Economic Development Notes (Philippines) PDF

ECONOMIC DEVELOPMENT NOTES WEEK 1 & 2 HISTORICAL PERSPECTIVE ON ECONOMIC DEVELOPMENT Pre-Colonial Era: Before the arrival of the Spanish in the 16th century, the Philippines was a collection of independent barangays (villages) led by local chieftains. The economy was based on subsistence agricul...

ECONOMIC DEVELOPMENT NOTES WEEK 1 & 2 HISTORICAL PERSPECTIVE ON ECONOMIC DEVELOPMENT Pre-Colonial Era: Before the arrival of the Spanish in the 16th century, the Philippines was a collection of independent barangays (villages) led by local chieftains. The economy was based on subsistence agriculture, fishing, and trading. Communities engaged in barter trade with neighboring regions, including China, India, and the Malay Archipelago, exchanging goods like pottery, textiles, and spices. Spanish Colonial Period (1565-1898): The Spanish colonization of the Philippines introduced significant changes to the economy. The encomienda system granted Spanish encomenderos control over land and local labor. The Manila-Acapulco Galleon Trade (1565-1815) was a major economic activity, linking the Philippines to the global economy through trade with Mexico. However, economic benefits were unevenly distributed, with Spanish colonizers reaping most of the rewards. The introduction of new crops (e.g., tobacco, corn, cacao) and the establishment of large-scale agricultural estates (haciendas) marked significant shifts in agricultural production. Forced labor and heavy taxation burdened the local population, leading to widespread poverty and unrest. American Colonial Period (1898-1946): Under American rule, the Philippines underwent significant infrastructural and educational reforms. The Americans invested in transportation, communication, and public health systems. The introduction of a public education system aimed to create an educated workforce. The economy remained heavily reliant on agriculture, with sugar, coconut, and abaca as major exports. The establishment of free trade with the United States through the Payne-Aldrich Act (1909) and the Tydings-McDuffie Act (1934) fostered economic growth but also deepened dependency on the American market. Post-Independence Period (1946-Present) 1946-1960s: Early Independence and Industrialization Efforts: After gaining independence in 1946, the Philippines faced the challenge of rebuilding its war-torn economy. The government pursued import substitution industrialization (ISI) policies to reduce dependency on imports and promote local industries. The Bell Trade Act (1946) and the Laurel-Langley Agreement (1956) continued economic ties with the United States but constrained economic policy autonomy. Efforts to industrialize were hampered by inadequate infrastructure, limited capital, and political instability. E c o n o m i c D e v e l o p m e n t N o t e s b y M r. C l a r i n P a g e 1 | 34 ECONOMIC DEVELOPMENT NOTES 1970s-1980s: Martial Law and Economic Challenges: The declaration of martial law by President Ferdinand Marcos in 1972 marked a tumultuous period for the Philippine economy. The government embarked on ambitious infrastructure projects and sought foreign loans to finance development. While some economic gains were made, the period was marred by crony capitalism, corruption, and human rights abuses. The economy suffered from debt crises, high inflation, and declining productivity. By the mid-1980s, the economy was in severe crisis, leading to the People Power Revolution in 1986, which ousted Marcos. 1986-2000s: Democratic Restoration and Economic Reforms: The administration of President Corazon Aquino (1986-1992) focused on restoring democracy and implementing economic reforms. Efforts were made to liberalize the economy, attract foreign investment, and reduce the fiscal deficit. Subsequent administrations continued economic reforms, promoting privatization, deregulation, and trade liberalization. The economy gradually stabilized, and growth rates improved, although poverty and inequality remained persistent challenges. 2000s-Present: Economic Growth and Challenges: The Philippines experienced periods of robust economic growth in the 2000s, driven by the services sector, particularly business process outsourcing (BPO) and remittances from overseas Filipino workers (OFWs). The country became one of the fastest-growing economies in Asia. Despite impressive growth, the Philippines continues to face challenges such as poverty, inequality, inadequate infrastructure, and vulnerability to natural disasters. Efforts to address these issues include the implementation of social protection programs, investment in infrastructure (Build, Build, Build Program), and measures to improve governance and reduce corruption. Economic development refers to the process by which a nation improves the economic, political, and social well-being of its people. It encompasses various measures of progress, such as increases in income, reduction of poverty and unemployment, improvement in living standards, and the expansion of access to essential services like education, healthcare, and infrastructure. E c o n o m i c D e v e l o p m e n t N o t e s b y M r. C l a r i n P a g e 2 | 34 ECONOMIC DEVELOPMENT NOTES Key components of economic development include: a. Economic Growth: Increase in a country's production of goods and services, usually measured by Gross Domestic Product (GDP). b. Social Progress: Improvements in health, education, and living conditions that lead to a higher quality of life. c. Structural Change: Transformation of the economy from primarily agricultural to industrial and service-oriented activities. d. Sustainable Development: Ensuring that economic progress does not compromise the ability of future generations to meet their own needs. e. Institutional Development: Strengthening of institutions and governance structures to support economic activities and provide a stable environment for growth. Economic development is a comprehensive concept that involves more than just economic growth; it also focuses on equitable distribution of wealth, social inclusion, and environmental sustainability. E c o n o m i c D e v e l o p m e n t N o t e s b y M r. C l a r i n P a g e 3 | 34 ECONOMIC DEVELOPMENT NOTES The goals of economic development are multifaceted and aim to improve the overall well- being and quality of life for a nation's citizens. a. Poverty Reduction: Decreasing the number of people living below the poverty