Anno Accademico 2019/2020

  • Docente: Sara Lazzaroni
  • Crediti formativi: 6
  • SSD: SECS-P/01
  • Lingua di insegnamento: Inglese
  • Moduli: Junaid Arshad (Modulo 1) Sara Lazzaroni (Modulo 2)
  • Modalità didattica: Convenzionale - Lezioni in presenza (Modulo 1) Convenzionale - Lezioni in presenza (Modulo 2)
  • Campus: Bologna
  • Corso: Laurea in Economics and finance /economia e finanza (cod. 8835)

Conoscenze e abilità da conseguire

By the end of the course students have achieved the following knowledge: (a) acquired an enhanced empirical knowledge of economic conditions in low and middle income economies; (b) acquired an understanding of the functioning of financial markets in developing countries; (c) consolidated the understanding of those elements of basic economic theory which we apply to the problems of development and financial markets; (d) acquired an understanding of the main theoretical results and empirical methods that are used by the profession to study developing countries.


I. Introduction and Facts

We start by looking at income disparities among countries and consider different meanings of underdevelopment. Then, we discuss stylized facts on the economic lives of the poor in developing countries. Finally, we study the institutional foundations of market exchange that will set the stage for many important topics that we cover in this course.

DE, Chs.1 and 2 and the update

Pritchett, L. (1997) “Divergence, Big Time,” Journal of Economic Perspectives 11, 3-17.

Banerjee.A. and Duflo E. (2007) “The Economic Lives of the Poor”, Journal of Economic Perspectives 21(1): 141‐167.

Besley.T. and Burgess R. (2003) “Halving Global Poverty”, Journal of Economic Perspectives 17: 3‐22.

Greif, A. (2000) “The Fundamental Problem of Exchange: A Research Agenda in Historical Institutional Analysis.” European Review of Economic History, 4(3): 251-84.

Hartmann and Boyce. (1983) A Quiet Violence: View from a Bangladesh Village. Ch: 12, The Trials of a Poor Peasant Family. Zed Press, London.

II. Economic Growth

The age-old question in economics is: why are some countries rich and others poor? We study this question with the foundational theories of economic growth and discuss cross-countries and micro evidence on these theories.

Basic Models of Economic Growth

DE, Ch. 3 and the update.


Mankiw N. G., Romer D. and D. Weil (1992) "A Contribution to the Empirics of Economic Growth" Quarterly Journal of Economics. May, 407-37

Islam. N (1995) “Growth Empirics: A Panel Data Approach”, Quarterly Journal of Economics 110: 1127‐70.

Hall, R. and C. Jones. (1999) “Why Do Some Countries Produce So Much More Output per Worker than Others?”, Quarterly Journal of Economics 114: 83‐116.

Banerjee, Abhijit V. & Duflo, Esther (2005) “Growth Theory through the Lens of Development Economics”, in Steve Durlauf and Philippe Aghion, (eds.), Handbook of Economic Growth, Elsevier Science Ltd.- North Holland: Vol. 1A, pp. 473-552.

III. Development Traps

We examine some mechanisms of the self-sustaining vicious cycle of underdevelopment. Historical conditions, institutions and beliefs may play a decisive role in the future path of an economy.

Self-fulfilling Prophesies and History: We discuss some mechanisms by which history can matter. In the presence of externalities and complementarities in actions of individuals, there can be multiple equilibria. Two identical economies can end up at very different levels of development depending on societal beliefs and initial conditions.

DE Ch. 5 and the update

Rosenstein-Rodan, P. (1943) “Problems of Industrialization of Eastern and Southeastern Europe,” Economic Journal 53: 202-211.

Sokoloff, K. and S. Engerman (2000), “History Lessons: Institutions, Factor Endowments, and Paths of Development in the New World,” Journal of Economic Perspectives, 14: 217–232.

Kremer, M. (1993). “The O-Ring Theory of Economic Development”. The Quarterly Journal of Economics, 108(3), 551-575.

Institutional Legacies: Institutions as rules (formal or informal) for conducting economic and political transactions can hinder economic development. We look at some examples from South Asia and Africa.

Acemoglu, D., Johnson, S. and J. Robinson (2001), “The Colonial Origins of Comparative Development: An Empirical Investigation,” American Economic Review, 91, 1369–1401.

Nunn, N. (2008), “The Long-Run Effects of Africa’s Slave Trade,” Quarterly Journal of Economics 123: 139–176.

Banerjee, A. and L. Iyer (2005), “History, Institutions, and Economic Performance: The Legacy of Colonial Land Tenure Systems in India,” American Economic Review, 95: 1190–1213.

