ECON-663 Development Macroeconomics

Prof. Martha Starr

American University

Thursdays 5:30-8:00

Spring 2007


Telephone:        (202) 885-3747

Office:              Roper Hall, Room 201

Office hours:    Wednesdays 3-5:00 pm, or by appointment

Class website:  AU Blackboard, ECON-663



“Development is not only about the growth of GNP per head, but also about the expansion of human freedom and dignity.”

-- Amartya Sen (2000)


Development Macroeconomics

This class covers contemporary approaches to the macroeconomics of developing countries, including: discussion of growth models and their implications for development policy; issues of monetary and financial policy, including exchange rates, balance of payments issues, capital flows, financial crises; the role of foreign aid in promoting economic growth (or not); current policy debates concerning international trade; transnationalization, FDI, and their implications for growth prospects; growth, poverty and income distribution; and environmental sustainability. The objective of the class is to provide a rigorous overview of these issues, with emphasis on recent scholarly work and policy debates.

Development Macroeconomics is one of the recommended classes for the development field (the other being ECON-663 Development Microeconomics). The course should be accessible to all economics students who have made reasonable progress in their core macroeconomics sequence; M.A. students should have completed ECON-501, and PhD students should have completed ECON-702. Students from SIS should be able to follow the intuition of formal economic models and understand the significance of econometric work. If any review or clarification of concepts is needed, some good intermediate-level texts are mentioned at the end of this hand-out.

Course outline and required readings

The course outline is given below. Readings that go with each section of the class consist of articles posted in Blackboard and chapters from the following book (available at the AU bookstore):

§         James Cypher and James Dietz, The Process of Economic Development, 2nd edition  (2004) -- referred to as “C&D” in the outline

Due to the great amount of research being done on the macroeconomics of development, this class is heavy in reading. Be prepared to spend a considerable amount of time reading each week. The expectation is not necessarily to read each article in detail, but rather to grasp the central argument and contribution to the literature of each one: what key idea is being advanced, what methods are being used to favor it over competing views, what are the strengths and weaknesses in its logic or methodology, etc. It is expected that you will come to class prepared to discuss these points for assigned readings.

Graded work


Contribution to final grade (percent)

Due date

 Country macro/financial profile


March 8

 Seminar leadership


To be assigned

(will be late March or April)

 Research paper (~20 pages)


Apr. 26 (last day of class)

 Final exam


May 3 (take-home)

 Class participation




ð        NOTE: There will be NO CLASS on APRIL 5th







Defining and measuring economic development (Jan. 18-25)



Chap. 1, The development imperative

C & D


Chap. 2. Measuring economic development

C & D


Amartya Sen, selections from Development as Freedom

Hard copy


Millennium Development Goals, Progress Report 2006



Growth theory and swings in thinking about development policy (Feb. 1-8)



Neoclassical model



Obstfeld and Rogoff, pp. 430-440

Hard copy


Mankiw, N. Gregory, David Romer, David Weil, "A Contribution to the Empirics of Economic Growth," Quarterly Journal of Economics, vol. 107, no. 2. (May, 1992), pp. 407-437.



Krueger, Alan and Mikael Lindahl, “Education for Growth: Why and for whom?” Journal of Economic Literature, 39 (4): 1101-1136.



Developmentalist and heterodox theories -- Chapters 5-6



Liberalizationism -- ‘The magic of the market’:



pp. 105-108: Adam Smith and the invisible hard



Rodríguez, Francisco and Dani Rodrik (2001). "Trade Policy and Economic Growth: A Skeptic's Guide to the Cross-National Literature," NBER Macroeconomics Annual 2000.



Endogenous growth -- Chap. 8



Monetary and financial policy (Feb. 15 - March 1)



Chapter 15, Macroeconomic equilibrium



Sergio Schmukler (2004). “Financial Globalization: Gain and Pain for Developing Countries,” Atlanta Fed Economic Review, Vol. 89, No. 2.



Sebastian Edwards (1999). “How Effective are Capital Controls?” Journal of Economic Perspectives, Vol. 13, no. 4 (Fall), pp. 65-84



Ross Levine, "Finance and Growth: Theory and Evidence"



Chap. 16, The debt problem and its development



Foreign aid and economic growth (March 22)



Burnside, Craig and David Dollar, “Aid, Policies, and Growth,” American Economic Review 90(4) (September 2000): pp. 847–68.



William Easterly, Ross Levine, and David Roodman (2000). "New Data, New Doubts: A Comment on Burnside and Dollar's ‘Aid, Policies, and Growth," American Economic Review, 2003, forthcoming.



Steven Radelet, Michael A. Clemens, Rikhil Bhavnani (2004). “Counting chickens when they hatch: The short-term effect of aid on growth.” Center for Global Development Working Paper No. 44



World trade (March 29)



Sandra Polaski, “Winners and Losers: The Impact of the Doha Round on Developing Countries” (Carnegie Endowment)



Dani Rodrik, “What’s so special about China’s exports?”



Måns Söderbom and Francis Teal (2002). “Are manufacturing exports the key to economic success in Africa?”



Arslan Razmi and Robert Blecker (2006). “Developing Country Exports of Manufactures: Moving Up the Ladder to Escape the Fallacy of




Garth Frazier (2005). “Used-Clothing Donations and Apparel Production in Africa”.



Poverty, inequality and growth (April 12)



David Dollar and Aart Kraay (2000). “Growth Is Good for the Poor”



Deaton, Angus, "Measuring Poverty in a Growing World (or Measuring Growth in a Poor World)," June 2003.



Excerpts from Branco Milanovic, Worlds Apart

Hard copy


World Bank, World Development Report 2006: Equity and Development



Sustainability and development (April 19)



Stern Report, Chapter 4



Economist article on the Stern Report


Useful background materials (if needed)



Interpreting results of regression analysis


§         Appendix from Meier and Rauch, “How to Read a Regression Table”



Intermediate-level economics texts

For review or clarification of basic open-economy macro, one of these texts would be helpful:

§         Krugman, Paul, and Maurice Obtsfeld (2005). International Economics: Theory and Policy (Harper Collings, 7th edition). [previous editions are fine too]

§         Sachs, Jeffrey, and Felipe Larrain (1992). Macroeconomics in the Global Economy (Prentice Hall, 1992).

§         Rivera-Batiz, Francisco and Luis Rivera-Batiz (1994). International Finance and Open Economy Macroeconomics (New York: MacMillan, 2nd edition).