What is Development Economics?
• Use of economic analysis, methods and tools to understand the problems, constraints and opportunities facing developing countries
– Causes of poverty – Roads to escape poverty – Development and growth over time
• Theoretical and empirical work
• We study the economic, social, political and institutional mechanisms that lead to development and transformation of the economies
CAN YOU GIVE EXAMPLES OF DEVELOPING COUNTRIES?
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What is Development Economics? continued
• How do people achieve material opportunities to live an acceptable life? (and what is acceptable anyway?)
• We discuss broad tendencies and stylized facts, that depend on the context of each country. We have no (or few) universal laws….
• We want to: – Achieve a better understanding of the problems
of poor countries– Achieve a better understanding of how to apply
economics– Answer policy questions
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What Do We Mean by Development?
• Traditional Economic Measures– Gross National Income (GNI)– Income per capita– Utility of that income?
• The New Economic View of Development– Leads to improvement in well-being, more broadly
understood
• The Central Role of Women– To make the biggest impact on development, societies
must empower and invest in women
• Amartya Sen’s “Capability” Approach
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Why Study Development Economics?
1. Moral and ethical reasons– Poverty is unfair– Inequality is unfair (at least at current levels) – Development is human right
2. Our own welfare– Global interactions (wars, environment, refugee)– Global coexistence– Trade and investment
3. Private interests– Job prospects– Perspectives on economics, common allround
knowledge4. Intellectuel curiosity
– What causes inequality and poverty and what can be done?
– Why do some countries grow and others don’t?
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Common Characteristics of developing countries
• Lower levels of living and productivity• Lower levels of human capital• Higher levels of inequality and absolute poverty• Higher population growth rates• Greater social fractionalization• Larger rural population- rapid migration to cities• Lower levels of industrialization and manufactured exports• Adverse geography• Underdeveloped financial and other markets• Colonial legacies- poor institutions etc.
Some Basic Indicators of Development
• Health• Life Expectancy• Education • HDI as a holistic measure of living levels
– HDI also varies for groups within countries– HDI also varies by region in a country – HDI also reflects rural-urban differences
10 Characteristics of the Developing World: Diversity within Commonality
• 1. Lower levels of living and productivity• 2. Lower levels of human capital (health, education,
skills)• 3. Higher Levels of Inequality and Absolute Poverty
– Absolute Poverty– World Poverty
• 4. Higher Population Growth Rates– Crude Birth rates
10 Characteristics of the Developing World: Diversity within Commonality
• 9. Underdeveloped Financial and Other markets– Imperfect markets– Incomplete information
• 10. Colonial Legacy and external dependence– Institutions– Private property– Personal taxation– Taxes in cash rather than in kind
Low Income Countries Today And Developed Countries Then
• Eight differences – Physical and human resource endowments– Per capita incomes and levels of GDP– Climate– Population size, distribution, and growth– Historic role of international migration– International trade benefits– Scientific/technological research – Efficacy of domestic institutions
Is Development synonymous simply with Economic Growth?
Different Development Goals of Society • Equality of opportunity• Rising income and standard of living• Equity in the distribution of income and wealth• Political democracy and wide-spread participation• Expanded role for women, minorities and all social classes
in public life• Increased opportunities for education and self-
improvement• Expanded availability of and improvements in health care• Public and private safety nets to protect the vulnerable• A clean and healthy environment• Efficient, competent and fairly administered public sector• A reasonable degree of competition in the private sector
Measuring Economic Growth and Development
What is the criterion for development?1. The economic growth / income criterion:
GNP, GDP, rate of growth• Simple and easy to use• Yet does it really capture development?
2. The indicators criterion: e.g. Human Development Index (HDI), PI, GDI, GPI
• More comprehensive and realisitc• Yet difficult to measure and use for international
comparisons
HD Approach• HD approach differ from other approaches in three
important ways-- definition of ends and means--concern with human freedoms and dignity--concern with human agency i.e. the role of people in
development There are several implications in adopting HD approach and
framework as compared to other approaches-- The focus of policy can not be based merely on the
generation of more and more income. How additional income is used, and the degree to which it improves the quality of people’s lives must be given equal weight.