Psychology of Poverty: Recent literature suggests that living in poverty may directly affect poor’s cognitive functions and economic decision making. Thus, scarcity creates a self-reinforcing cycle of poverty by exacerbating behavioural biases. We discuss the literature on the psychology of poverty.

Mani, A., Mullainathan, S., Shafir, E., & Zhao, J. (2013). “Poverty Impedes Cognitive Functions.” Science, 341, 976–980.

Haushofer, Johannes and Ernst Fehr. (2014). “On the Psychology of Poverty.” Science, 344, 862-867.

Dean, Emma Boswell, Frank Schilbach, and Heather Schofield. (2017). "Poverty and Cognitive Function", NBER Working Paper.

IV. Credit Markets

Credit markets are vital for economic activity and development. They bridge a gap between those who have ideas and entrepreneurial skills, but lack resources to undertake investments, and those who have excess savings. However, formal credit markets are imperfect or missing for many in developing countries. We study theoretical models of frictions in financial markets, empirical evidence on their importance. Finally, we discuss an innovative intervention: Microfinance.

DE, Ch. 14 and the update.

Banerjee, Abhijit, Esther Duflo, (2014) “Do Firms Want to Borrow More? Testing Credit Constraints Using a Directed Lending Program”, The Review of Economic Studies, 81(2), 572–607.

Microfinance: How to lend to poor people who lack collateral and credit history? Theories and Evidence will be discussed in detail.

Ghatak, Maitreesh and Timothy W. Guinnane. (1999). “The Economics of Lending with Joint Liability: Theory and Practice” Journal of Development Economics 60(1): 195–228 .

Banerjee, Abhijit. (2013) “Microcredit Under the Microscope: What Have We Learned in the Past Two Decades, and What Do We Need to Know?” Annual Review of Economics, 5(1): 487-519.

Banerjee, Abhijit, Esther Duflo, Rachel Glennerster, and Cynthia Kinnan. 2015. “The Miracle of Microfinance? Evidence from a Randomized Evaluation.” American Economic Journal: Applied Economics, 7(1): 22-53.

Giné, X. and Karlan, D. S. (2014). “Group versus Individual Liability: Short and Long Term Evidence from Philippine Microcredit Lending Groups.” Journal of Development Economics 107: 65–83.

V. Human Capital

We examine the central roles of education and health as basic objectives of development but also as joint investments for development as they represent vital components of growth. Despite their close relationship, you will see that higher household income is no guarantee of improved health and education: Human capital must be given direct attention in its own right, even in economies that are growing rapidly. Health and education may be distributed very unequally, just as income and wealth are. But improved health and education help families escape some of the vicious circles of poverty in which they are trapped. Finally, we take a close look at educational and health systems in developing countries, to identify the sources of the severe inequalities and inefficiencies that continue to plague them.


The last decade has seen a surge in field experiments designed to understand the barriers that households and governments face in investing in health and how these barriers can be overcome, and to assess the impacts of subsequent health gains. We will discuss the link from child health to later outcomes, including contemporaneous productivity among adults.

PE Ch. 1-2-3

Baird, S., Hicks, J.H., Kremer, M. and Miguel, E., 2016. Worms at work: Long-run impacts of a child health investment. The Quarterly Journal of Economics, 131(4), pp.1637-1680.

Gertler, P., 2004. Do conditional cash transfers improve child health? Evidence from PROGRESA's control randomized experiment. American Economic Review, 94(2), pp.336-341.


The number of children of primary age not going to school has nearly halved from 100 million in 2000 to 57 million in 2015, with the biggest change coming from Asia (i.e.: China, India). Sub-Saharan Africa has seen a reduction of 25% to 32.8 million, the proportion of primary-age African children attending school jumping from 60% to 80%. However, behind the headlines lies a series of major educational challenges. We will discuss issues of primary education quality, secondary education rates, gender gaps and the role of cultural traditions.

PE Ch. 4

Bold, T., Filmer, D., Martin, G., Molina, E., Stacy, B., Rockmore, C., Svensson, J. and Wane, W., 2017. Enrollment without learning: Teacher effort, knowledge, and skill in primary schools in Africa. Journal of Economic Perspectives, 31(4), pp.185-204.

Duflo, E., 2001. Schooling and Labor Market Consequences of School Construction in Indonesia: Evidence from an Unusual Policy Experiment. The American Economic Review, 91(4), pp. 795-813

Muralidharan, K. and Prakash, N., 2017. Cycling to school: Increasing secondary school enrollment for girls in India. American Economic Journal: Applied Economics, 9(3), pp.321-50.

