EC120 week 02, topic 1, slide 1

A long-term perspective of economic development

Topics:• Trends and fluctuations in economic well-being• Economic development in the really long-run• Eurasian landmass versus the rest• Economic approaches and categories• The role of institutions• Population and economic development

– The Great Pestilence, a demographic catastrophe

– The Malthusian model of population• Summing up: determinants of economic well-

being

EC120 week 02, topic 1, slide 2

Economic development in the really long-run

• Geology and climate uneven distribution of wild plants and animals; diffusion more likely across similar latitudes

• Settled agriculture displaced hunter/gatherer groups in some places higher population densities

• Settled agriculture organised societies surpluses above subsistence (supporting cities & states)

• Stratified societies evolve with centralised institutions

• Trade & conquests diffusion of ideas, technologies, languages

EC120 week 02, topic 1, slide 4

Eurasian landmass versus the rest• Eurasian land mass is favoured for developing

– technology,

– centralised organisations,

– dense populations,

– disease resistance

• But the Eurasian land mass is heterogeneous– Tropical/sub-tropical regions face different challenges &

opportunities relative to temperate zones

EC120 week 02, topic 1, slide 5

Eurasia: economic integration & development to c1500

• Europe: in relative decline after collapse of Roman Empire

• East Asia: Chinese civilisation developed early relative to Europe

• South Asia: long history of diverse civilisations

• “European exception” (economic success) emerged, but when?

EC120 week 02, topic 1, slide 6

Trends and fluctuations in economic well-being

• “Economic well-being” has many dimensions

• Focus on a summary measure: output per capita

• But “per capita” measures hide inequalities

• Long-term trend of slow, uneven improvement

EC120 week 02, topic 1, slide 7

Economic approaches and categories• Output (income) is a function of inputs (factors of

production): Land, Labour, Capital

• “Technology” determines how much output is obtained from inputs

• Classical approach emphasises generation of “surplus”

• Neoclassical approach emphasises incentives and strategies

The Role of Institutions

• Institutions: a framework for social, political and economic life

• Regulate distribution of power among individuals and groups incentives and constraints opportunities for behaviour

• State capacity – central enforcement of uniform taxation & rights

• Hypothesis: institutional differences economic success/failure

• Two categories: inclusive and extractive

– Inclusive foster economic success, via creative destruction

– Extractive restrictions discourage change stagnation/failure

EC120 week 02, topic 1, slide 8

EC120 week 02, topic 1, slide 9

Population and economic development (1)The Great Pestilence, now known as “The Black

Death”:

• “… greatest catastrophe to strike the Western World during the last millennium …”

• Infectious disease(s) that arrived in Europe from Asia, 1348/51, killing 1/4 to 1/3 of population

• Major economic, social and political consequences

• “The path to the Industrial Revolution began with the Black Death” (R.C.Allen)

EC120 week 02, topic 1, slide 10

Population and economic development (2)

• Population in pre-industrial societies:– Long-term growth rate positive but negligible– Large fluctuations persisted for centuries– Mortality sensitive to disasters– Fertility differed substantially across societies– Technological progress (slow) ->

per capita income grows (slowly)

EC120 week 02, topic 1, slide 11

Population and economic development (3)

• Malthusian model: a theory of population1. Birth rates vary positively with income (“preventive

check”)2. Death rates vary negatively with income (“positive

check”)3. Population growth forces a decline of income (per

capita)

• Identifies fundamental resourceconstraints

• But– Responsiveness of births & deaths

to income may be low– The model neglects inequalities

within societies

Population and economic development (4)

• Demographic Revolution– Increased growth rate from about 1750

• Demographic Transition– Fertility decline, depending on level of

development

EC120 week 02, topic 1, slide 12

The figure illustrates the Demographic Revolution (high births, declining deaths) followed by the Demographic Transition (falling births, low deaths).

EC120 week 02, topic 1, slide 13

Summing up: determinants of economic well-being

A handy classification:

a) Environment and resources

b) Culture, philosophy and religion

c) Institutions: political, social & economic institutions

d) Markets

e) Technologies and their application