Economic Development in the Long-Run: Theory and Empirics

2022/2023

Academic Year

ENG

Instruction in English

3

ECTS credits

Delivered by:

Department of Theoretical Economics

Type:

Mago-Lego

When:

4 module

Instructor

Arbatli, Cemal E.

Course Syllabus

Abstract

Most affluent countries of the world today are about 30 times richer than those at the very bottom. How can we explain such vast differences in levels of prosperity across nations? To what extent can we understand these gaps in prosperity by analyzing factors that mattered only over the past few decades? Or shall we seek the answers in deeper developmental factors over the past few centuries, or the past few millennia? Is global inequality likely to persist unless action is taken, or shall we expect a convergence to take place through natural processes of economic development? If contemporary differences in living standards have “deep” historically-rooted origins, to what extent can policies help reduce global inequality today? This course will present a unified theory of economic growth and introduce the seminal body of empirical evidence on long-run comparative development to help us think about these and related questions. Some of the topics we will cover include: Malthusian stagnation during the pre-industrial stage of economic development; the importance of demographic transition and human capital formation in the course of industrialization; the persistent legacy of colonialism, slavery, and ethnic fragmentation in shaping contemporary politico-economic institutions; and the enduring effects of geography on comparative development, through its impact on the timing of the transition to agriculture and its influence in shaping the ancestral compositions of human populations across the globe. This is a one-module-long course. We will begin with a descriptive analysis of the process of long-run economic development, documenting stylized facts regarding the Malthusian stagnation in income per capita across societies over the vast portion of mankind’s history until the Industrial Revolution. We will document how industrialization and the associated phenomenon of the demographic transition ultimately permitted some societies to escape from the Malthusian “trap” earlier than others and enter a modern regime of sustained growth in income per capita –leading to a phenomenon referred to as the Great Divergence. We will do a brief overview of neoclassical (Solow) model of economic growth and the endogenous (or innovation-based) theory of modern economic growth that are helpful in understanding the growth experience of industrialized countries over the last century. Then we will see how a more unifying framework for understanding the entire growth experience of societies from the pre-industrial epoch of mankind’s history to the modern era can help us gain new insights about the deep-rooted sources of contemporary wealth differences among countries. We will then move on to study the basic building blocks of a unified theory of economic growth in the very long run, including (a) the Malthusian hypothesis, an analytical framework that describes the aggregate behavior of pre-industrial societies; and (b) the so-called demographic transition of some societies from a high-fertility regime to a low-fertility regime, which enabled their “take-off” from the long epoch of Malthusian stagnation in income per capita during the process of industrialization. Our analyses of these building blocks will culminate to an examination of the powerful Unified Growth Theory, a micro-founded model that formalizes the aggregate behavior of an economy over the entire process of development, beginning with an epoch of Malthusian stagnation, leading to industrialization and the demographic transition, and ultimately, to the modern era of sustained economic growth. The rest of the course will be devoted to studying the roots of comparative economic development. We will trace the origins of differences in the wealth of nations today to various mechanisms that influenced the timing of the “take-off” to the modern growth regime over the last two centuries. To this effect, we will examine several hypotheses that have been set forth by long-run growth economists and economic historians regarding the roles of (a) geography; (b) political institutions; (c) cultural characteristics; and (d) human capital formation. We will end the course with a discussion of some exciting and provocative hypotheses regarding the role of “deeply rooted” prehistoric factors in contributing to aggregate economic differences across societies today such as (a) the differential timing of the transition from hunting and gathering to agriculture during the Neolithic Revolution; and (b) the “out of Africa” migration of humans during the initial populating of the world tens of thousands of year ago. n the 4th module of 2019/2020 academic year all classes will be switched to online format via ZOOM.