Development Economics Important Slides PDF

Is development economics not really a distinct branch of economics ? Development economics is not the same as the economics of advanced capitalist nations (modern neoclassical economics). Nor is it similar to the economics of the formerly centralised socialist societies. The study of economic...

Is development economics not really a distinct branch of economics ? Development economics is not the same as the economics of advanced capitalist nations (modern neoclassical economics). Nor is it similar to the economics of the formerly centralised socialist societies. The study of economic development is one of the newest, most challenging branches of the broader disciplines of economics and political economy. 0 X (1) Sustenance: The Ability to Meet Basic Needs Basic human needs include food, shelter, education, health, and protection/security. When any of these is absent or in critically short supply, a condition of “absolute underdevelopment” exists. A basic function of all economic activity, therefore, is to provide as many people as possible with the means of overcoming the helplessness and misery arising from a lack of food, shelter, health, and protection. 0 (2) Self-Esteem: To Be a Person X A second universal components of the good life is self-esteem – a sense of worth and self-respect, of not being used as a tool by others for their own ends. (3) Freedom from Servitude: To Be Able to Choose Freedom involves an expanded range of choices for societies and their members together with a minimisation of external constraints in pursuit of some social goal (we call development). 0  World Bank’s System Classification by levels of GNI per capita X The UNDP’s Human Development Index Classification by levels of human development 0  X International Bank for Reconstruction and Development (IBRD) – World Bank Organisation for Economic Cooperation and Development (OECD) 0  Commonly Used Economic Indicators by WB X Gross National Product (GNP) The total value of all income (= value of final output) accruing to residents of a country, regardless of the source of that income, that is, irrespective of whether such income is derived from sources within or outside the country. Gross Domestic Product (GDP) Total value of all income created within the border of the country, regardless of whether the ultimate recipient of that income resident within or outside the country. 0  Gross National Income (GNI) It is calculated as the total domestic and foreign value added claimed by a country’s residents without making deductions for depreciation of the domestic capital stock. GNI comprises GDP plus the difference between the income residents receive from abroad for factor services (labour and capitals) less payments made to nonresidents who contribute to the domestic economy. 0  Purchasing Power Parity (PPP) – International Comparison of Income PPP is calculated using a common set of international prices for all goods and service produced, valuing goods in all countries at U.S. prices. In a simple version, purchasing power parity is defined as the number of units of a foreign country’s currency required to purchase the identical quantity of goods and services in the local market (in LDC) as US$1 would buy in the United States. 0 Three Goals: 1) Long and Healthily Life: measured by life expectancy at birth 2) Knowledge: measured by expected year of schooling (years) and mean years of schooling (years) 3) A decent standard of living: measured by GNI per Capita (PPP $) Four Categories: Low Human Development (0.000 - 0.549) Medium Human Development (0.550 - 0.699) High Human Development (0.700 – 0.799) Very High Human Development (0.800 and above) 0 See UNDP website as below: http://hdr.undp.org/en/content/human-development-index-hdi 0  0 Marx’s Five Modes of Production: Primitive XX Ancient Feudal Capitalist Socialist  0 5. Neoclassical Theory XX Neoclassical Theory - the efficiency-maximising and general equilibrium theory and the linked precepts of the law of comparative advantage. Characteristics of the neoclassical theory is follows: Welfare maximisation can be only achieved when the market value of goods and service produced at any given point in time maximised. Designed to show how these ends can be achieved through the operation of the free market. Assumptions (a) profit maximisation by firms (b) utility maximisation by customers (c) an infinite range of technologies (d) perfectly competitive market 3 Preconditions  1. The Theory of Big Push (Rosenstein-Rodan) XX Rosenstein-Rodan (1902-1985) analysed the economic structures of a number of poor Eastern and South-East European nations and drew several conclusions, which became basic building blocks for the field of development economics after the Second World War. Rosenstein-Rodan’s work centered on taking advantage of the increasing returns that could be realized from large-scale planned industrialisation projects that encompassed several major sectors of the economy simultaneously. 0  2. The Theory of Balanced Growth XX (Nurkse) Like Rosenstein-Rodan, Ragnar Nurkse (1907- 1959) emphasised above all the need for a coordinated increase in the amount of capital utilised in a wide range of industries if the critical threshold level of industrialisation was to have a chance of being achieved. Nurkse agreed that a massive injection of new technology, new machines, and new production processes spread across a broad range of industrial sectors held the key to enhance the development process in less-developed countries. 0  XX 4. The Lewis Theory of Development Sir Arthur W. Lewis (1915-1991) has been awarded the Nobel Memorial Prize Economic Science. Lewis’s most cited work, and one of the best-known models in development economics is his classical article on unlimited supplies of labour (1954). The Lewis two-sector model became the general theory of the development process in surplus-labour Third World nations during most of the 1960s and early 1970s. Exam ! 