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THE  PRIVATE  SECTOR’  ROLE  IN  INTERNATIONAL  DEVELOPMENT  

FALL  2015  

Professor  Jonas  Hjort  

Uris  622  

212-­‐854-­‐5957  

hjort@columbia.edu  

 

COURSE  DESCRIPTION  

Most  of  the  world’s  economic  growth  going  forward  will  occur  in  emerging  markets.  Countries  that  were  previously  seen  as  hopeless   “basket   cases”  –   including  many   in   Latin  America  –  are  now  seen  as  exciting,  untapped  opportunities   for  actors   in   the   private   sector.   Conversely,   the   essential   role   of   the   private   sector   in   generating   sustainable   economic  growth  is  increasingly  recognized  by  development  policymakers.  

To   successfully   operate   in   countries   with   weak   legal   and   political   systems   and   poorly   functioning   capital   and   factor  markets,  you  need  a  different   framework  for  analyzing  challenges  and  opportunities.  But  such  a   framework  must  also  recognize   the   ethical   challenges   faced  when   operating   in   less   rule-­‐based   economies   and   the   opportunity   for   greater  positive  social   impact   in  poor  countries.    The   four  class  sessions   that  comprise  my  teaching   (1   in   the  September  class  week,  2  in  the  Mexico  week  and  1  in  the  November  class  week)  will  be  about  developing  such  a  framework.    In  addition  to  these  four  class  sessions,  the  week-­‐long  IPADE-­‐led  course  experience  in  Mexico  City  will  deal  largely  with  the  impact  and  importance  of  corporate  social  responsibility  particularly  when  operating  in  less  developed  countries.        

In  our  four  class  sessions  we  shall  cover  themes  such  as    

-­‐  Contractual  issues,  how  to  maneuver  in  weak  political  systems  and  CSR  

-­‐  How  to  bring  new  technologies  and  managerial  progress  to  poor  countries  

-­‐  Natural  resource  sectors  and  labor  issues  

In  each  session  we  will  define  a  particular  set  of  issues  and  start  by  developing  a  framework  of  analysis,  usually  derived  from  economics.  We  learn  how  the  framework  can  be  applied  to  specific  cases  and  examples,  and  go  through  the  latest  research  in  the  field,  before  rounding  off  with  practical  take-­‐aways.  

 

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One  thing  that  is  important  to  note  is  that,  while  this  course  is  not  about  learning  specific  ways  to  make  money  in  poor  countries,   the   course   is   equally   useful   for   those  wanting   to   do   business   and   those  wanting   to  work   on   development  policy.    

For  the  material  covered  in  our  four  class  sessions  together,  grading  will  be  based  on  a  brief,  in-­‐class  team  assignment  in  Mexico  City,  a  longer  individual  assignment  afterward,  and  class  participation.    In  addition,  a  separate  grade  will  be  given  by   IPADE  for  the  course  work  done   in  the  week-­‐long  experience  there  which  will   take  the  form  of  an   individual  paper  due  at  the  end  of  that  week.    A  single,  final  course  grade  will  be  awarded  based  on  both  of  the  aforementioned  grades  and  this  grade  will  be  your  official  grade  for  the  course.      

 

CLASS  PREPARATION  

Readings:  

A  course  packet,  which  includes  nearly  all  of  the  readings  and  cases,   is  required.    There  is  no  textbook  for  this  course.    For   each   topic,   there   will   be   a   set   of   assigned   readings,   sometimes   including   cases,   which   will   help   develop   the  underlying  concepts  and/or  provide  examples.    It  is  essential  that  you  read  these  materials  prior  to  class.    

Extra  Readings:  

This  course  provides  a  broad  survey  of  many  issues,  and  at  times  you  may  want  to  read  further  about  issues  of  personal  interest.     The   reading   list   will   therefore   also   point   to   resources   where   you  may   find  more   extensive   (and   technical)  analysis.    These  readings  are  entirely  optional,  and  are  meant  simply  to  provide  a  reference  for  you  now  or  in  the  future.  

