Inequality & Development (MEC042)
Natascha Wagner (coordinator) & Laura Metzger
Assessment:
- Written exam
- Assignments
- Blog/policy brief
- Presentation
Slides are a starting point for learning. She doesn’t attempt to go over all the slides during the
lectures, but tries to give as much info on the slides as possible.
Exam:
Base studying on lecture slides. Should be able to explain concepts. You don’t have to explain the
math of comparative advantage, but you should be able to explain what it means in your own words
(and any other of these broad economic concepts).
You should be able to explain and criticize them (also on Piketty!)
So know like 2-3 measures and their formula’s so you can explain that better on the exam.
The questions from Natascha’s lectures are like this:
- “mention 3 points of critique and discuss”
- “show 2 examples and explain”.
- You don’t have to know EVERY measure by heart, but know a few and know their properties
and write them down.
For Laura’s lectures you should know:
- Read the papers that are marked in green by the lecturers.
- Know the viewpoints of Deaton and Glennerster. Know the points where they intersect and
differ!
- What is does it mean to know something about how policymakers make decisions?
- Know what happens if we scale up
- A thought provoking piece in a paradigm shift in social sciences
- Probabilistic statement of the truth (truth is a model we can never fully observe. We
shouldn’t confuse a causal effect with the truth – this is what Deaton is upset about)
Exam will be written on paper.
Structure: Overall you can get 100 points.
Big overall complexes of question themes and then small sub questions. You’ll know how many
points per sub question. If you can’t answer sub question a, it doesn’t mean you can’t answer sub
question b.
It is not like making a free essay, but it’s related to all the content in the lectures.
,Inhoudsopgave
Week 1 lecture 1 (10-11): Introduction: good economics for hard times – trade and inequality, an example. .. 4
Good economics for hard times: the role of trade for economic development – aiming for a more nuanced
discussion ............................................................................................................................................................. 4
Economists and their reputation .................................................................................................................... 4
Example: trade liberalization in India ............................................................................................................. 6
China’s trick ..................................................................................................................................................... 7
Is trade worth it? ............................................................................................................................................. 8
Week 1 lecture 2 (11-11): Poverty, Inequality & Development ............................................................................. 9
1 Defining inequality and poverty ........................................................................................................................ 9
Definition: income inequality ........................................................................................................................ 10
Definition: Gini coefficient ............................................................................................................................ 11
Definition: Poverty ........................................................................................................................................ 12
Complicated indicators: Multidimensional poverty measure ...................................................................... 13
2: What is so bad about extreme inequality? .................................................................................................... 14
3: Relative inequality in developing countries and its relationship to absolute poverty ................................... 15
4 the nature of economic growth, who benefits and why? ............................................................................... 16
Week 2 lecture 3 (17-11): Piketty’s thoughts about capital in the 21st century .................................................. 18
1: Piketty’s central thesis and the three laws of capitalism............................................................................... 18
First fundamental law of capitalism .............................................................................................................. 20
Second fundamental law of capitalism ......................................................................................................... 20
Third fundamental law of capitalism ............................................................................................................ 21
2: Growth convergence ...................................................................................................................................... 21
3: Population and development, growth slowdown .......................................................................................... 22
Piketty’s vision on growth ............................................................................................................................. 24
4: Inheritance tax ............................................................................................................................................... 25
5: Who grows and why? – Access to the media................................................................................................. 25
6: Demographic window of opportunity (not much talked about, keep in mind for exam) .............................. 26
Week 2 lecture 4 (18-11): Measurement and the development goals: HDI, SHID, SDGs, wealth and more ..... 29
More inequality indices and their relationship .................................................................................................. 29
Generalized Entropy (GE) .............................................................................................................................. 29
Theil index ..................................................................................................................................................... 29
Atkinson’s measure ....................................................................................................................................... 29
Pietra index ................................................................................................................................................... 29
Human and gender development ...................................................................................................................... 32
Human development index (HDI) ................................................................................................................. 32
Some data on (wo)men and development ......................................................................................................... 34
Welfare measurement ....................................................................................................................................... 37
