Development Economics / Edition 1

Development Economics / Edition 1

by Debraj Ray

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ISBN-10: 0691017069

ISBN-13: 9780691017068

Pub. Date: 01/12/1998

Publisher: Princeton University Press

If you are instructor in a course that uses Development Economics and wish to have access to the end-of-chapter problems in Development Economics, please e-mail the author at For more information, please go to If you are a student in the course, please do not contact the author. Please


If you are instructor in a course that uses Development Economics and wish to have access to the end-of-chapter problems in Development Economics, please e-mail the author at For more information, please go to If you are a student in the course, please do not contact the author. Please request your instructor to do so.

The study of development in low-income countries is attracting more attention around the world than ever before. Yet until now there has been no comprehensive text that incorporates the huge strides made in the subject over the past decade. Development Economics does precisely that in a clear, rigorous, and elegant fashion.

Debraj Ray, one of the most accomplished theorists in development economics today, presents in this book a synthesis of recent and older literature in the field and raises important questions that will help to set the agenda for future research. He covers such vital subjects as theories of economic growth, economic inequality, poverty and undernutrition, population growth, trade policy, and the markets for land, labor, and credit. A common point of view underlies the treatment of these subjects: that much of the development process can be understood by studying factors that impede the efficient and equitable functioning of markets. Diverse topics such as the new growth theory, moral hazard in land contracts, information-based theories of credit markets, and the macroeconomic implications of economic inequality come under this common methodological umbrella.

The book takes the position that there is no single cause for economic progress, but that a combination of factors—among them the improvement of physical and human capital, the reduction of inequality, and institutions that enable the background flow of information essential to market performance—consistently favor development. Ray supports his arguments throughout with examples from around the world. The book assumes a knowledge of only introductory economics and explains sophisticated concepts in simple, direct language, keeping the use of mathematics to a minimum.

Development Economics will be the definitive textbook in this subject for years to come. It will prove useful to researchers by showing intriguing connections among a wide variety of subjects that are rarely discussed together in the same book. And it will be an important resource for policy-makers, who increasingly find themselves dealing with complex issues of growth, inequality, poverty, and social welfare.

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Princeton University Press
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Table of Contents


Chapter 1: Introduction

Chapter 2: Economic Development: Overview
2.1. Introduction
2.2. Income and growth
2.2.2. Historical experience
2.2.1. Measurement issues
2.3. Income distribution in developing countries
2.4. The many faces of underdevelopment
2.4.1. Human development
2.4.2. An index of human development
2.4.3. Per capita income and human development
2.5. Some structural features
2.5.1. Demographic characteristics
2.5.2. Occupational and production structure
2.5.3. Rapid rural—urban migration
2.5.4. International trade
2.6. Summary

Chapter 3: Economic Growth
3.1. Introduction
3.2. Modern economic growth: Basic features
3.3. Theories of economic growth
3.3.1. The Harrod—Domar model
3.3.2. Beyond Harrod—Domar: Other considerations
3.3.3. The Solow model
3.4. Technical progress
3.5. Convergence?
3.5.1. Introduction
3.5.2. Unconditional convergence
3.5.3. Level convergence: Evidence or lack thereof
3.5.4. Unconditional convergence: A summation
3.5.5. Conditional convergence
3.5.6. Reexamining the data
3.6. Summary
3.A.1. The Harrod—Domar equations
3.A.2. Production functions and per capita magnitudes

Chapter 4: The New Growth Theories
4.1. Introduction
4.2. Human capital and growth
4.3. Another look at conditional convergence
4.4. Technical progress again
4.4.1. Introduction
4.4.2. Technological progress and human decisions
4.4.3. A model of deliberate technical progress
4.4.4. Externalities, technical progress, and growth
4.4.5. Total factor productivity
4.5. Total factor productivity and the East Asian miracle
4.6. Summary
Appendix: Human capital and growth

Chapter 5: History, Expectations, and Development
5.1. Introduction
5.2. Complementarities
5.2.1. Introduction: QWERTY
5.2.2. Coordination failure
5.2.3. Linkages and policy
5.2.4. History versus expectations
5.3. Increasing returns
5.3.1. Introduction
5.3.2. Increasing returns and entry into markets
5.3.3. Increasing returns and market size: Interaction
5.4. Competition, multiplicity, and international trade
5.5. Other roles for history
5.5.1. Social norms
5.5.2. The status quo
5.6. Summary

Chapter 6: Economic Inequality
6.1. Introduction
6.2. What is economic inequality?
6.2.1. The context
6.2.2. Economic inequality: Preliminary observations
6.3. Measuring economic inequality
6.3.1. Introduction
6.3.2. Four criteria for inequality measurement
6.3.3. The Lorenz curve
6.3.4. Complete measures of inequality
6.4. Summary

Chapter 7: Inequality and Development: Interconnections
7.1. Introduction
7.2. Inequality, income, and growth
7.2.1. The Inverted-U hypothesis
7.2.2. Testing the inverted-U hypothesis
7.2.3. Income and inequality: Uneven and compensatory changes
7.2.4. Inequality, savings, income, and growth
7.2.5. Inequality, political redistribution, and growth
7.2.6. Inequality and growth: Evidence
7.2.7. Inequality and demand composition
7.2.8. Inequality, capital markets, and development
7.2.9. Inequality and development: Human capital
7.3. Summary
Appendix: Multiple steady states with imperfect capital markets

Chapter 8: Poverty and Undernutrition
8.1. Introduction
8.2. Poverty: First principles
8.2.1. Conceptual issues
8.2.2. Poverty measures
8.3. Poverty: Empirical observations
8.3.1. Demographic features
8.3.2. Rural and urban poverty
8.3.3. Assets
8.3.4. Nutrition
8.4. The functional impact of poverty
8.4.1. Poverty, credit, and insurance
8.4.2. Poverty, nutrition, and labor markets
8.4.3. Poverty and the household
8.5. Summary
Appendix: More on poverty measures