VI. Conflict

We examine the links between economic development and social conflict (within-country unrest, ranging from peaceful demonstrations, processions, and strikes to violent riots and civil war). We will critically discuss three common perceptions: that conflict declines with ongoing economic growth; that conflict is principally organized along economic differences rather than similarities; and that conflict, most especially in developing countries, is driven by ethnic motives. We will then look at research addressing the consequences of violence.

Ray, D. and Esteban, J., 2017. Conflict and development. Annual Review of Economics, 9, pp.263-293.

Miguel E., Satyanath S., and Sergenti, E. 2004. Economic shocks and civil conflict: an instrumental variables approach. Journal of Political Economy 112, pp.725-753.

Dube, O. and Vargas, J.F., 2013. Commodity price shocks and civil conflict: Evidence from Colombia. The Review of Economic Studies, 80(4), pp.1384-1421.

VII. Corruption

Corruption is often high in low-income countries and is costly. We review the evidence on corruption in developing countries in light of recent advances in economics, focusing on three questions: how much corruption is there, what are the efficiency consequences of corruption, and what determines the level of corruption. We will then go through some country-specific cases and attempts to reduce corruption.

Olken, B.A. and Pande, R., 2012. Corruption in developing countries. Annual Review of Economics, 4(1), pp.479-509.

Fisman, R., 2001. Estimating the value of Political Connections. American Economic Review, 91(4), pp.1095-1102.

Ferraz, C. and Finan, F., 2008. Exposing Corrupt Politicians: The Effects of Brazil’s Publicly Released Audits on Electoral Outcomes. The Quarterly Journal of Economics, 123(2), pp. 703–45.

VIII. Media

Recent years have seen a massive penetration of mass media in the developing world. Even traditionally remote communities nowadays have access to radio, television, mobile phones, and occasionally to the Internet. Is it possible to exploit the rapid spread of media to reach large populations at low cost, with messages that are complementary to education and other social policies? What is the role of mobile money in fostering development?

La Ferrara, E., 2016. Mass media and social change: Can we use television to fight poverty? Journal of the European Economic Association, 14(4), pp.791-827.

Aker, J.C. and Mbiti, I.M., 2010. Mobile phones and economic development in Africa. Journal of economic Perspectives, 24(3), pp.207-32.

Suri, T., 2017. Mobile money. Annual Review of Economics, 9, pp.497-520.

Berg, G. and Zia, B., 2017. Harnessing emotional connections to improve financial decisions: Evaluating the impact of financial education in mainstream media. Journal of the European Economic Association, 14(5), pp.1025–1055.

Jack, W. and Suri, T., 2014. Risk Sharing and Transactions Costs: Evidence from Kenya’s Mobile Money Revolution. American Economic Review, 104(1), pp.183-223.

IX. Climate and the Environment

Rising pressures on climate and environmental resources in developing countries can have severe consequences for self-sufficiency, income distribution, and future growth potential. Yet, the poor seem to value little environmental sustainability. We will examine the economic causes and consequences of environmental crises and explore potential solutions to the cycle of poverty and resource degradation.

Greenstone, M. and Jack, B.K., 2015. Envirodevonomics: A Research Agenda for an Emerging Field. Journal of Economic Literature, 53(1), pp.5–42.

Dell, M., Jones, B.F. and Olken, B.A., 2014. What do we learn from the weather? The new climate-economy literature. Journal of Economic Literature, 52(3), pp.740-98.

Ben Yishay, A., A. Fraker, R. Guiteras, G. Palloni, N.B. Shah, S. Shirrell, and P. Wang, 2017. Microcredit and willingness to pay for environmental quality: Evidence from a randomized-controlled trial of finance for sanitation in rural Cambodia. Journal of Environmental Economics and Management, 86, pp. 121–140


The main text for the course is Debraj Ray’s Development Economics (1998), Princeton University Press (DE in the course outline). The text is slightly dated, but still, it provides an excellent background reading. The second edition (the updated version) is in the making. We will use the updated version of the book, whenever we can. We will also rely heavily on journal articles. While lecture slides will be distributed, they are a study-aid and not a substitute for attending lectures. Supplementary Texts are: M. P. Todaro and Smith (2015) Economic Development, Pearson. (TS in the course outline) and E. Duflo & A. Banerjee. (2011) Poor Economics, Public Affairs.

Metodi didattici

Lectures and Tutorials.

Modalità di verifica e valutazione dell'apprendimento

Students will be assessed based on their performance in a 2 hours written final exam. The dates of the final exams are fixed and cannot be changed.

Strumenti a supporto della didattica

Lectures and Tutorials.

Orario di ricevimento

Consulta il sito web di Sara Lazzaroni

Consulta il sito web di Junaid Arshad