Asset based wealth index.............................................................................................................................. 38
International wealth index ............................................................................................................................ 38
The inequality-poverty-growth triangle ............................................................................................................. 40
Ways to achieve poverty reduction .............................................................................................................. 41
Week 3 lecture 5 (25-11): New models of development, underdevelopment and inequality ........................... 42
2
, Underdevelopment as a coordination failure .................................................................................................... 42
Multiple Equilibria: A diagrammic approach ..................................................................................................... 43
Starting economic development: the Big Push .................................................................................................. 44
A role for a superentrepreneur .......................................................................................................................... 47
O-Ring Theory of Economic Development ......................................................................................................... 48
Economic development as self-discovery........................................................................................................... 49
Growth diagnostics ............................................................................................................................................ 50
Weeks 4 & 5 lecture 6 & 7 (2-12 & 8-12): Assessing economic development: methodology, methods and
interpretation ......................................................................................................................................................... 51
Why evaluating? Measuring results and impact – motivation. ......................................................................... 51
How to do an impact evaluation? – methodology............................................................................................. 54
False counterfactuals .................................................................................................................................... 55
Randomized assignment ............................................................................................................................... 55
Randomized promotion ................................................................................................................................ 59
Regression discontinuity design .................................................................................................................... 61
Difference-in-differences .............................................................................................................................. 64
Matching ....................................................................................................................................................... 64
How to implement an impact evaluation? ........................................................................................................ 65
Week 6 lecture 8 (15-12): Randomized Control Trials (RCTs) in development economics: contributions &
criticisms ................................................................................................................................................................. 67
Modern, applied (development) microeconomics: how we got here ................................................................ 67
Angus Deaton’s criticism of RCTs .................................................................................................................. 68
Reflecting on Deaton’s criticism ................................................................................................................... 70
Rachel Glennerster on RCTs Usefulness (counterview to the criticism of Deaton)...................................... 70
The evidence we produce and its adoption in policymaking ............................................................................. 71
Week 7 lecture 9 (22-12): Evidence take-up and scaling-up effective interventions .......................................... 77
Relevant factors that influence scale up of RCTs ............................................................................................... 78
More on effect Heterogeneity............................................................................................................................ 79
Week 7 lecture 10 (23-12): (New) initiatives for evidence based policymaking ................................................. 81
3
, Week 1 lecture 1 (10-11): Introduction: good economics for hard
times – trade and inequality, an example.
Good economics for hard times: the role of trade for economic development – aiming
for a more nuanced discussion
Situating us
Exploding inequality, environmental catastrophes and global policy disasters à need for diagnosis.
What went wrong and what right?
• These days, problems facing the rich countries are often problems the poor countries also
face such as inequality and people being left behind
• How to deal with the world today as economist?
à Banerrjee and Duflo suggest ... to be “hard headed about the facts, sceptical of slick answers and
magic bullets, modest and honest about what we know and understand, and perhaps most
importantly, willing to try ideas and solutions and be wrong”
Inequality is all around
• Growing polarization around the world
• Populism is on the rise: Trump, Bolsonaro, Brexit, the many autocrats in Africa and Asia
• Civilization as we know it, based on democracy and debate, is under threat.
• Back in the Dickensian world of ‘Hard Times’: ’the haves’ face-off against the alienated ‘have-
nots’, no resolution in sight?
• Questions of economic policy are key to present crisis: Is there something that can be done
to boost growth? Should that even be a priority for the affluent West? What about exploding
inequality everywhere?
• As social scientists, we try to offer facts and interpretations of facts we hope will mediate
these divides
Economists and their reputation
• Economists have a lot to say about
o immigration and wages,
o taxes and economic activity,
o redistribution and sloth,
o winner and losers of trade.
• Economist developed theoretical models, and analyze data to understand why some
countries grow and others do not
• Survey in the US: Just 25 percent of people trusted economists about their economic
expertise. Only politicians ranked lower.
• Challenge: Academic economists often have a completely different view on core economic
topics compared to the general public
• Not because they are necessarily more in favor of laissez-fair outcomes than the rest of the
world.
o Economists were (much) more in favor of raising federal taxes (97.4% economists
versus 66% regular Americans).
o Economists had much more faith in the policies pursued after the 2008 crisis (bank
bailouts, stimulus, ...)