0  Characteristics of The Lewis Model The primary focus of the model is on both the process of labour transfer and the growth of output and employment in the modern sector. Both labour transfer and modern-sector employment growth are brought about by out- put expansion in that sector. The speed with which this expansion occurs in determined by the rate of industrial investment and capital accumulation in the modern sector. 0  5. Stages of Growth XX Walt Whitman Rostow Five Stages (1916-2003) wrote The Stage 1 - Traditional society Stages of Economic Growth in 1960, emphasising the Stage 2- Precondition for take off transition from underdevelopment to Stage 3 - Take-off development can be described in terms of a series of steps or stages Stage 4 - Drive to maturity through which all countries must proceed Stage 5 - Age of mass consumption five stages. 0  0 Three Approaches to explain East Asian Development XX Market Neoclassica l School Statists / East Asian State Capacity Developmental Development State School State-Market/Business Coordination Capacity Institutionalists  0 ISI The advocates of import substitution industrialisation (ISI) believe that LDCs should initially substitute domestic production of previous imported simple consumer goods (fist stage-IS), and then substitute through domestic production for a wider range of more sophisticated manufactured items (second stage-IS)-all behind the protection of high tariffs and quotas on these export. In the long run, IS advocates cite the benefits of greater domestic industrial diversification and the ultimate ability to export some previously protected manufactured goods as economies of scale, low labour costs, and the positive externalities of learning by doing cause domestic prices to become more competitive with world prices.  0 3. Dependent Development XX One of the most prominent dependency theorists was Fernando Henrique Cardoso (1931-), who has had an active career as Brazilian sociologist/economist with a worldwide reputation, and also a powerful Brazilian politicians, rising to be a president of Brazil from 1995- 2003. Most dependency theorists argued that the nations of the periphery were capitalist - a particular kind of peripheral capitalism (such as economic stagnation or development of underdevelopment) Cardoso did not support this stagnationist perspective. Rather, he maintained that the economies and societies of the periphery had evolved and could continue to do so.  0 4. Institutionalits XX Institutionalists believe that the institutions of an economy, that is, the forms of production, ownership, work processes, and ideologies which combine to create an economy and society are the proper subjects for economic analysis. Clarence Ayres & Gunnar Myrdal  0 Gunnar Myrdal (1898-1987) Xt A Swedish-educated economist, Myrdal won the Nobel award in economics in 1974. Myrdal and his wife, Alva made fundamental contributions to the development of welfare state in Sweden, and Myrdal’s study of American racism (1944) Laden … has remained a classic study of race relations. His massive work, Asian Drama (1968), established his reputation as a development specialist.  4. Trade Strategies for Development XX Outward-looking development policies encourage the free trade movement of capital, workers, enterprises, the MNCs (and so on). - Export-Oriented Industrialisation (EOI) (Neoclassical school) Inward-looking development strategies stress the need for LDCs to evolve their own styles of development and control their own destiny. This means policies to encourage indigenous “learning by doing” in manufacturing and the development of technologies appropriate to country’s resource endowments. - Import Substitution Industrialisation (ISI) (Dependency school) 0  3. The IMF and World Bank XX Countries facing serious macroeconomic instability (high inflation and severe government budget and foreign payments deficits) have to deal with multilateral financial institutions such as the IMF and World Bank for stretching out the payment period for principal and interest or obtain additional financing on more favourable terms. The IMF provides “Stabilisation Programme”. The World Bank provide “Structural Adjust Programme”. 0  Conditionality XX For a country to make use of IMF financial resources, it must meet or at least agree to certain macroeconomic policy conditions. These conditionality requirements range from rather general commitments to cooperate with the IMF in setting policies to formulating a specific, quantified plan for financial and fiscal policies. 0 1) 2. Poverty Alleviation Approaches Basic Human Needs (BHNs) XX or Basic Needs Approach In the late1960s, International Labour Organisation (ILO) advocated the importance of basic human needs such as health, food, education, water and sanitation, Laden … and shelter, emphasising the provision of public services along with entitlements to the poor to make sure that they get access to the services provided. Critique: The provision of public services creates financially burdens for developing countries 0 (3) The Entitlement Approach (Amartaya Sen) XX The entitlement approach focuses on the social relations through which people gain entitlement over food. Sen identified two basic characteristics: endowments and entitlements, which give access to food. Endowments: what is owned by a person The owned assets and personal capacities which an individual or household can use to establish entitlement to food. e.g. people – women and men, young and old; people with education and skill etc.. productive assets – food and other commodities, farms and factories, infrastructure etc… financial assets – cash and bank deposits 0  (5) Sustainable Development Goals (SDGs) 2015-2030 XX The Sustainable Development Goals (SDGs), adapted in September 2015, are a universal call to action to end poverty, protect the planet and ensure that all people enjoy peace and prosperity. These 17 Goals of the 2030 Agenda for Sustainable Development build on the successes of the Millennium Development Goals, while including new areas such as climate change, economic inequality, innovation, sustainable consumption, peace and justice, among other priorities. The goals are interconnected – often the key to success on one will involve tackling issues more commonly associated with another. 