Development Economics

CEU – Economics Department – winter 2014

Instructor: Andrea Canidio


Office: Nador 11, #406

Office hours: by appointment

Course web-page: 

Please, join the class' Facebook group. All the communications regarding the class should go through the Facebook group, except for appointment requests.


We will discuss the theoretical and empirical economic literature explaining the different trajectories of economic growth across countries, with particular attention to poverty traps and persistent underdevelopment. The course will be divided into three topics: economic development as an aggregate process, economic development as an individual - micro process, and institutional barriers to economic development. The first part of the course will consist in a series of lecture, the second part of the course will be devoted to students presentation. The aim of the course is to enable students to start and conduct their own research on such topics.


Each student is expected to present two papers out of the reading list, produce a research proposal, and sustain a final exam.


There is one required and two recommended books. Each of the reading is non-technical and is relevant for one of the sections of the course. The mandatory reading is:

“Poor Economics” by Abhijit Banerjee and Esther Duflo, PublicAffairs.

This book gives an overview of the current research on economic development, which has flourished in the last 20 years thanks to the use of randomized control trials. It summarizes the available “micro” evidence regarding the causes and remedies of poverty.

The first recommended book is:

“The Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics” by William Easterly, MIT press.

This book is relevant to the first part of the class, as it describes the early theories of economic development, how they got applied by institution such as the World Bank, their outcomes, and how those outcomes lead to the next set of theories (and repeat). It is funny, easy to read, and provides a valuable historical context to the models that we will study.

The second recommended book is:

“Why Nations Fail: The Origins of Power, Prosperity, and Poverty” by Daron Acemoglu and James Robinson. Crown Business.

In my opinion, together with behavioral theories, institutional theories of economic development are likely to dominate the field (at least on the theory side). This book presents one of the latest theories by two of the leading scholars studying the institutional origins of poverty.

Course Prerequisites

Students should be familiar with mathematical modeling and with the basics of econometrics.


  1. Introduction: what is economic development.
  2. The early theories of economic development: convergence and conditional convergence.
  3. Sources of inequality and poverty: credit market failures.
  4. Credit and savings in developing countries
  1. ROSCAs and VSLAs
  2. Microfinance
  1. Randomized Control Trials:
  1. Introduction to RCT
  2. Spillover between treatment and control: Health externalities
  1. Institutions and economic development.
  2. Behavioral theories of economic development (if time allows)

Reading list

Students should choose two of the following papers for presentations. Each student should choose one of the paper market with a *, and one other paper of their choice. Papers that are not on this list can be chosen after previous consultation with the instructor. Each presentation should be 45 min long (around 20 slides). One week before the scheduled presentation, students should submit a short summary (around 1 page) of their assigned paper, and then schedule a meeting with me.

Poverty Traps

Banerjee and Newman (1991). “Risk-Bearing and the Theory of Income Distribution,” Review of Economic Studies 58, 211–235.

Mookerjee and Ray (2003) “Persistent Inequality”, Review of Economic Studies.

Aghion and  Bolton (1997). “A Theory of Trickle-Down Growth and Development,” Review of Economic Studies 64, 151–172.

*Kremer (1993) “The O-ring theory of economic development” The Quarterly Journal of Economics

Social Network in Economic Development

Banerjee, Duflo, Chandrasekhar and Jackson (2013) “The Diffusion of Microfinance” working paper

Karlan, Mobius, Rosenblat and Szeidl (2009) “Trust and Social Collateral” Quarterly Journal of Economics.

Ambrus, Mobius and Szeidl (2010) “Consumption Risk-Sharing in Social Networks” working paper

Behavioral Economic Development.

Hanna, Mullainathan and Schwartzstein (2012) "Learning Through Noticing: Theory and Experimental Evidence in Farming," Working Paper.

*Duflo, Kremer and Robinson (2010) “Nudging Farmers to Use Fertilizer: Theory and Experimental Evidence from Kenya”

*Ashraf, Karlan and Yin (2006) ”Tying Odysseus to the Mast: Evidence from a Commitment Savings Product in the Philippines” (May 2006) Quarterly Journal of Economics

Canidio (2013) “Focusing Effect and the Poverty Trap” working paper.

Banerjee and Mullainathan (2010) "The Shape of Temptation: Implications for the Economic Lives of the Poor," working paper.

Credit Constraints in Developing Countries

Banerjee and Duflo (2004) “Do Firms Want to Borrow More? Testing Credit Constraints Using a Directed Lending Program” Working paper.