Problem: Average academic economist thinks very differently from the average American/person
• Informing individuals about what economists think does nothing to change their point of
view
4
Natascha Wagner (coordinator) & Laura Metzger
Assessment:
- Written exam
- Assignments
- Blog/policy brief
- Presentation
Slides are a starting point for learning. She doesn’t attempt to go over all the slides during the
lectures, but tries to give as much info on the slides as possible.
Exam:
Base studying on lecture slides. Should be able to explain concepts. You don’t have to explain the
math of comparative advantage, but you should be able to explain what it means in your own words
(and any other of these broad economic concepts).
You should be able to explain and criticize them (also on Piketty!)
So know like 2-3 measures and their formula’s so you can explain that better on the exam.
The questions from Natascha’s lectures are like this:
- “mention 3 points of critique and discuss”
- “show 2 examples and explain”.
- You don’t have to know EVERY measure by heart, but know a few and know their properties
and write them down.
For Laura’s lectures you should know:
- Read the papers that are marked in green by the lecturers.
- Know the viewpoints of Deaton and Glennerster. Know the points where they intersect and
differ!
- What is does it mean to know something about how policymakers make decisions?
- Know what happens if we scale up
- A thought provoking piece in a paradigm shift in social sciences
- Probabilistic statement of the truth (truth is a model we can never fully observe. We
shouldn’t confuse a causal effect with the truth – this is what Deaton is upset about)
Exam will be written on paper.
Structure: Overall you can get 100 points.
Big overall complexes of question themes and then small sub questions. You’ll know how many
points per sub question. If you can’t answer sub question a, it doesn’t mean you can’t answer sub
question b.
It is not like making a free essay, but it’s related to all the content in the lectures.
,Inhoudsopgave
Week 1 lecture 1 (10-11): Introduction: good economics for hard times – trade and inequality, an example. .. 4
Good economics for hard times: the role of trade for economic development – aiming for a more nuanced
discussion ............................................................................................................................................................. 4
Economists and their reputation .................................................................................................................... 4
Example: trade liberalization in India ............................................................................................................. 6
China’s trick ..................................................................................................................................................... 7
Is trade worth it? ............................................................................................................................................. 8
Week 1 lecture 2 (11-11): Poverty, Inequality & Development ............................................................................. 9
1 Defining inequality and poverty ........................................................................................................................ 9
Definition: income inequality ........................................................................................................................ 10
Definition: Gini coefficient ............................................................................................................................ 11
Definition: Poverty ........................................................................................................................................ 12
Complicated indicators: Multidimensional poverty measure ...................................................................... 13
2: What is so bad about extreme inequality? .................................................................................................... 14
3: Relative inequality in developing countries and its relationship to absolute poverty ................................... 15
4 the nature of economic growth, who benefits and why? ............................................................................... 16
Week 2 lecture 3 (17-11): Piketty’s thoughts about capital in the 21st century .................................................. 18
1: Piketty’s central thesis and the three laws of capitalism............................................................................... 18
First fundamental law of capitalism .............................................................................................................. 20
Second fundamental law of capitalism ......................................................................................................... 20
Third fundamental law of capitalism ............................................................................................................ 21
2: Growth convergence ...................................................................................................................................... 21
3: Population and development, growth slowdown .......................................................................................... 22
Piketty’s vision on growth ............................................................................................................................. 24
4: Inheritance tax ............................................................................................................................................... 25
5: Who grows and why? – Access to the media................................................................................................. 25
6: Demographic window of opportunity (not much talked about, keep in mind for exam) .............................. 26
Week 2 lecture 4 (18-11): Measurement and the development goals: HDI, SHID, SDGs, wealth and more ..... 29
More inequality indices and their relationship .................................................................................................. 29
Generalized Entropy (GE) .............................................................................................................................. 29
Theil index ..................................................................................................................................................... 29
Atkinson’s measure ....................................................................................................................................... 29
Pietra index ................................................................................................................................................... 29
Human and gender development ...................................................................................................................... 32
Human development index (HDI) ................................................................................................................. 32
Some data on (wo)men and development ......................................................................................................... 34
Welfare measurement ....................................................................................................................................... 37