 

CLASS  SCHEDULE  Class   Topic  Sept  in  NY  

1.  Welcome  and  overview  of  the  course:  Why  are  emerging  markets  still  emerging?  2.  Contractual  problems  and  investor  protection  

M.C.  1   1.  The  organization  of  firms  and  the  private  sector  in  developing  countries  2.  Technology  adoption  

M.C.  2   1.  Exploiting  natural  resources  in  developing  countries  2.  Low  wages  and  labor  issues  

Nov  in  NY  

1.  Politics  and  corruption  2.  Social  enterprise  and  CSR  

                 

 

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READINGS    Sept  in  NY:     1.  Welcome  and  overview  of  the  course:  Why  are  emerging  markets  still  emerging?       2.  Contractual  problems  and  investor  protection  Readings  part  1:  1. Easterly,  “The  Ideology  of  Development,”  Foreign  Policy  July/August  2007  2. Spence  Commission  Report  -­‐  

http://www.growthcommission.org/index.php?option=com_content&task=view&id=96&Itemid=169  [watch  the  video  only]  

3. Pritchett,  “Divergence,  Big  Time”  in  Meier  &  Rauch,  Leading  Issues  in  Economic  Development  4. Anand,  Khanna,  and  Rivkin,  “Market  Failures”,  Harvard  Business  School:  Note,  April  2000  [read  pp.  1-­‐7  only]  5. Prahalad  and  Hart,  “The  Fortune  at  the  Bottom  of  the  Pyramid”,  Strategy  and  Business  Issue  26,  

http://www.csrwire.com/pdf/Prahalad-­‐excerpt-­‐001-­‐022.pdf  Optional  readings  part  1:  1. “Bulging  in  the  Middle”,  The  Economist,  October  20  2012  2. Mallaby,  “The  politically  incorrect  guide  to  ending  poverty,”  The  Atlantic  2010  

(http://www.theatlantic.com/magazine/archive/2010/07/the-­‐politically-­‐incorrect-­‐guide-­‐to-­‐ending-­‐poverty/8134/)    3. Miguel,  “Africa  Unleashed”,  Foreign  Policy,  November/December  2011  4. Jones,  review  of  “The  Next  Convergence:  The  Future  of  Economics  Growth  in  a  Multispeed  World”  by  Spence,  

http://www.stanford.edu/~chadj/ScienceBookReview2011.pdf    5. Acemoglu,  Johnson,  and  Robinson,  “Institutions  as  a  Fundamental  Cause  of  Long-­‐Run  Growth”,  Handbook  of  

Economic  Growth  (ch.  6),  2005  6. Sachs,  J.D.  and  Warner,  A.  (1997)  ‘Sources  of  Slow  Growth  in  African  Economies’,  Journal  of  African  Economies  6:  

335–76.  7. Rodrik,  “Second  Best  Institutions,”  NBER  Working  Paper  14050    Readings  part  2:  1. Besanko,  Dranove,  Shanley,  and  Schaefer,  Economics  of  Strategy,  3rd  Edition,  2004,  p.  127-­‐136  2. “Thais  make  a  mess  of  their  muddling,”  Financial  Times,  June  22,  1993  3. “Chinese  Exporters  Stumble  over  IP,”  Financial  Times,  July  25,  2003  4. “Protecting  intellectual  property  in  China”,  The  McKinsey  Quarterly,  August  2005  5. “Fake  and  poor  quality  malaria  drugs  risk  crisis  in  Africa,  warn  scientists”,  The  Guardian,  January  16,  2012  Optional  readings  part  2:  1. Fisman,  “The  Highest  Form  of  Flattery”,  Slate,  May  30,  2011  2. “A  Local  Firm’s  Baffling  Trip  Through  China’s  Arbitration  System”,  Los  Angeles  Times,  December  26,  2003  3. Alexander  Dyck  &  Natalya  Volchkova  &  Luigi  Zingales,  2008.  "The  Corporate  Governance  Role  of  the  Media:  Evidence  

from  Russia,"  Journal  of  Finance,  vol.  63(3),  pages  1093-­‐1135,  06.  4. Johnson,  McMillan  and  Woodruff,  “Property  Rights  and  Finance”,  American  Economic  Review,  92(5),  2002  5. “A  gathering  storm”,  The  Economist,  June  9,  2007    6. “Inside  Pfizer’s  fight  against  counterfeit  drugs”,  Bloomberg  Businessweek,  January  17,  2013  7. Zhao,  “Doing  R&D  in  Countries  with  Weak  IPR  Protection:    Can  Corporate  Management  Substitute  for  Legal  

Institutions?”,  Management  Science,  2008.  8. Branstetter,  Fisman  and  Foley.  "Do  Stronger  Intellectual  Property  Rights  Increase  International  Technology  Transfer?  