Human Rights Approach• standard of living, education, protection of the family,
democracy, participation, rule of law, and protection against enslavement, torture, cruel or inhuman or degrading treatment or punishment.
• Subsequent human rights conventions have translated these human rights into legally binding form (under human rights international law).
• First generation rights (civil, political), second generation: economic, social, cultural
• Legally binding international treaties provide more specific protection to particular groups (e.g. women and children) and in relation to particular violations (e.g. slavery and racial discrimination)
Human Rights Approach• The primary burden for upholding human rights is assigned
to nationa-states or governments. • Coordination with others:NGOs,national institutions, other
countries, international organizations• What are the obligations of nation states? More than 150
countries have promised to defend the core civil, political rights and social, cultural, economic rights recognized in international human rights law.
• Three types of obligations: (a) to respect human rights; (b) to protect human rights; (c) to promote human rights
• International recognition of individual and collective obligations was underlined by the adoption of the Declaration on the Right to Development by the UN General Assembly in 1986
The following aspects are analyzed under basic needs approach,:
• (i) How much goods and services are produced?
• (ii) What goods and services are being produced?
• (iii) How goods and services are being produced?
• (iv) What will be the effects of production and distribution on the society?
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Types of Good Governance:
The good governance has three types:
(1)Good political governance
(2)Good civic governance and
(3)Good economic governance
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Theories or Methods of Income Distribution:(1) To enhance the growth of GNP by raising the savings, and
allocate the resources in a better way so that all the sections of the economy could be equally benefited.
(2) To take steps to get education, loans and other public
services for the poorest sections of the society.
(3) The fiscal systems of the countries be devised in such a way that the distribution of income could move in favor of the poor class.
(4) The existing assets of the countries be mobilized in favor of the poorest class as the case of taking up Land Reforms.28
MDG FRAMEWORK
― COMMITS INTERNATIONAL COMMUNITY TO AN EXPANDED VISION OF DEVELOPMENT
― PROMOTES HUMAN DEVELOPMENT AS KEY TO SOCIAL AND ECONOMIC PROGRESS
― CREATES GLOBAL PARTNERSHIP FOR DEVELOPMENT
― CONSOLIDATES TARGETS ESTABLISHED BY INTERNATIONAL CONFERENCES INTO EIGTH ESSENTIAL GOALS
― FIRST SEVEN MUTUALLY REINFORCING, AIMED AT REDUCING POVERTY IN ALL FORMS
― EIGTH GOAL – GLOBAL PARTNERSHIP FOR DEVELOPMENT – IS ABOUT MEANS TO ACHIEVE FIRST SEVEN – “A GRAND BARGAIN”
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Big Push Theory By Rosenstein Rodan
Definition and Explanation:
The Big Push Theory has been presented by Rosenstein Rodan. The idea behind this theory is this that a big push or a big and comprehensive investment package can be helpful to bring economic development. In other words, a certain minimum amount of resources must be devoted for developmental programs, if the success of programs is required.
W.W. Rostow's Stages of Economic Growth:W.W. Rostow was an American economist who presented
'Stages of Growth' model of development. According to Rostow,
the process whereby all the developed industrial nations of the world transformed themselves from backwardness to prosperity can be described in terms of a series of stages.
These stages of economic growth are:(1)Traditional society, (2) Pre-conditions to take-off, (3) Take-off, (4) Drive to maturity, (5) High mass consumption. They are discussed below:
Harvey Leibenstein is of the view that UDCs are characterized by vicious circle of poverty (VCP) which keeps them around a low income per capita equilibrium state. The way out of this impasse is a certain 'Critical minimum effort' which would raise the per capita to a level at which sustained development could be maintained.
In other words, a UDC will have to introduce 'Stimulus' in an amount which should be more than a critical level for the sake of change.
Leibenstein says that every economy is subject to 'Shocks and Stimulants'. A shock has the impact of reducing the per capita income initially; while a stimulant tends to increase it.
