My PE of development classes, Week 2: Growth and development theory

This week offered lightning tours of simple growth and poverty trap models for the Master’s students, and for the PhD class a slightly more detailed look at poverty trap and constrained development models. This is probably the last week for PhD slides, because from next week we shift from lecture to paper discussion mode. Syllabi here.

Development scholars outside economics often critique the economic fetish with formal models. It can be a weakness, but on balance I think it’s a strength. See Paul Krugman’s reflection on the fall and rise of development economics for a reasonable defense. He also, unwittingly, makes his opponents’ points for him. Overall it is a great read.

To the other development academics out there, a pointy-headed question: I’ve been thinking about how to classify and cluster high development theory. How?

We have conventional growth economics on the one hand, which tends to emphasize that countries have a single steady state they converge to over time, and different steady states are driven by different fundamentals, such as initial or external conditions.

We have poverty trap models with multiple equilibria or multiple steady states, that suggest countries could move to more than one income and growth level, depending on luck, randomness, history, policy, and fundamentals. I don’t really buy these.

There’s a third, motley class of models I think of as “in between”. They’re extremely diverse. They include the old Lewis model of unlimited labor supplies, the more modern Banerjee and Newman models of occupational choice with credit and institutional constraints, up to the new the Hausmann and company product space. For the most part they share conventional growth theory’s focus on a single equilibrium for each society driven by fundamentals, but the transition is slowed or constrained by some set of factors either internal or external to the system. I’ve started calling these “constrained development” or “rigidity” models in my lectures, but that seems ad hoc and inadequate.

Acemoglu attempts a rough classification in his Modern Economic Growth textbook that I like but don’t find fully satisfactory (neither does he, from the tone of the book). Is there a better one?