Empirical  Evidence  From  U.S.  Firm-­‐Level  Panel  Data,"  Quarterly  Journal  of  Economics,  2006,  v121(1,Feb),  321-­‐349.  9. Michael  Kremer,  Rachel  Glennerster  and  Heidi  Williams,  "Creating  Markets  for  Vaccines,"  Innovations,  2006,  1(1):  67  

–  79  (http://www.economics.harvard.edu/faculty/kremer/files/innovationsFinal.pdf)  10. Maskus,  “Ensuring  Access  to  Essential  Medicines:  Some  Economic  Considerations”,  mimeo  UC  Boulder,  2002    

 

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M.C.  1:     1.  The  organization  of  firms  and  the  private  sector  in  developing  countries       2.  Technology  adoption    Readings  part  1:  1. Sargent,  “Getting  to  Know  the  Neighbors:    Grupos  in  Mexico”,  Business  Horizons,  2001.  2. Khanna  and  Yafeh  (2007),  “Business  Groups  in  Emerging  Markets:  Paragons  or    Parasites?”  Journal  of  Economic  

Literature  XLV:  331-­‐372  (June),  sections  1  –  3    3. Bloom,  Genakos,  van  Reenen  and  Sadun,  “Management  practices  across  firms  and  countries”,  Academy  of  

Management  Perspectives,  2012  4. Bertrand  and  Schoar,  "Managing  with  Style:  The  Effect  of  Managers  on  Firm  Policies.",  Quarterly  Journal  of  

Economics,  2003,  118(4),  pp.  1169-­‐208,  sections  I,  II  and  VII    5. “Give  Sam  Walton  the  Nobel  Prize”,  Foreign  Policy,  May/June  2013  Optional  readings  part  1:  1. “The  masala  Mittelstand”,  The  Economist,  August  11,  2012    2. “Transforming  Indonesia’s  Business  Groups”,  The  Jakarta  Post,  January  18,  2008  3. “Many  Wall  Street  Banks  Woo  Children  of  Chinese  Leaders”,  New  York  Times,  August  20,  2013  4. “India’s  Woes  Reflected  in  Bid  to  Restart  Old  Plant”,  New  York  Times,  March  22,  2010  5. McKenzie,  de  Mel  and  Woodruff,  “Returns  to  Capital  in  Microenterprises:  Evidence  from  a  Field  Experiment”,  

Quarterly  Journal  of  Economics,  123(4),  2008  6. Tybout,  “Manufacturing  Firms  in  Developing  Countries:  How  Well  Do  they  Do,  and  Why”,  Journal  of  Economic  

Literature,  38(1),  2000  7. Almeida  et  al.,  “The  structure  and  formation  of  business  groups:  Evidence  from  Korean  chaebols”,  Journal  of  

Financial  Economics,  2011  8. Bloom,  Eifert,  Mahajan,  McKenzie  and  Roberts,  “Does  management  matter:  evidence  from  India”,  forthcoming  in  

Quarterly  Journal  of  Economics  (http://www.stanford.edu/~nbloom/DMM.pdf)    9. Bloom  and  van  Reenen,  “Why  do  management  practices  differ  across  firms  and  countries?”,  Journal  of  Economic  

Perspectives,  2010    Readings  part  2:  1. Jack,  Stoker  and  Suri,  “Documenting  the  birth  of  a  financial  economy”,  Proceedings  of  the  National  Academy  of  

Sciences,  109(26),  2012  2. “Africa’s  mobile  economic  revolution”,  The  Guardian,  July  23,  2011  3. “Upwardly  mobile:  Kenya’s  technology  start-­‐up  scene  is  about  to  take  off”,  The  Economist,  August  25,  2012  4. “Pakistan  Defends  Its  Soccer  Industry”,  Wall  Street  Journal,  April  26  2010  Optional  readings  part  2:  1. Foster  and  Rosenzweig,  “Microeconomics  of  Technology  Adoption”,  

(http://www.econ.yale.edu/growth_pdf/cdp984.pdf)    2. Jack  and  Suri,  “Mobile  Money:  The  Economics  of  M-­‐Pesa”  (http://www.mit.edu/~tavneet/M-­‐PESA-­‐Final2.pdf)    3. Aker  and  Mbiti,  “Mobile  Phones  and  Economic  Development  in  Africa”,  Journal  of  Economic  Perspectives,  24(3),  

2010  4. Boston  Review  forum  “Can  Technology  End  Poverty?”,  various  articles  

(http://www.bostonreview.net/BR35.6/ndf_technology.php)    5. “The  Allure  of  Low  Technology,”  The  Economist,  December  20,  2003  6. Fafchamps  and  Quinn,  “Networks  an  Manufacturing  firms  in  Africa:  Initial  Results  from  a  Randomised  Experiment”,  

