional issues. Are growth and development synonymous? Indicators of growth and economic and social development: GDP, human development indices, income distribution and nutrition. Measurement issues.

Perkins, chs. 1, 4 & 7.

Thirlwall, chs. 1-3.

van den Berg, chs. 1 & 2.

*The Economist, ‘More or less equal’, 31 March 2004.

*WDR, World Development Indicator Tables.

Sen, A.K. (1999), ‘The concept of development’, in H.B. Chenery & T.N. Srinivasan (eds.), Handbook of Development Economics, Volume 1.

Seminar Topics

1.1Define the various measures of poverty?How do they differ from each other and what are their implications for policy?

1.2Distinguish between economic and social measures of development. To what extent does economic growth mean social development?

1.3Is industrialisation the key to growth?

Lecture 2:The Neo-Classical Theory of Economic Growth

The general characteristics of emerging economies. An introduction to the neo-classical theory of economic growth: the Harrod-Domar and Solow-Swann models.

Perkins, ch. 2.

Thirlwall, ch. 4.

van den Berg, chs. 3-5.

*Harrison, A et al. (2000), International Business, ch. 9 (The Emerging Economies).

*Baumol, WJ (1970), Economic Dynamics: an Introduction, ch. 4 (Mr Harrod’s Model).

Seminar Topics

2.1Appraise the underlying view of the Harrod-Domar model that a high savings rate ensures rapid economic growth.

2.2What is meant by the ‘steady-state’ rate of growth in the Solow-Swann model? When is its value non-zero? (Final Examination question, 2006)

2.3Distinguish between the concepts of ‘capital-widening’ and ‘capital-deepening’. What are the implications for economic growth?

Lecture 3: New (Endogenous) Growth Theory

Why don’t countries grow in the same way to the same extent – a critique of neo-classical growth theory? Absolute and conditional convergence distinguished. Romer and endogenous explanations of economic growth: total factor productivity (TFP), human capital, trade and foreign direct investment (FDI).

Thirlwall, ch. 4.

van den Berg, ch. 10

*Edwards, S (1993), ‘Openness, trade liberalisation and growth in developing countries’, Journal of Economic Literature, vol. 31.

*Romer, P.M. (1994), ‘The origins of endogenous growth’, Journal of Economic Perspectives, Winter.

*Pack, H. (1994), ‘Endogenous growth: intellectual appeal and empirical shortcomings’, Journal of Economic Perspectives, vol. 8, no. 1, pp. 55-72.

Kenny, C. (2001), ‘What do we know about economic growth? Or why don’t we know very much’, World Development, vol. 29, no. 1, pp. 1-22.

Scott, M.F.G. (1992), ‘Policy implications of a new view of economic growth’, Economic Journal, vol. 102, pp. 622-32.

Shaw, G.K. (1992), ‘Policy implications of endogenous growth theory’, Economic Journal, vol. 102, pp. 611-21.

Stern, N. (1991), ‘The determinants of growth’, Economic Journal, vol. 101, no. 404, pp. 122-33.

Seminar Topics

3.1‘While new growth theory provides a better explanation of the growth process than the neo-classical theories, both are of little use in the formulation of growth-promoting policies’. Discuss.

3.2Growth success is not conditional upon a magic formula but upon being flexible, so as to adapt to developments in domestic and global economic conditions. (Final Examination question, 2002)

3.3Outline the concept of total factor productivity (TFP) and its associated measurement problems.

Part II: Issues in Economic Growth & Development

Lecture 4: Agriculture & Economic Development

Agricultural reforms and growth and development: land reform, the ‘Green Revolution’ and terms of trade issues. Agricultural protectionism in the developed countries and its impact on agriculture in developing countries.

Perkins et al., ch. 15.

Thirlwall, ch. 5.

*Ghatak, S. (1987), ‘Agriculture and economic development’, in N. Gemmell (ed.),Surveys in Development Economics.

Schultz, T.W. (1961), Transforming Traditional Agriculture, chs. 1-4.

Seminar Topics

4.1Define the notion of self-sufficiency in food. Is self-sufficiency a valid argument for agricultural protectionism in developing countries?

4.2Why is land reform successful in some countries but not in others?