Asset based wealth index.............................................................................................................................. 38
International wealth index ............................................................................................................................ 38
The inequality-poverty-growth triangle ............................................................................................................. 40
Ways to achieve poverty reduction .............................................................................................................. 41
Week 3 lecture 5 (25-11): New models of development, underdevelopment and inequality ........................... 42
2
, Underdevelopment as a coordination failure .................................................................................................... 42
Multiple Equilibria: A diagrammic approach ..................................................................................................... 43
Starting economic development: the Big Push .................................................................................................. 44
A role for a superentrepreneur .......................................................................................................................... 47
O-Ring Theory of Economic Development ......................................................................................................... 48
Economic development as self-discovery........................................................................................................... 49
Growth diagnostics ............................................................................................................................................ 50
Weeks 4 & 5 lecture 6 & 7 (2-12 & 8-12): Assessing economic development: methodology, methods and
interpretation ......................................................................................................................................................... 51
Why evaluating? Measuring results and impact – motivation. ......................................................................... 51
How to do an impact evaluation? – methodology............................................................................................. 54
False counterfactuals .................................................................................................................................... 55
Randomized assignment ............................................................................................................................... 55
Randomized promotion ................................................................................................................................ 59
Regression discontinuity design .................................................................................................................... 61
Difference-in-differences .............................................................................................................................. 64
Matching ....................................................................................................................................................... 64
How to implement an impact evaluation? ........................................................................................................ 65
Week 6 lecture 8 (15-12): Randomized Control Trials (RCTs) in development economics: contributions &
criticisms ................................................................................................................................................................. 67
Modern, applied (development) microeconomics: how we got here ................................................................ 67
Angus Deaton’s criticism of RCTs .................................................................................................................. 68
Reflecting on Deaton’s criticism ................................................................................................................... 70
Rachel Glennerster on RCTs Usefulness (counterview to the criticism of Deaton)...................................... 70
The evidence we produce and its adoption in policymaking ............................................................................. 71
Week 7 lecture 9 (22-12): Evidence take-up and scaling-up effective interventions .......................................... 77
Relevant factors that influence scale up of RCTs ............................................................................................... 78
More on effect Heterogeneity............................................................................................................................ 79
Week 7 lecture 10 (23-12): (New) initiatives for evidence based policymaking ................................................. 81
3
, Week 1 lecture 1 (10-11): Introduction: good economics for hard
times – trade and inequality, an example.
Good economics for hard times: the role of trade for economic development – aiming
for a more nuanced discussion
Situating us
Exploding inequality, environmental catastrophes and global policy disasters à need for diagnosis.
What went wrong and what right?
• These days, problems facing the rich countries are often problems the poor countries also
face such as inequality and people being left behind
• How to deal with the world today as economist?
à Banerrjee and Duflo suggest ... to be “hard headed about the facts, sceptical of slick answers and
magic bullets, modest and honest about what we know and understand, and perhaps most
importantly, willing to try ideas and solutions and be wrong”
Inequality is all around
• Growing polarization around the world
• Populism is on the rise: Trump, Bolsonaro, Brexit, the many autocrats in Africa and Asia
• Civilization as we know it, based on democracy and debate, is under threat.
• Back in the Dickensian world of ‘Hard Times’: ’the haves’ face-off against the alienated ‘have-
nots’, no resolution in sight?
• Questions of economic policy are key to present crisis: Is there something that can be done
to boost growth? Should that even be a priority for the affluent West? What about exploding
inequality everywhere?
• As social scientists, we try to offer facts and interpretations of facts we hope will mediate
these divides
Economists and their reputation
• Economists have a lot to say about
o immigration and wages,
o taxes and economic activity,
o redistribution and sloth,
o winner and losers of trade.
• Economist developed theoretical models, and analyze data to understand why some
countries grow and others do not
• Survey in the US: Just 25 percent of people trusted economists about their economic
expertise. Only politicians ranked lower.
• Challenge: Academic economists often have a completely different view on core economic
topics compared to the general public
• Not because they are necessarily more in favor of laissez-fair outcomes than the rest of the
world.
o Economists were (much) more in favor of raising federal taxes (97.4% economists
versus 66% regular Americans).
o Economists had much more faith in the policies pursued after the 2008 crisis (bank
bailouts, stimulus, ...)
Problem: Average academic economist thinks very differently from the average American/person
• Informing individuals about what economists think does nothing to change their point of
view
4
