This is an outline of a series of lectures on the topic:

     

    Understanding Poverty and Inequality Across and Within Countries: An empirical approach

     

    given by Francis Teal at the University of Nottingham in September 2015.

    The course draws on material from the book Empirical Development Economics.

     

    Objective and structure of the course

     

    In this course the objective is to investigate why we observe such large differences in income across and within countries. In summary we wish to know: what are the fundamental causes of poverty and inequality? The course will be structured, not by telling you the answer to that question, but by providing you with the means of answering it yourself. With that objective in mind the focus will be on the data needed to address the question being posed. The data presented will be cross section, time series and panel. While the econometric problems posed by the use of different types of data will be stressed the techniques themselves will not be the central focus. The focus will be on how data can best be used and which type of data can answer which type of question.

     

    The course concludes with a discussion of the changes in income distribution across the world and an examination of the possible reasons for the patterns of change within the UK and the US which have seen a large increase in the share of income going to the highest incomes. The students will be asked to discuss how the concepts and techniques that have been covered in the previous topics can, in principle, be used to understand the mechanisms that underlie the changes shown by the data. As with all the topics exactly what the data does show will be a major issue.  

     

    The course covers five mornings. Each morning will consist of a lecture and then computer class where students will be asked to analyse data relevant to the topic being covered.

     

    Day 1: Topics 1 and 2 –          Incomes, Poverty and Productivity.

    Day 2: Topics 3 and 4 –          Means of Poverty Reduction.

    Day 3: Topics 5 and 6 –          Firm and Enterprise Size, Efficiency and Growth.

    Day 4: Topic 7             –          Trade, Exporting and the Demand for Labour.

    Day 5: Topic 8             –          Inequality.

     

    Powerpoint slides can be found under the dropdown menu for this page.

     

    Textbook for course:

    Måns Söderbom and Francis Teal - Markus Eberhardt, Simon Quinn and Andrew Zeitlin

    Empirical Development Economics, Routledge, 2014. (EDE)

     

    Topic 1            Poverty, Income and Assets

     

    Questions:

    How is poverty linked to processes of income formation? Who are the poor and why are they poor? How does the price of labour link to access to land and access to human and physical capital?

     

    Models and methods:

    The production and earnings function. Basic regression methods.  

     

    Key readings:

     

    EDE Chapters 1-5.

     

    Mortensen, D. T. Wage Dispersion: Why are similar workers paid differently? MIT Press, Cambridge, Massachusetts, 2003.

     

    Teal, F. “The price of labour and understanding the causes of poverty”. Labour Economics, Volume 18, Supplement 1, December 2011, Pages S7-S15.

     

    Falco, P., A. Kerr, N. Rankin, J. Sandefur and F. Teal “The returns to formality and informality in urban Africa” Labour Economics Volume 18, Supplement 1, December 2011, Pages S23–S31 Labour markets in developing countries

     

    Topic 2                        Sources of Productivity Differences

     

    Questions:

    How are differences in income at the level of the individual or household linked to differences in productivity at the farm or firm level? Why do we observe differences in productivity levels between urban and rural areas? What are the implications of the answers to those questions for macro modelling of the determinants of income?

     

    Models and methods:

    Panel regression and GMM estimators

     

    Key readings:

     

    EDE: Section III Chapters 9-11, Chapter 24.

     

    Hall, R. E. and Jones, C. I. “Why do some countries produce so much more output per worker than others?” Quarterly Journal of Economics, 1999, 114: 83-116.

     

    Francesco Caselli and Wilbur Coleman “The World Technology Frontier” American Economic Review Vol. 96, No. 3 (Jun., 2006), pp. 499-522

     

    Baptist, S. and F. Teal “Why do South Korean firms produce so much more output per worker than Ghanaian ones?”  IZA Discussion Paper 2015.

     

    Topic 3            Microcredit and Poverty Reduction

     

    Questions:

    Is microcredit a means of reducing poverty? Is a focus on households the means to understand how poverty can be reduced? How is poverty linked to access to wage employment?

     

    Models and methods:

    Using RCTs to understand poverty.  Impact evaluation and the formulation of the counterfactual.

     

    Key readings:

     

    EDE: Chapter 22.

     

    Pitt, Mark and Shahidur Khandker, (1998) “The Impact of Group-Based Credit Programs on Poor Households in Bangladesh: Does the Gender of Participants Matter?” Journal of Political Economy, 106 (5), 958-996.

     

    Roodman, D. and J. Morduch (2013) “The impact of microcredit on the poor in Bangladesh: Revisiting the evidence”, Centre of Global Development, Working paper 174, May 2009 (revised June 2013) forthcoming Journal of Development Studies.

     

     

     

     

    Topic 4                        Inequality and the Shape of the Earnings Function

     

    Questions:

    How is the shape of the earnings function related to the determinants of inequality? Will investment in education lead to a reduction or an increase in income and/or inequality?

     

    Models and methods:

    Selection and heterogeneity.

     

    Key readings:

     

    EDE: Chapters 5 and 23.