Chapter 9: Population Growth and Economic Development
9.1. Introduction
9.2. Population: Some basic concepts
9.2.1. Birth and death rates
9.2.2. Age distributions
9.3. From economic development to population growth
9.3.1. The demographic transition
9.3.2. Historical trends in developed and developing countries
9.3.3. The adjustment of birth rates
9.3.4. Is fertility too high?
9.4. From population growth to economic development
9.4.1. Some negative effects
9.4.2. Some positive effects
9.5. Summary

Chapter 10: Rural and Urban
10.1. Overview
10.1.1. The structural viewpoint
10.1.2. Formal and informal urban sectors
10.1.3. Agriculture
10.1.4. The ICRISAT villages
10.2. Rural—urban interaction
10.2.1. Two fundamental resource flows
10.2.2. The Lewis model
10.3. Rural—urban migration
10.3.1. Introduction
10.3.2. The basic model
10.3.3. Floors on formal wages and the Harris—Todaro equilibrium
10.3.4. Government policy
10.3.5. Comments and extensions
10.4. Summary

Chapter 11: Markets in Agriculture: An Introduction
11.1. Introduction
11.2. Some examples
11.3. Land, labor, capital, and credit
11.3.1. Land and labor
11.3.2. Capital and credit

Chapter 12: Land
12.1. Introduction
12.2. Ownership and tenancy
12.3. Land rental contracts
12.3.1. Contractual forms
12.3.2. Contracts and incentives
12.3.3. Risk, tenancy, and sharecropping
12.3.4. Tenancy forms: Other considerations
12.3.5. Land contracts, eviction, and use rights
12.4. Land ownership
12.4.1. A brief history of land inequality
12.4.2. Land size and productivity: Concepts
12.4.3. Land size and productivity: Empirical evidence
12.4.4. Land sales
12.4.5. Land reform
12.5. Summary
Appendix 1: Principal—agent theory and its applications
12.A.1. Risk, moral hazard, and the agency problem
12.A.2. Tenancy contracts revisited
Appendix 2: Screening and sharecropping

Chapter 13: Labor
13.1. Introduction
13.2. Labor categories
13.3. A familiar model
13.4. Poverty, nutrition, and labor markets
13.4.1. The basic model
13.4.2. Nutrition, time, and casual labor markets
13.4.3. A model of nutritional status
13.5. Permanent labor markets
13.5.1. Types of permanent labor
13.5.2. Why study permanent labor?
13.5.3. Permanent labor: Nonmonitored tasks
13.5.4. Permanent labor: casual tasks
13.6. Summary

Chapter 14: Credit
14.1. Introduction
14.1.1. The limits to credit and insurance
14.1.2. Sources of demand for credit and insurance
14.2. Rural credit markets
14.2.1. Who provides rural credit?
14.2.2. Some characteristics of rural credit markets
14.3. Theories of informal credit markets
14.3.1. Lender's monopoly
14.3.2. The lender's risk hypothesis
14.3.3. Default and fixed-capital loans
14.3.4. Default and collateral
14.3.5. Default and credit rationing
14.3.6. Informational asymmetries and credit rationing
14.3.7. Default and enforcement
14.4. Interlinked transactions
14.4.1. Hidden interest
14.4.2. Interlinkages and information
14.4.3. Interlinkages and enforcement
14.4.4. Interlinkages and creation of efficient surplus
14.5. Alternative credit policies
14.5.1. Vertical formal—informal links
14.5.2. Microfinance
14.6. Summary

Chapter 15: Insurance
15.1. Basic concepts
15.2. The perfect insurance model
15.2.1. Theory
15.2.2. Testing the theory
15.3. Limits to insurance: Information
15.3.1. Limited information about the final outcome
15.3.2. Limited information about what led to the outcome
15.4. Limits to insurance: Enforcement
15.4.1. Enforcement-based limits to perfect insurance
15.4.2. Enforcement and imperfect insurance
15.5. Summary

Chapter 16: International Trade
16.1. World trading patterns
16.2. Comparative advantage
16.3. Sources of comparative advantage
16.3.1. Technology
16.3.2. Factor endowments
16.3.3. Preferences
16.3.4. Economies of scale
16.4. Summary

Chapter 17: Trade Policy
17.1. Gains from trade?
17.1.1. Overall gains and distributive effects
17.1.2. Overall losses from trade?
17.2. Trade policy: Import substitution
17.2.1. Basic concepts
17.2.2. More detail
17.3. Export promotion
17.3.1. Basic concepts
17.3.2. Effect on the exchange rate
17.3.3. The instruments of export promotion: More detail
17.4. The move away from import substitution
17.4.1. Introduction
17.4.2. The eighties crisis
17.4.3. Structural adjustment
17.5. Summary
Appendix: The International Monetary Fund and the World Bank

Chapter 18: Multilateral Approaches to Trade Policy
18.1. Introduction
18.2. Restricted trade
18.2.1. Second-best arguments for protection
18.2.2. Protectionist tendencies
18.2.3. Explaining protectionist tendencies
18.3. Issues in trade liberalization
18.3.1. Introduction
18.3.2. Regional agreements: Basic theory
18.3.3. Regional agreements among dissimilar countries
18.3.4. Regional agreements among similar countries
18.3.5. Multilateralism and regionalism
18.4. Summary

Appendix 1: Elementary Game Theory
A1.1. Introduction
A1.2. Basic concepts
A1.3. Nash equilibrium
A1.4. Games over time

Appendix 2: Elementary Statistical Methods
A2.1. Introduction
A2.2. Summary statistics
A2.3. Regression


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