*De Mel, McKenzie and Woodruff (2008) “Returns to capital in microenterprises: evidence from a field experiment” Quarterly Journal of Economics

Visaria (2009) “Legal Reform and Loan Payment: The Microeconomics Impact of Debt Recovery Tribunals in India” American Economic Journal: Applied Economics.

von Lilienfeld-Toal, Mookherjee and Visaria (2012) “The Distributive Impact of Reforms in Credit Enforcement: Evidence from Indian Debt Recovery Tribunals” Econometrica

Burgess and Pande (2005) “Do Rural Banks Matter? Evidence from the Indian Social Banking Experiment” American Economic Review


*Gine and Karlan (2013) “Group versus Individual Liability: Short and Long Term Evidence from Philippine Microcredit Lending Groups” Journal of Development Economics

*Banerjee, Duflo, Glennerster and Kinnan (2013) “The Miracle of Microfi…nance? Evidence From a Randomized Evaluation” working paper.

Intra-Household Bargaining

Jackson and Yariv (2012) “Collective Dynamic Choice: The Necessity of Time Inconsistency” Working Paper.

Public goods - commons

Sheely (2013) "Maintaining Local Public Goods: Evidence from Rural Kenya." working paper

Urbanization and Development

Glaeser (2013) “A World of Cities: The Causes and Consequences of Urbanization in Poorer Countries” Working paper.

Spillover in interventions

Angelucci and De Giorgi (2009) “Indirect Effects of an Aid Program: How do Cash Injections Affect Ineligibles' Consumption?” American Economic Review.

Prina and Comola (2013) “Intervention-Driven Changes in Social Network and their Effects on Household Outcomes” working paper

Risk Sharing

Jack and Suri (2011) “Risk Sharing and Transactions Costs: Evidence from Kenya's Mobile Money Revolution” working paper

*Townsend (1994) “Risk and Insurance in Village India” Econometrica

Udry (1994) “Risk and Insurance in a Rural Credit Market: An Empirical Investigation in Northern Nigeria” Review of Economic Studies

Access to formal Savings

Dupas and Robinson (2013) “Savings Constraints and Microenterprise Development: Evidence from a Field Experiment in Kenya” AEJ: Applied Economics.

Ligon, Thomas, and Worrall (2002) “Informal Insurance Arrangements with Limited Commitment: Theory and Evidence from Village Economies” Review of Economic Studies

Bloch,  Genicot,  and Ray (2008) “Informal insurance in social networks” Journal of Economic Theory

*Burgess and Pande (2005) “Do Rural Banks Matter? Evidence from an Indian Social Banking Experiment” American Economic Review

Theory of Conflict

Esteban, Mayoral and Ray (2012) Ethnicity and Conflict: An Empirical Investigation” American Economic Review 102, 1310-1342.

Esteban and Ray (2011) “Linking Conflict to Inequality and Polarization”, American Economic Review 101(4), 1345–74.

Blattman and Bazzi (2013), “Economic Shocks and Conflict: The Evidence from Commodity Prices” working paper.

*Sanchez de la Sierra (2013) “On the Origin of States: Stationary Bandits and Taxation in Eastern Congo” Working Paper

Harari and La Ferrara (2013) “Conflict, Climate and Cells: A disaggregated analysis” Working Paper.

Political Economy of Developing Countries

Acemoglu and  Robinson (2008) “Persistence of Power, Elites and Institutions,” American Economic Review, 98, 267-93.

Jones and Olken (2005) “Do Leaders Matter? National Leadership and Growth Since World War II” Quarterly Journal of Economics

Banerjee and Pande, “Parochial Politics: Ethnic Preferences and Politician Corruption,” working paper.

Munshi and  Rosenzweig (2013) “Networks, Commitment and Competence: Caste in Indian Politics,” working paper.

Robinson and Verdier (2013) “The Political Economy of Clientelism,” Scandinavian Journal of Economics,  115(2), 260-291.

Bardhan and Mookherjee (2012) `Political Clientelism-cum-Capture: Theory and Evidence from West Bengal,’ working paper.

Bertrand, Djankov, Hanna, and Mullainathan (2007) "Obtaining a Driver's License in India: An Experimental Approach to Studying Corruption," The Quarterly Journal of Economics,

Research Proposal

Part of your evaluation will be based on a research proposal. A research proposal should contain the following elements:

  1. A clearly stated research question. The research question should be related to one of the topics discussed in class.
  2. A review of the relevant literature. The goal of this section is not to summarize the literature, but to explain to what extent existing research help to explain or fail to explain your research question.
  3. A simple model or an empirical strategy.
  4. Some intuition regarding what results you think you may obtain

The research proposal should be 5 to 10 pages long.

NB. This syllabus will be updated. You are advised to check for the most recent version on the course website.