4.3Was the ‘Green Revolution’ a success? Discuss with reference to evidence drawn from one or more developing countries.

Lecture 5: Growth, Industrialisation & Structural Transition

Models of structural transition. Industrialisation with an unlimited supply of labour. The Harris-Todaro model of rural-urban migration and urbanisation.

Perkins, chs.3, 8 & 17.

Thirlwall, ch.5.

*Lewis, W.A. (1954),‘Economic development with unlimited supplies of labour’, The Manchester School, see also Meier & Rauch, Section III, Nurkse, Lewis, Todaro and Section IIID,‘The Lewis Model in retrospect –note’.

Schultz, T.W. (1961), Transforming Traditional Agriculture, chs. 1-4.

Seminar Topics

5.1Is industrialisation a necessary and sufficient condition for economic growth?

5.2Define disguised unemployment.Does the Lewis model suggest that the larger is the volume of disguised unemployment, the better are the prospects for industrialisation?

5.3What are the implications of the Harris-Todaro model of rural-urban migration for income disparities in developing countries?

Lecture 6: Trade Policy, Openness & Growth in Developing Countries

Trade as the ‘engine of growth’. Industrialisation, comparative advantage and trade policies in developing counties: import-substituting industrialisation (ISI) versus openness to trade.

Perkins, chs. 18 & 19.

Thirlwall, ch. 16.

van den Berg, ch. 9.

*Edwards, S. (1993), ‘Openness, trade liberalisation and growth in developing countries’, Journal of Economic Literature, vol. 31.

*Greenaway, D. et al. (1998), ‘Trade reform adjustment and growth: what does the evidence tell us?’, Economic Journal, vol. 108, no. 450, pp. 1547-61.

Dollar, D.(1992), ‘Outward-oriented developing economies really do grow more rapidly: evidence from 95 LDCs,1976-85, Economic Development & Cultural Change.

Riedel, J. (1988), ‘Trade as an engine of growth: theory and evidence’, in D. Greenaway (ed.), Current Issues in International Trade & Development.

*Krueger, A.O., ‘Trade policies in developing countries’, in R.W. Jones & P.B. Kenen (eds.) Handbook of International Economics Volume I.

Lewis, W.A. (1980), ‘The slowing down of the engine of growth’, American Economic Review, vol. 70.

Krueger, A.O. (1998),‘Why trade liberalisation is good for growth’, Economic Journal, , vol. 108, no. 450, pp. 1513-22.

Rodriguez, F. and Rodrik, D.R. (1999). ‘Trade policy and economic growth:asceptic’s guide to the cross-national evidence’, National Bureau of Economic Research Working Paper, No. 7081.

Subasat, T. (2002), ‘Does export promotion increase economic growth: some cross-section evidence’, Development Policy Review, vol. 20, no. 3, pp. 333-49.

Seminar Topics

6.1Define and explain the concept of import-substituting industrialisation. Does it imply complete autarky (self-sufficiency) in trade?

6.2Are ISI policies to promote development counter-productive? Under what circumstances might they be economically justified?

6.3Compare and contrast the implications of laissez faire and interventionist EP policies.

Part III: The Growth Experience of Emerging Economies

Lecture 7: Growth in the East Asian Economies

Models of East Asian growth. The record of growth and development in East Asia: is their growth performance a miracle? Can the theoretical growth models explain the growth performance of these countries? What growth lessons does East Asia provide for other developing countries?

*Islam & Chowdhury, chs. 9-12.

*Baer, V., W.R. Miles & A.B. Moran (1999), ‘The end of the Asian myth: why were the experts fooled?’, World Development, vol. 27, no. 10, pp. 1735-47.

*Collins, S.M. & B.P. Bosworth (1996), ‘Economic growth in East Asia: accumulation versus assimilation’, Brookings Papers on Economic Activity, no. 1, pp. 135-91.

*Drysdale, P. & Y. Huang (1997), ‘Technological catch-up and economic growth in East Asia and the Pacific’, Economic Record, vol. 73, no. 222, pp. 201-11.

*Krugman, P. (1994), ‘The myth of Asia's miracle’, Foreign Affairs, Nov/Dec or

*Stiglitz, J.E. (1996), ‘Some lessons from the East Asian miracle’, World Bank Research Observer, vol. 11, no. 2, pp. 151-77.