     

    Bigsten, Arne, Paul Collier, Stefan Dercon, Marcel Fafchamps, Bernard Gauthier, Jan Willem Gunning, Anders Isaksson, Abena Oduro, Remco Oostendorp, Cathy Pattillo, Måns Söderbom, Francis Teal, Albert Zeufack, and Simon Appleton “Rates of return on physical and human capital in Africa's manufacturing sector.” Economic Development and Cultural Change, Vol. 48 pp. 801-827, 2000.

     

    Falco, P., A. Kerr, N. Rankin, J. Sandefur and F. Teal “The returns to formality and informality in urban Africa” Labour Economics Volume 18, Supplement 1, December 2011, Pages S23–S31 Labour markets in developing countries

     

    Topic 5                        Enterprise Size and Efficiency

     

    Questions:

    Are small firms/farms inefficient with low levels of productivity and should therefore be replaced by larger more efficient ones? Are large firms too capital intensive thus preventing the growth of demand for unskilled workers which is key to the process of poverty reduction?

     

    Models and methods:

    Panel methods and the importance of unobservables.

     

    Key readings:

     

    EDE: Chapter 24.

     

    Lamb, R. L. “Inverse productivity: land quality, labor markets and measurement error” Journal of Development Economics, 2003, 71: 71-95.

     

    Söderbom, M. and F. Teal “Size and Efficiency in African Manufacturing Firms: Evidence from Firm-Level Panel Data” Journal of Development Economics, 2004, 73, pp. 369-394.

     

    Måns Söderbom, Francis Teal and Anthony Wambugu “Unobserved heterogeneity and the relation between earnings and firm size: Evidence from two developing countries” Economic Letters, 87, (2005) 153-159.

     

     

     

    Topic 6                        Firm Growth and Survival

     

    Questions:

    Why do we observe the size distribution of firms in the economy that we do (and why do we care)? Is firm growth related to the underlying efficiency of the firms being formed? How important is selection in patterns of firm growth?

     

    Models and methods:

    Logit and Probit models

     

    Key readings:

     

    EDE: Section V, Chapters 15-18.

     

    Luttmer, E. G.J. “Selection, growth and the size distribution of firms” The Quarterly Journal of Economics, August 2007

     

    Cabal, L.M.B  and  Mata, J.  “On the Evolution of the Firm Size Distribution: Facts and Theory” The American Economic Review, September 2003, Vol. 93 No. 4 pp.1075-1090.

     

    Justin Sandefur “On the Evolution of the Firm Size Distribution in an African Economy” CSAE WPS/2010-05

     

    Chang-Tai Hsieh and Peter J. Klenow “The Life cycle of plants in India and Mexico” The Quarterly Journal of Economics,  Vol. 129 August 2014 Issue 3

     

    Måns Söderbom, Francis Teal and Alan Harding.  “The determinants of survival among African manufacturing firms”, Economic Development and Cultural Change, Vol. 54, No. 3, April 2006, pp. 533-555.

     

    Topic 7                        Trade, Exporting and the Demand for Labour

     

    Questions:

    What determines exporting at the level of the firm/farm? Do firms learn from exporting and/or self-select into exporting? How does exporting link to the growth in incomes and the demand for labour? Why has Africa not developed a basis for manufacturing exports?

     

    Models and methods:

    Logit and Probit models

     

    Key readings:

     

    EDE: Section V, Chapters 15-18.

     

    Arne Bigsten,  Paul Collier, Stefan Dercon, Marcel Fafchamps, Bernard Gauthier, Jan Willem Gunning, Måns Söderbom, Abena Oduro, Remco Oostendorp, Cathy Pattillo, Francis Teal, and Albert Zeufack “Do African Manufacturing Firms Learn from Exporting?” Journal of Development Studies, Vol. 40, No.3, February 2004, pp. 115-141

     

    Teal, F. "The size and sources of economic rents in a developing country manufacturing labour market", Economic Journal, July 1996.

     

     

     

    Topic 8                        Inequality: From micro data to macro questions

     

    Questions:

    How can/should poverty be measured? How can levels of poverty be compared across countries? How has the world distribution of income changed? What can explain the patterns we observe in the data?

     

    Key readings:

    Angus Deaton and Alan Heston (2010) “Understanding PPPs and PPP-based National Accounts”, American Economic Journal: Macroeconomics, 2:4, 1–35

     

    Christoph Lakner and Branko Milanovic “Global income distribution from the fall of the Berlin Wall to the Great Recession” World Bank Economic Review, 2015.

    Link to the online first version:

    http://wber.oxfordjournals.org/content/early/2015/08/12/wber.lhv039.abstract

     

    Topics for Discussion

     

    1.         Why do some countries produce so much more output than others?

     

    2.         There is much evidence that smaller firms and farms are more labour intensive than larger ones. What are the implications of this finding for understanding differences in income within a country and changes in income over time?

     

    3.         Can single sector models explain either differences in income or differences in growth rates?

     

    4.         How is inequality related to the growth of incomes?