BOOK REVIEWS 89

Jere Behrman and T.N. Srinivasan (eds.) Handbook of Development Economics,Volumes III A and B Elsevier Science, Volume III A pp. 768, Volume III B pp.2467-3047, Volume A: US $155.009 Volume III B: US $110.00, Amsterdam,Hardbound

The two sections of the third volume of the Handbook of Development Economicsedited by Professor J. Behnnan and T.N. Srinivasan will certainly be regarded asmajor reference works by students, teachers and researchers. In Volume III A, theeditors have carefully selected surveys which contain rigorous and sound theoreticaland empirical analyses. The chapter by Professor Angus Deaton on ‘Data andEconometric Tools for Development Analysis’ is excellent. Of particular interestis his summary of the sections on heterogeneity and panel data, latent variablesand multivariate issues in time-series models. I only wish that Deaton would havegiven some examples of actual uses of cointeration techniques to analyse sector-specific problems in developing countries – a point which has been well illustratedin his discussion of the non-parametric estimation methods. The chapter on humanresources by Strauss and Thomas is clearly written though I would have liked morediscussion about the appropriate surrogate to measure human capital in terms ofstocks and flows – a point which is receiving increasing attention in the contextof the endogenous growth models. The other issue which deserved more attentionis the role of uncertainty in human capital investment. The interesting discussionof the calorie–income elasticities displays some of the difficulties of empiricalanalysis – e.g. measurement errors, simultaneity and unobserved heterogeneity.

While Strauss and Thomas explore a stochastic, microeconometric perspectivein their chapter, the contribution from Gunning and Keyzer on ‘Applied GeneralEquilibrium Models’, (AGE) is based on aggregate, non-stochastic framework.Unlike the representative – agent models, AGE models allow for heterogeneityamong consumers and producers and are capable of analysing the distributionaleffects of changes in policies and exogenous variables. The authors describe anumber of current deviations from standard, static AGE models, e.g. increasingreturns to scale, imperfect competition and some dynamic issues related to changesin population, finance and investment with short-run constraints on adjustment.

The chapter on Savings, Credit and Insurance by Besley is very well writtenand clearly highlights the areas of current and future research. The only criticismthat I have is that Besley has ignored many useful, empirical works on the informalcredit markets in developing countries.

While Evenson and Westphal summarise the major issues in technical changeand technology strategy, Lin and Nugent have given a comprehensive accountof institutions and economic development. The survey by Lin and Nugent showsclearly the absence of rigorous theoretical and empirical works about the role ofinstitutions in economic growth. Similarly Dasgupta and Maler, in their review, alsohighlight institutional failures and poverty as causes of environmental degradation.They show that the impact of public policy assumes an amazing variety in devel-

90 BOOK REVIEWS

oping countries as ecological and technical factors ‘intermingle’ with behaviouralnorms that respond only slowly to changing situations. Besides, in the absence ofa link between capital and credit markets, the degradation of the environment issignificant: witness rural Africa where herds are larger than they would be werecapital and insurance markets open to the poor. In the appendix, the authors showin their calculation of the NNP that the present discounted sum of today’s current-value Hamiltonian is equal to the maximum present discounted value of the flowof social welfare.

Volume III B includes a well-written and thought-provoking paper by Kruegeron ‘Policy Lessons’, a rather provocative paper by Lipton and Ravallion on ‘Povertyand Policy’ who have used selective references to ‘prove’ their highly complexissues, a more reader-friendly paper on ‘Power, Distortions ... and Land Relations’– by Binswanger et al., a survey by Jimenez on ‘Human and Physical Infrastructure:Public Investment and Pricing Policies in Developing Countries’ which emphasisesthe need to undertake more research on changes of household utilisation of physicaland human infrastructure services due to changes in prices and quality, an excellentchapter on ‘Structural Adjustment’ by Corbo and Fischer where they emphasiserather surprisingly the success of New Zealand in achieving stability and warn thatsustained growth could return just as the public has tired of the changes that madeit possible, a sober and comprehensive overview of ‘Trade and Industrial PolicyReform’ by Dani Rodrik and Bardhan’s useful account of ‘The Contributions ofEndogenous Growth Theory to the Analysis of Development Problems’. Bardhancould, however, have made greater use of the growing important empirical literatureabout the relevance of endogenous growth theory to developing countries.

On the whole, like the first and second volumes, the third A and third B vol-umes will be regarded as a collection of some excellent and useful surveys bymany leading authorities in the field of development economics. Volume three B iswritten at a fairly general level, possibly targeting the policy makers and adminis-trators. However, together, they make excellent reading and sources of very usefulreferences.

SUBRATA GHATAKKingston University, UK.