Feenstra, R.C. et al. (1999), ‘Testing endogenous growth in South Korea and Taiwan’, Journal of Development Economics, vol. 60, pp. 317-41.

Ito, T. (1997), ‘What can developing countries learn from East Asia's economic growth?’, Annual World Bank Conference on Development Economics, pp. 183-200.

Journal of Development Studies (1998), East Asian Development: New Perspectives, Special Issue, vol. 34, no. 6.

Nelson, R. & H. Pack (1999), ‘The Asian miracle and modern growth theory’, Economic Journal, vol. 109, pp. 416-36.

Hsiao, F.S.T. & M-C.W. Hsiao (2002), ‘“Miracle” growth in the twentieth century: international comparison of East Asian development’, World Development, vol. 31, no. 2, pp. 227-57.

Rodrik, D. (1995), ‘Getting interventions right: how South Korea and Taiwan grew rich’, Economic Policy, April.

Leipziger, D.M. (ed.) (2000), Lessons from East Asia, Ann Arbor, chs. 1-4 & 9.

Ito, T. (1996), ‘Japan and the Asian economies: a “miracle” in transition’, Brookings Papers on Economic Activity, no. 2, pp. 205-60.

Seminar Topics

7.1Discuss the relevance of ‘New Growth theory’ to explanations of the growth performance of the East Asian countries.

7.2Compare and contrast the growth strategy of Korea and Japan: to what extent has the former imitated the latter's strategy?

7.3Compare and contrast the growth strategy of Korea and Taiwan. Are there any lessons to be derived from this comparison?

Lecture 8: India as an Emerging Economy

The IS phase in India; why was it adopted and sustained for 30 years - consequences and lessons for other economies. Why did the last dirigiste Asian economic regime succumb to the ‘so-called’ open economy philosophy? The Indian route to liberalisation - is it different from the East Asian Model and the Chinese Model?

Balasubramanyam, V.N. (1982), India, chs. 1, 2 & 3.

Balasubramanyam, V.N. (ed.) (1995), ‘India: trade policy review, World Economy, Annual Trade Policy Review Issue.

*Balasubramanyam, V.N. (1999), Conversations with Indian Economists, Introduction.

Balasubramanyam, V.N. (2004), ‘FDI in India’, in A. Wei V.N. Balasubramanyam (eds.) Foreign Direct Investment: Six Country Case Studies, Edward-Elgar.

*Bhagwati, J.N. (1993), India In Transition.

*Dreze, J. & A.K. Sen (1998), India: Economic Development & Social Opportunity.

Joshi, V.J. & I.M.D. Little (1997), India’s Economic Reforms, 1991-2001.

*Lal, D. (1995), ‘India and China: contrasts in economic liberalization?’, World Development, vol. 23, no. 9, pp. 1475-94.

Financial Times, Special supplement on India, 1999.

*Srinivasan, T.N. (2004), ‘China and India: economic performance, competition and cooperation: an update’, Journal of Asian Economics, vol. 15, no. 4, pp. 613-36.

Seminar Topics

8.1‘Human beings matter, commodities don’t’. Discuss in the context of A.K. Sen’s thesis that investment in health and education is vitally important.

8.2Discuss the role of financial factors in India’s development.

8.3Compare and contrast the industrialisation policies of India and the East Asian economies. How successful have they been?

Lecture 9: Economic Growth in China Since 1978

The ‘Open Door Policy’ and growth and industrialisation since 1978. The role of international trade and foreign direct investment in China’s economic growth.

*Islam & Chowdhury, ch. 17.

*Chow, G.C. & K. Li (2002), ‘China’s economic growth: 1952-2010’, Economic Development & Cultural Change, pp. 247-56.

*Fleischer, BM & J Chen (1997), ‘The coast–non-coast income gap, productivity and regional economic policy in China’, Journal of Comparative Economics, vol. 25, pp. 220-36.

*Young, A (2003), ‘Gold into base metals: productivity growth in the People’s Republic of China during the reform period’, Journal of Political Economy, vol. 111, no 6, pp 1220-61.