(http://www.dartmouth.edu/~neudc2012/docs/paper_241.pdf)    7. “A  Guide  in  Africa”,  The  Economist,  February  23  2013  8. “Is  it  a  phone,  is  it  a  bank?”,  The  Economist,  March  30  2013    

 

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M.C.  2:     1.  Exploiting  natural  resources  in  developing  countries       2.  Low  wages  and  labor  issues    Readings  part  1:    1. “The  Paradox  of  Plenty”,  The  Economist,  December  24,  2005  2. Note  on  Conflict  Diamonds:  “Why  Are  Civil  Wars,  Like  Diamonds,  Forever?”  HBS  9-­‐702-­‐027    3. “China,  Filling  a  Void,  Drills  for  Riches  in  Chad,”  The  New  York  Times,  Aug  13,  2007.    4. Fisman,  “Diamonds  Are  a  Guerilla’s  Best  Friend”,  Slate,  August  17,  2007  5. Interview  with  Adriana  Giudice,  CEO  of  Austral.  Available  at:  http://www.pcfisu.org/marine-­‐programme/case-­‐studies/peruvian-­‐anchovy-­‐fishery/  Optional  readings:  1. “Tackling  the  Oil  Curse,”  The  Economist,  September  25,  2004    2. “More  than  Minerals”,  The  Economist,  March  23  2013  3. La  Ferrara  and  Guidolin,  “Diamonds  are  Forever,  Wars  are  Not.  Is  Conflict  Bad  for  Private  Firms?”,  American  

Economic  Review,  97(5),  2007  4. Le  Billion,  “Angola’s  Political  Economy  of  War:  The  Role  of  Oil  and  Diamonds,  1975  –  2000”,  African  Affairs,  vol.  100,  

2001  5. “Profiteers’  war  that  goes  on  forever”,  The  Guardian,  June  30  1999  6. Meyersson  et  al.,  “The  Rise  of  China  and  the  Natural  Resource  Curse  in  Africa”,  2008,  mimeo  LSE  

(http://personal.lse.ac.uk/padro/meyersonpadroqian_20080407_all.pdf)    7. Collier,  “Angola:  Options  for  Prosperity”,  2006,  mimeo  Oxford  

(http://users.ox.ac.uk/~econpco/research/pdfs/Angola-­‐OptionsforProsperity.pdf)      Readings  part  2:  1.  “Garment  Factories,  Changing  Women’s  Roles  in  Poor  Countries,”  The  New  York  Times,    July  21,  2010    2.  “Hitting  the  Wall:  Nike  and  International  Labor  Practices”,  HBS  case  3. “Public  Outrage  Over  Factory  Conditions  Spurs  Labor  Deal”,  New  York  Times,  May  19,  2013  4. Sviatschi,  “Long-­‐term  effects  of  temporary  labor  demand:  Free  trade  zones,  female  education  and  marriage  market  

outcomes  in  the  Dominican  Republic”.  Read  pages  1  –  5  available  here:  http://www2.warwick.ac.uk/fac/soc/economics/events/2014/3/phd_conference_2014/maria_micaela_sviatschi.pdf  Optional  Readings:  1. Brown,  Deardorff,  and  Stern,  “The  Effects  of  Multinational  Production  on  Wages  and    Working  Conditions  in  

Developing  Countries,”  NBER  Working  Paper  #9669,  2003    2. “Grinding  the  Poor,”  The  Economist,  September  27,  2001    3. “Chinese  Girls’  Toil  Brings  Pain,  Not  Riches,”  The  New  York  Times,  October  2,  2003  4. Verhoogen  et  al.,  “Fairness  and  Freight-­‐Handlers:  Local  Labor  Market  Conditions  and  Wage  Fairness  Perceptions  in  a  

Trucking  Firm.”.  Industrial  and  Labor  Relations  Review,  vol.  60,  no.  4,  pp.  477-­‐498,  July  2007.  5. Harrison  and  Scorse,  “Multinationals  and  Anti-­‐Sweatshop  Activism”,  American  Economics  Review,  2010,  100(1):  247-­‐

73.  6. Martins  and  Esteves,  "Foreign  Ownership,  Employment  and  Wages  in  Brazil:  Evidence  from  Acquisitions,  

Divestments  and  Job  Movers,"  2008,  IZA  Discussion  Papers  3542,  Institute  for  the  Study  of  Labor  (IZA)  7. Kaur,  “Nominal  wage  rigidity  in  village  labor  markets”,  2012,  mimeo  Columbia    

