Development Economics

Citation

Ray, D. (1998). Development Economics. Princeton University Press.

Chapter Summary

The book has eighteen chapters, two appendices, a reference list and indexes, and runs to about 850 pages. Princeton University Press describes it as a synthesis of recent and older literature on development, held together by the idea that much of the development process can be understood by studying factors that impede the efficient and equitable functioning of markets. The detailed contents list shows that the chapters generally close with a summary and exercises.

Chapters 1–2: Introduction; Economic Development: Overview

Chapter 1 is a short introduction of four pages. Chapter 2 surveys the field: income and growth (with historical experience and measurement issues), income distribution in developing countries, the many faces of underdevelopment including human development and an index of it, and structural features such as demographic characteristics, occupational and production structure, rapid rural-urban migration and international trade.

Chapters 3–4: Economic Growth; The New Growth Theories

Chapter 3 begins with the basic features of modern economic growth and then presents theories of growth: the Harrod-Domar model, further considerations beyond it, the Solow model and technical progress. It ends with a section on convergence, covering unconditional and conditional convergence and a re-examination of the data. Chapter 4 turns to the new growth theories: human capital and growth, a second look at conditional convergence, and technical progress as the outcome of deliberate human decisions, with externalities, total factor productivity and the East Asian miracle.

Chapter 5: History, Expectations, and Development

This chapter develops complementarities, with the QWERTY keyboard as an opening example, coordination failure, and the question of linkages and policy. It then contrasts history with expectations, discusses increasing returns (entry into markets, market size, and competition and multiplicity in international trade), and closes with other roles for history, including social norms and the status quo.

Chapters 6–8: Economic Inequality; Inequality and Development: Interconnections; Poverty and Undernutrition

Chapter 6 asks what economic inequality is and presents preliminary observations, then examines how to measure it through four criteria, the Lorenz curve and complete measures of inequality. Chapter 7 links inequality to growth: the inverted-U hypothesis and tests of it, inequality and savings, political redistribution, demand composition, capital markets and human capital, with an appendix on multiple steady states with imperfect capital markets. Chapter 8 covers poverty from first principles, including conceptual issues and poverty measures, followed by demographic features, rural and urban poverty, assets, nutrition and the functional impact of poverty on credit, insurance, labour markets and the household.

Chapters 9–10: Population Growth and Economic Development; Rural and Urban

Two chapters on the demographic side of development and on the relationship between rural and urban areas.

Chapters 11–15: Markets in Agriculture: An Introduction; Land; Labor; Credit; Insurance

The longest block of the book, about 220 pages, turns to rural markets: an introduction to agricultural markets, followed by separate chapters on land, labour, credit and insurance. The publisher singles out moral hazard in land contracts and information-based theories of credit markets among the topics treated.

Chapters 16–18: International Trade; Trade Policy; Multilateral Approaches to Trade Policy

The final chapters take up international trade, trade policy, and multilateral approaches to trade policy.

Appendices: Elementary Game Theory; Elementary Statistical Methods

Two appendices supply background in game theory and in statistical methods.

Key Concepts

Growth and Coordination (Chapters 3–5)

• Harrod-Domar and Solow models: the two growth models presented in Chapter 3.
• Convergence: whether poorer economies tend to catch up with richer ones, discussed in unconditional and conditional forms.
• Coordination failure: outcomes in which complementarities between decisions leave an economy stuck in a poor equilibrium.
• History versus expectations: whether an economy's path is fixed by its past or by what people expect.

Inequality, Poverty and Population (Chapters 6–10)

• Lorenz curve and inequality measures: a graphical and numerical way of describing the distribution of income.
• Inverted-U hypothesis: the proposition that inequality first rises and then falls as income grows.
• Poverty measures: ways of counting and summarising the poor, discussed together with nutrition and assets.

Rural Markets and Trade (Chapters 11–18)

• Land, labour, credit and insurance markets: the markets examined one by one in the rural economy.
• Trade policy: the design and effects of policy towards international trade, with a chapter on multilateral approaches.

Critical Analysis

Strengths

• A unifying idea. The publisher states that the treatment is organised around impediments to the efficient and equitable working of markets, and says that topics as different as the new growth theory, moral hazard in land contracts, information-based theories of credit markets and the macroeconomic implications of inequality are brought under this one view. A reader is offered a framework rather than a catalogue of topics.
• Detailed structure. The contents list breaks the early chapters into many named sections, ending with a summary and exercises, which makes it easy to locate specific topics and to review.
• Self-contained background. Princeton states that only introductory economics is assumed and the mathematics is kept to a minimum, and the two appendices on elementary game theory and statistical methods provide tools for readers who need them.
• A notable endorsement. Amartya Sen, quoted in the publisher's listing, praises the combination of theoretical reasoning with attention to empirical circumstances and to institutional possibilities and limits.

Limitations

• Dated. The book appeared in 1998 and the sources show no later edition, so research since then is not included.
• Narrower than a policy survey. The contents list has no separate chapters on education and health, the environment, or foreign finance and aid, which are given chapters of their own in the contents list of Todaro and Smith.
• Answers are restricted. Ray's website states that instructors can obtain answers to the end-of-chapter problems on request, so a self-taught reader may have no key.
• Size. At about 850 pages the book is more than one course can cover, so selection is necessary.

Where It Fits in the Course

Ray is the theory-oriented undergraduate text on this list. Todaro and Smith's Economic Development covers many of the same topics in a policy-oriented way with country case studies, and works as a broader companion or alternative. Ian Goldin's Development: A Very Short Introduction is a brief starting point that asks what development means and how it happens, and Banerjee and Duflo's Poor Economics draws on randomised field experiments to explain household decisions about food, health, schooling and savings, which supplies post-1998 evidence that Ray's book cannot.

For graduate study, Bardhan and Udry's Development Microeconomics is a concise text on the microeconomic theory of poor economies, with models of households, contracts and imperfect information that cover land, labour, credit and insurance markets, the subject of Ray's Chapters 11 to 15. De Janvry and Sadoulet's Development Economics: Theory and Practice is a graduate-level text that connects theory, evidence and the design and evaluation of policy.

How to Use This Book

Princeton describes the book as requiring only introductory economics and keeping the use of mathematics to a minimum. Intermediate microeconomics is a helpful extra preparation for the later chapters on land, labour, credit and insurance, though the publisher does not require it.

A practical plan:

• Core: Chapter 2 for orientation, Chapters 3 and 5 for growth and coordination failure, and Chapters 6 to 8 for inequality and poverty.
• Extension: Chapter 4 for newer growth theory; Chapters 9 and 10 for population and rural-urban questions; Chapters 11 to 15 for the economics of agricultural markets, credit and insurance; Chapters 16 to 18 for trade.
• Tools: Keep the two appendices at hand: game theory for the strategic reasoning behind coordination failure, and statistics for the discussion of data, if either is unfamiliar.

Use the summaries and exercises at the end of each chapter as checks, and consult the author's website about problem answers if the book is used in a course. Pair the book with a more recent source for empirical work, since it predates the experimental evidence that now shapes much of the field.