Berthelemy, J. & S. Demurger (2000), ‘Foreign direct investment and economic growth: theory and application to China’, Review of Development Economics, vol. 4, no. 2, pp. 140-55.

Borensztein, E. & J.D. Ostry (1996), ‘Accounting for China’s growth performance’, American Economic Review, vol. 86, no. 2, pp. 224-8.

Fan, S., X. Zhang & S. Robinson (2003), ‘Structural change and economic growth’, Review of Development Economics, vol. 7, no. 3, pp. 360-77.

Ge, W. (1999), ‘Special Economic Zones and the opening of the Chinese economy: some lessons for economic liberalisation’, World Development, vol. 27, no. 7, pp. 1267-85.

Hu, Z.F. and M.S. Khan (1997), ‘Why is China growing so fast’, IMF Staff Papers.

Martin, W..E Ianchovichina (2001), ‘Implications of China's accession to the World Trade Organisation for China and the WTO’, World Economy, vol. 24, no. 9, pp. 1205-19.

McKibbin, W.J. & K.K. Tang (2000), ‘Trade and financial reform in China: impacts on the world economy’, World Economy, vol. 23, no. 8, pp. 979-1003.

Naughton, B. (1996), ‘China's emergence and prospects as a trading nation’, Brookings Papers on Economic Activity, no. 2, pp. 273-344.

Pomfret, R. (1997), ‘Growth and transition: why has China's performance been so different?’ Journal of Comparative Economics, vol. 25, pp. 422-40.

Seminar Topics

9.1Assess the extent to which China has followed its own ‘special’ growth strategy, as opposed to imitating the success of Japan and other leading East Asian NICs.

9.2How has foreign direct investment (FDI) affected economic growth in China?

9.3 Discuss the view that China will face a financial crisis in the future because of the country’s heavy dependence upon international trade and international investment.

Lecture 10: Liberalisation & the Quest for Growth in Africa

The nature and extent of Africa’s economic problems. Why is Africa a laggard? Is there an ‘Africa effect’? Economic reforms and liberalisation efforts in Africa. What has gone wrong?

*Collier, .P & J.W. Gunning (1999), ‘Explaining Africa’s economic performance’, Journal of Economic Literature, vol. XXXVII, no. 1, pp. 64-111.

*Sachs, J.D. & A.M. Warner (1997), ‘Sources of slow growth in Africa’, Journal of African Economies, vol. 6, no. 3, pp. 335-76.

Block, A (2001), ‘Does Africa grow differently?’, Journal of Development Economics, vol. 65, no. 2, pp. 443-67.

Bloom, D.E. & J.D. Sachs (1998), ‘Geography, demography and economic growth in Africa’, Brookings Papers on Economic Activity, vol.2, pp. 207-95.

Collier, P. & J.W. Gunning (1999), ‘Has Africa grown slowly?’, Journal of Economic Perspectives, vol. 13, no. 3, pp. 2-22.

Easterly, W. & R. Levine (1999), ‘Africa’s growth tragedy: policies and ethnic divisions’, Quarterly Journal of Economics, pp 1202-50.

Hoeffler, A.E. (2002), ‘The augmented Solow Model and the African growth debate’, Oxford Bulletin of Economics & Statistics, vol. 64, no. 2, pp. 135-58.

World Bank (1994), Adjustment in Africa: Reforms, Results & the Road Ahead.

Asiedu, E. (2002), ‘On the determinants of foreign direct investment to developing countries: is Africa different?’, World Development, vol. 30, no. 1, pp. 107-19.

Pinto, B. (1987), ‘Nigeria during and after the oil boom: a policy comparison with Indonesia, World Bank Economic Review, vol. 1, no. 3, pp. 419-45.

Sala-i-Martin, X. & A. Subramanian (2003), ‘Addressing the natural resource curse: an illustration from Nigeria’, IMF Working Paper WP/03/139.

Seminar Topics

10.1Provide a critique of the ‘Africa effect’. What empirical support is there for this effect?

10.2Many African countries have taken major steps to liberalise their international trade and investment policies and yet the much hoped for FDI has not been forthcoming. What factors might account for such an unfavourable response?

10.3In spite of the poor economic performance of many African economies, Botswana is often cited as an exceptional case on most indicators of growth and development. How and why did Botswana become a success story?