 

 

 

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Nov  in  NY:   1.  Politics  and  corruption       2.  Social  enterprise  and  CSR  

Readings  part  1:  1. “Rwanda  and  other  aid  darlings:  Efficiency  vs  freedom,”  The  Economist,  August  5,  2010  2. “Billionaires’  Rise  Aids  India,  and  the  Favor  is  Returned,”  The  New  York  Times  July  26,    2011    3. Przeworksi  &  Limongi,  “Political  Regimes  and  Economic  Growth,”  Journal  of  Economic  Perspectives,  1993  4. Olken  and  Pande,  “Corruption  in  Developing  Countries”,  forthcoming  in  Annual  Review  of  Economics,  section  2  (pp.  

13  –  21).  (http://economics.mit.edu/files/7589)      5. “The  Road  to  Hell  is  Unpaved,”  The  Economist,  December  19,  2002  Optional  Readings:  1. Jones  and  Olken,  “Do  Leaders  Matter?    National  Leadership  and  Growth  since  World  War  II,”  Quarterly  Journal  of  

Economics,  2005  2. “The  Most  Hated  Bangladeshi,  Toppled  From  a  Shady  Empire”,  The  New  York  Times,  April  30,  2013  3. Fisman,  “Estimating  the  Value  of  Political  Connections,”  American  Economic  Review,  September  2001  4. Fisman,  Vig  and  Schulz,  “Private  Returns  to  Public  Office”,  CBS  working  paper  

(http://www2.gsb.columbia.edu/faculty/rfisman/papers/privatereturns.pdf)  5. “Smelling  of  Moses,”  The  Economist,  January  13,  1996  6. “A  High-­‐Tech  Fix  for  One  Corner  of  India,”  The  New  York  Times,  December  27,  2002  7. “Ex-­‐Leader  Stole  $100  Million  From  Liberia,”  The  New  York  Times,  September  18,  2003”  8. Easterly,  “Corruption  and  Growth”  in  The  Elusive  Quest  for  Growth,  Cambridge,  MA:    MIT  Press,  2001,  Ch.  12  9. “India’s  Corruption  Blues,”  The  Economist,  March  24,  2001  10.  “Corruption  in  International  Business  (B)”  (HBS)  11. Shleifer  and  Vishny,  “Corruption,”  Quarterly  Journal  of  Economics,  August  1993  12. Olken,  Monitoring  Corruption:  Evidence  from  a  Field  Experiment  in  Indonesia,  

Journal  of  Political  Economy  115  (2),  pp.  200-­‐249,  April  2007.  (http://econ-­‐www.mit.edu/files/2913)    

Readings  part  2:    1. Friedman,  M.  "The  Social  Responsibility  of  Business  Is  to  Increase  Its  Profits,"  N.Y.  Times  Magazine,  Sept.  13,  1970  2. Porter  and  Kramer,  “Strategy  and  Society:  The  Link  Between  Competitive  Advantage  and  Corporate  Social  

Responsibility,”  HBR,  2006  3. Fisman,  “Virtue  for  Sale,”  Slate,  2007  (http://www.slate.com/id/2175923/)    4. “Why  ‘Social  Enterprise’  Rarely  Works”,  Wall  Street  Journal,  June  1,  2007  Optional  Readings:    6. Hiscox  &  Smyth,  “Is  there  Consumer  Demand  for  Improved  Labor  Standards?  Evidence  from  Field  Experiments  in  

Social  Product  Labeling,”  2008  (http://www.people.fas.harvard.edu/~hiscox/SocialLabeling.pdf)    7. Forbes  report:  http://www.forbes.com/2008/10/16/corporate-­‐social-­‐responsibility-­‐corprespons08-­‐lead-­‐

cx_mn_de_tw_1016csr_land.html  8. “Good  Business;  nice  beaches”,  The  Economist,  May  19,  2012  9. “Sustainability  Nears  a  Tipping  Point”,  report  on  CSR  by  BCG  and  the  MIT  Sloan  Management  Review,  2012  

(https://www.bcgperspectives.com/content/articles/sustainability_vision_mission_sustainability_nears_a_tipping_point/)  

10. Elfenbein,  Fisman  and  McManus,  “Charity  as  a  Substitute  for  Reputation:  Evidence  from  an  Online  Marketplace”,  forthcoming  in  the  Review  of  Economic  Studies  (http://www2.gsb.columbia.edu/faculty/rfisman/papers/old/CharitySubstitutesForReputation_07052011_final.pdf)