Economics and Institutions for Development
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This module is an introduction to the various economic and institutional frameworks that are commonly used to analyse poverty in poor rural economies. These analytical frameworks (or models) focus on the different variables that affect people’s livelihoods and how these variables relate to each other. They allow development analysts to think more rigorously about the processes of development, the constraints to development and what needs to be done to overcome these constraints.
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Objectives and learning outcomes of the course
By the end of the module students should be able:
- To evaluate critically the concept of development and what it means from the perspective of both nations and individual livelihoods.
- To apply economic and institutional frameworks to the analysis of development problems.
- To explain the concept of optimal resource allocation in microeconomics and discuss associated policy implications vis-à-vis domestic and international trade.
- To describe the main macroeconomic variables, how they relate to each other, and what governments do to influence them.
- To explain what is meant by ‘institutions’ and how they affect transaction costs and the development of market supply chains.
- To compare the various institutional approaches to analysing environmental problems and improving natural resource management.
- To evaluate critically some of the political obstacles to development.
Scope and syllabus
The module comprises four parts.
Part 1 consists of two units and provides introductions to the concept of development (Unit 1) and the discipline of economics (Unit 2). The subject matter in this part of the module is broad and provides an overview of the module’s key concerns.
Part 2 provides an overview of some of the basic building blocks of modern economics. These are a series of interrelated micro- and macroeconomic models that are the foundations upon which most of modern day economics stands. They typically come under the heading of ‘neo-classical economics’ and their focus is on variables such as profit, income, and welfare, and what influences their size and monetary value. The models focus on the most immediate influences, such as costs, market prices, and the way resources are used. They do not encompass deeper issues relating to institutions, politics, history and how resource use is affected by these variables. The first unit, Unit 3, provides an introduction to production economics and the theory of the firm. It looks at how decisions regarding inputs and outputs affect profitability. Unit 4 looks at the related issues of business costs and factor (input) markets and how they shape short-run and long-run supply curves. Unit 5 moves the focus away from individual producers to the broader issues of market structure, market failure, and welfare economics. The final unit in this part of the module, Unit 6, provides an overview of macroeconomics and trade.
Part 3 builds on the models of Part 2 by introducing frameworks from the so-called New Institutional Economics (NIE) which offer deeper insights into the problems of development. Whereas the frameworks in Part 2 look at the most immediate influences on income and welfare, this part looks at how institutions (organisations, customs, formal and informal rules etc) affect the ability of individuals and firms to use resources profitably and in a sustainable way. Unit 7 provides an overview of some the core concepts of NIE and familiarises students with the NIE response to some of the weaknesses of neo-classical economic models. Unit 8 expands on some of the ideas that were introduced in Unit 7 by applying them specifically to the goal of improving the performance of markets in developing countries. Finally, Unit 9 introduces institutional perspectives on the way natural resources and the environment are exploited and looks at the role that property rights play in this.
Part 4 consists of just one unit (Unit 10). It concludes the module by considering the processes and challenges of development in the light of the various economic models and theories presented in the earlier units, whilst also adding to this analysis insights from political economy and political science.
The module is necessarily broad and covers a wide range of material. The module is designed both to provide an introduction to essential economics theory to students who have not studied economics before and, particularly in Parts 3 and 4, to introduce institutional economics that will be new to many students who have studied economics before. Students who have not studied economics before are likely to find the amount of material in the units in Part 2 challenging, as these units have to set out the core concepts in economics needed to critique and apply these concepts in more advanced ways in Parts 3 and 4. Note, however, that these units also have fewer readings. This structure is inevitable when approaching a new subject in a postgraduate programme. However, we hope that you will find the concepts and the way that they are presented accessible, interesting, and immediately relevant and applicable to our understanding of and engagement with the world around us.
Students who have studied some economics before should find much of Part 2 of this module a useful ‘refresher’, but they should also find that understanding challenged and taken further by the introduction of new concepts and by new questions about the application of economics and institutional analysis to development understanding and practice.