0  3. Measuring Inequality &X Measuring Inequality (1) Size distribution of income is the measure most commonly used. A common method is to divide the total population into successive quintiles (divided by fifths) or deciles (divided by tenths) according to ascending income levels and determined what proportion of the total national income is received by each income group. See Table 5.1 The first quintile represents the bottom 20% of the population on the income scale. This group receives only 5% (e.g. a total of 5 money units) of the total national income. 0  Kuznets’s Inverted –U Hypothesis XX Simon Kuznets suggested that in the early stages of economic growth, the distribution of income will tend to worsen; only at late stages it will improve. The early stage employment is limited but wages and productivity are high → the distribution of income will worsen. This observation came to be characterised by the inverted-U Kuzunets curve because a longitudinal (time-series) plot of change in the distribution of income. 0  (1) Child Labor XX Definition: either under the minimum age of work (generally 15yr) or above that age (through to 17yr) and engaged in work that pose a threat to their health, safety, or moral or are subject to conditions of forced labor. According to the International Labour Organisation (ILO)’s report in 2017; A total of 152 million children were classified as child labor in 2015. 48% of them were 11 years or younger 73 million children were engaged in dangerous work. Region: Africa - 72 million, Asia - 62 million Type of industry: 71% in Agriculture, 12% Industry, 17% in services. 0  4. Social Capital XX The concept of social capital has developed by sociologists (Coleman 1988 & 1990, Putnam et al. 1993) since the late 1980s/early 1990s. The fundamental notion can be traced back in the early 20th century. Hanifan (1916) referred social capital as “goodwill, fellowship, mutual sympathy and social intercourse”. 0  Two Forms of Social Capital? XX Structural Social Capital External and more visible (e.g. membership of community) Cognitive Social Capital Internal and concerns people’s thinking (e.g. how do members of community feel in community activity – the number of meetings they participate etc…) 0  Three Dimensions of Social Capital? * Bonding Social Capital (strong ties) Trusting and cooperative relations between members of a network who see as being similar in terms of their shared social identify (e.g. family members, close friends, business associates). Bridging Social Capital (weak ties connecting individuals from different ethnics) “relations of respect and mutuality between people who know that they are not alike in some socio- demographic (or social identity) sense (different by age, ethnic group, class, etc). 0  The Hidden Momentum of Population Growth Population growth has a built-in tendency to continue, keep going for some time before coming to stop. This momentum can persist for decades after the birthrates drop. Two Basic Reasons: High birthrates cannot be altered substantially overnight. The social, economic, and institutional forces have influenced fertility rates over the course of centuries. (2) Age structure of developing countries. (see Figure 6.5) A large number of youth population in developing countries. 0  3. The Demographic Transition Stage I: High birthrates and death rates X Before economic modernisation, countries for centuries had stable or very slow growing population Stage II: Continued high birthrates, declining death rates Public-health methods, higher incomes, and other improvements led to reduction in mortality that gradually increased life expectancy from under 40 years to over 60 years. However the decline in death rates was not immediately accompanied by a decline in fertility. Stage III: Falling birthrates and death rates, eventually stabilising The forces and influences of modernisation and development caused the beginning of decline in fertility – eventually falling birthrates and death rates, leaving little or no population growth. 0 BENEFITS MNCs provide the following benefits X Capital accumulation Job creations A source of tax income in the host counties Transfer of technology between countries (modernization for developing countries), Enhancing international trade through access to foreign markets An important driver for economic development 0 What is ODA? ODA stands for official development assistance. It is official financing or other forms of assistance, given by governments to developing countries to promote and implement development. ODA includes bilateral grants, loans, and technical assistance as well as multilateral flow. (Bilateral – tided aid or loan: aid or loan recipients must use the aid or loan to purchase goods and services from the donors) The money volume of ODA has grown from an annual rate of $4.6 billion in 1960 to $58 billion in 2002, onto $121.5 billion in 2008. However, in terms of the percentage of developed- country GNI allocated to ODA, there has been steady decline from 0.51 % in 1960 to 0.23% in 2002 and increased to 0.45% (see Table 15.2). 0 (1) Political Motivations: Political motivations have been by far the more important for aid-granting nations, especially for the major donor country, the United States. (2) Economic Motivations: Within the broad context of political and strategic priorities, foreign aid programmes of the developed nations have had strong economic rationales. This is particular true for Japan, which directs most of its aid to neighbouring Asian countries where it has substantial private investments and expanding trade. (3) Humanitarian Motivations: Basic humanitarian responsibilities of the rich nations toward welfare of the poor. 0