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Definition of Dualism
Dualism is a concept which represents the existence and persistence of increasing divergences between rich and poor both at world level and at country levels.
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There are different theories which are of the view that the poverty and underdevelopment of poor countries is attributed to their dualistic character.
(1)Social Dualism, (2) Technological Dualism and
(3) Financial Dualism.
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Definition and Explanation:Professor Higgins has developed the theory of
Technological Dualism.
"The use of different production functions in the advance sector and in the traditional sectors of UDCs".
1. Lewis Model of Unlimited Supply of Labor
Arthur Lewis in the mid 1950s presented his model of unlimited supply of labor or of surplus labor economy.
By surplus labor it means that part of manpower which even if is withdrawn from the process of production there will be no fall in the amount of output.
The two economists John Fei and Gustav Ranis presented their dual economy model.
There was a flaw in Lewis model that it did not pay enough attention to the importance of agriculture sector in promoting industrial growth.
But Fei-Ranis (FR) model of dual economy explains how the increased productivity in agri. sector would become helpful in promoting industrial sector.
In this respect, it presents three stages whereby a UDC moves from stagnation to self-sustained economic growth.
Thus, this model is treated as an improvement over Lewis model of unlimited supply of labor.
In case of UDCs it is being observed that inspite of heavy unemployment and under employment in urban areas a big migration is taking place from rural areas to urban areas.
This situation contradicts Lewis model. As during 1960s to 1970s the urban population increased by 60%, 52% and 51% in Africa, Latin America and South Asia respectively.
While in these regions the rural population increased by 16%.
This shows that the massive unemployment exists in the urban areas of these regions.
This, according to Todaro, is due to that mobility and migration which is taking place from rural areas to urban areas. Thus, the Todaro model of rural-urban migration states:
"Despite mass unemployment in cities people are migrating from villages to towns and cities".
Transformation from Peasant Subsistence Farming to Specialized Farming:
In respect of agri. production and agri. development the economists present three stage, which are as:
(1) The subsistence farming: It is most primitive type of farming which is characterized with low productivity and the produced output is just for the sake of subsistence.
(2) The mixed farming: Where the farmers not only produce for their personal consumption but also for the sale in the market.
(3) The commercialized farming: In such stage of farming the agri. productivity is higher and whole of the produced output is sold in the market. Now we discuss them in a turn.
Most of the developing countries of Asia, Africa and Latin America are passing through stage I to stage II.
They have to face a lot of problems in their agri. sector whereby agri. sector fails to contribute to their development.
The economists present a lot of proposals whereby the agri. sector would be able to play its dynamic role in the development of poor countries.
They are as:
(1) Improving Small Scale Agriculture - Technology and Innovation
(2) Institutional and Pricing Policies - Providing the Necessary Economic Incentives
Meaning and Definition:
The land reforms or agrarian reforms means all those measures which are aimed at removing those obstacles which are responsible for keeping the agriculture sector backward socially and economically.
Through these measures not only changes will be brought in the use and the distribution of the land, but the relationships between land lords and tenants will also be improved.
Thus due to land .reforms govt. gets legal right over the possession of the lands of people (big landlords).
However, in this connection govt. pays the compensation, in certain cases.
When better and superior seeds are used; the fertilizers, pesticides, herbicides and sprays are used; and the farm machinery like tractors, harvesters, tube wells and threshers etc., are used to enhance the agriculture output and agri. productivity - such all is given the name of Green Revolution (GR).
Thus because of GR, the high yielding seeds, fertilizers, agri. machinery water and better technology will become available.
Consequently, the production function for any crop or crops will shift upward in agriculture sector leading to increase the agri. output.
Apparently this scheme of GR looks very attractive that it will lead to bring a revolution in agri. But Prof. Hala Mynit has presented a lot of problems regarding GR.
(1) Technical Problems:
(2) Organizational Problems:
(3) Central Economic Issues:
(4) Side Effects of Green Revolution:
Policies
• Import-Substituting Industrialization• Problems of the Dual Economy• Export-Oriented Industrialization: The East Asi
an Miracle