Week 4: States and markets [revised 9/26 to reflect that we are behind schedule]
post-WWII development thinking ascribed a leading role to the state in driving
the development process. The Washington Consensus (around 1990) swung to the other end of the
debate, focusing on government failures. Evans (1992) argued that a number of
Asian governments were successfully traveling a middle path, deploying bureaucratic
capability and political insulation to shape private economic incentives and accelerate
economic transformation. Meanwhile Africa’s failure to industrialize
revitalized debates about economy-wide poverty traps and the need for
coordinated and ambitious interventions.
Monday: Dual economies and the role of agriculture in development [continues from week 3.]
Wednesday [revised]: The informal sector in development [continues from week 3]
Friday [revised]: The concept of the developmental state. Read
PRLB Chapter 5, noting the evolution of thinking about the role of government in the development process. The Washington Consensus summarized the market-based policy advice coming out of the World Bank, IMF, U.S. Treasury, and even technical ministries within many developing countries during the 1980s and first half of the 1990s. It reflected a view prevalent in these circles that governments were intervening too much pretty much everywhere in the world. Then read Evans (1992) for a sophisticated look at the conditions under which industrial policy - packages of government intervention designed to accelerate growth and transformation by favoring particular firms or industries (using interest rate controls, credit subsidies, protection from imports, direct state control, and other instruments) -- can succeed, and also why it can fail. Should a country with a high degree of embedded autonomy follow the Washington Consensus and back off from active industrial policy? What about a country with a low degree of embedded autonomy? Finally, what became of the Washington Consensus, according to Birdsall and Fukayama (2011)? Has a new consensus emerged regarding the role of government in the development process?
[Deferred to later in the course: poverty traps.] Here is what I intended to cover this week, which we will do later in the course and you are therefore not responsible for now: "Our final topic for this week is the concept of a poverty trap. We will encounter this concept at the household level when we read Banerjee and Duflo. But Sachs et al. (2004) want to apply it to entire countries, or at least regions of countries. Skim the 2004 paper up to page 147 (the paper itself is extremely long; this is the front end), and read the concluding section too. Is it possible that a country, or a region within a country, could simply be "too poor to grow"? And that a massive but temporary investment program financed from the outside could get the country or region permanently out of its trap?"