MIT-14.772: Development Economics: Macroeconomics, Spring 2013

This course emphasizes dynamic models of growth and development. Topics covered include: migration, modernization, and technological change; static and dynamic models of political economy; the dynamics of income distribution and institutional change; firm structure in developing countries; development, transparency, and functioning of financial markets; privatization; and banks and credit market institutions in emerging markets. At MIT, this course was team taught by Prof. Robert Townsend, who taught for the first half of the semester, and Prof. Abhijit Banerjee, who taught during the second half. On OCW we are only including materials associated with sessions one through 13, which comprise the first half of the class.

Course Description


This class contributes to the fulfillment of requirements for the Development field for Economics Ph.D. students at MIT. Students should have taken or be concurrently taking:

14.121 Microeconomic Theory I

14.451 Macroeconomic Theory I

14.382 Econometrics I


The grade will be based on:

  • Class participation
  • Three problem sets
  • Mid-term exam
  • Research proposal

Problem Sets

Two problem sets will cover theoretical and empirical problems related to papers discussed in class. One problem set will consist of an empirical exercise that will extend material covered in class.

Research Proposal

The research proposal should consist of a research strategy to address questions that came up during the class. Ideally such proposals could lead to a third year paper. We will discuss the proposals during the last lecture of the class. We plan to have three or four students presenting their proposals. All research proposals are due in the last lecture.

Development / Macro Seminar

The students in this class were encouraged to attend the Development seminar or the Macro seminar on MIT's campus. The following topics were covered:

  • Micro-founded macro models
  • Models with limited commitment
  • Beyond limited commitment: Adverse selection, moral hazard, and their interaction
  • Measurement: Financial accounts; household to national levels
  • Risk-sharing and targeting
  • Finance, CAPM
  • Links to the macro literature: Incomplete markets
  • Labor: Intensive / extensive and aggregation
  • Explicit barriers and obstacles
  • Program evaluation
  • Expanding financial service and impact: Reduced form to structural method

Lectures in this course

Lecture 1 Finance, Growth, and Volatility: Theory, Data, and the Formulation of Policy
Lecture 2 Micro-Founded Macro Models
Lecture 3 Growth, TFP, and Inequality with Financial Market Imperfections
Lecture 4 Growth, TFP, Domestic and International Capital Flows with Other Friction in Financial Intermediation
Lecture 5 Measurement in Development
Lecture 6 Insurance: From Village Insurance to Financial Access and Targeting to Risk Instruments
Lecture 7 Capital Asset Pricing
Lecture 8 Macro Approaches to Consumption Smoothing and Risk Sharing
Lecture 9 Labor and Development
Lecture 10 Dynamic Financial Constraints
Lecture 11 Evaluation of a Large Scale Microfinance Experiment
Lecture 12 From Reduced-Form to Structural Evaluation: Expanding Financial Infrastructure and Impact


Starts August 18, 2015

Course at a Glance

10 weeks of study 2-4 hours/week English English & Vietnamese subtitles