line through inclusive economic growth and targeted social programs. The National Anti-Poverty Commission (NAPC) of the Philippines is tasked with coordinating and overseeing the implementation of anti-poverty programs and initiatives. b. Employment Generation: Creating more job opportunities and reducing unemployment rates to ensure that more people have access to stable and sustainable incomes. The Department of Labor and Employment (DOLE) is the primary government agency in charge of employment. DOLE is responsible for promoting gainful employment opportunities, developing human resources, protecting workers and promoting their welfare, and maintaining industrial peace. c. Income Equity: Reducing income inequality by ensuring that economic gains are distributed more evenly across different segments of society. d. Improved Standards of Living: Enhancing the quality of life through better access to essential services such as healthcare, education, housing, and clean water. e. Sustainable Economic Growth: Promoting economic growth that is environmentally sustainable and does not deplete natural resources for future generations. The Department of Environment and Natural Resources (DENR) is the primary government agency in the Philippines responsible for the conservation, management, development, and proper use of the country’s environment and natural resources. E c o n o m i c D e v e l o p m e n t N o t e s b y M r. C l a r i n P a g e 4 | 34 ECONOMIC DEVELOPMENT NOTES f. Human Capital Development: Investing in education and training to improve the skills and productivity of the workforce, fostering innovation and competitiveness. g. Infrastructure Development: Building and maintaining physical infrastructure such as roads, bridges, and communication systems to support economic activities and connectivity. The DPWH is responsible for the planning, design, construction, and maintenance of infrastructure projects, particularly public works such as roads, bridges, highways, flood control systems, and public buildings. The NTC is the regulatory body for telecommunications in the Philippines. It oversees the establishment, operation, and maintenance of telecommunications services and facilities throughout the country. h. Technological Advancement: Encouraging the adoption and development of new technologies to improve productivity, efficiency, and innovation. The Department of Information and Communications Technology (DICT) is the executive department of the Philippine government responsible for planning, developing, and promoting the national ICT development agenda. The DICT plays a crucial role in fostering the growth of information and communications technology (ICT) in the country, ensuring the availability of reliable and affordable ICT services, and supporting the digital transformation of various sectors. i. Economic Diversification: Reducing dependence on a single industry or sector by promoting a diverse range of economic activities. j. Social Inclusion: Ensuring that all groups within society, including marginalized and disadvantaged populations, have equal opportunities to benefit from economic development. The Department of Social Welfare and Development (DSWD) is the primary government agency in the Philippines responsible for the protection of social welfare rights and the promotion of social development. The DSWD provides assistance to disadvantaged individuals, families, and communities, focusing on poverty reduction, social protection, and the enhancement of the quality of life for vulnerable populations. k. Institutional Strengthening: Enhancing the capacity and effectiveness of institutions to create a stable, transparent, and conducive environment for economic activities. l. Global Competitiveness: Improving the country's ability to compete in the global market by enhancing its economic policies, business environment, and workforce skills. E c o n o m i c D e v e l o p m e n t N o t e s b y M r. C l a r i n P a g e 5 | 34 ECONOMIC DEVELOPMENT NOTES These goals collectively aim to foster a balanced and inclusive approach to economic development, ensuring that progress benefits all members of society while preserving the environment for future generations. Roles of Institutions and Governance in Philippine Economic Development 1. Government Institutions: Government institutions play a crucial role in shaping and implementing economic policies, managing resources, and ensuring the effective delivery of services. In the Philippines, several key institutions contribute to economic development: a. National Economic and Development Authority (NEDA): Role: NEDA is the country’s premier socio-economic planning body. It formulates and coordinates the national development plan and policies, including the Medium-Term Philippine Development Plan (MTPDP) and the Ambisyon Natin 2040 vision. Impact on Economic Development: NEDA provides strategic direction for economic growth and poverty reduction, facilitates investment in infrastructure, and promotes sustainable development. It also conducts research and analysis to inform policy decisions and track progress toward development goals. b. Department of Finance (DOF): Role: The DOF oversees the management of the country’s financial resources, including budgeting, taxation, and public debt. It plays a key role in fiscal policy formulation and implementation. Impact on Economic Development: By ensuring effective tax collection, prudent management of public funds, and debt sustainability, the DOF supports economic stability and growth. It also facilitates reforms to improve the investment climate and promote economic resilience. E c o n o m i c D e v e l o p m e n t N o t e s b y M r. C l a r i n P a g e 6 | 34 ECONOMIC DEVELOPMENT NOTES c. Department of Trade and Industry (DTI): Role: DTI is responsible for promoting and facilitating trade and industry growth. It supports entrepreneurship, provides business development services, and regulates various economic activities. Impact on Economic Development: DTI's initiatives, such as the promotion of small and medium-sized enterprises (SMEs), investment promotion, and trade facilitation, contribute to economic diversification, job creation, and industrial growth. d. Department of Public Works and Highways (DPWH): Role: DPWH is tasked with the planning, construction, and maintenance of national infrastructure, including roads, bridges, and flood control systems. Impact on Economic Development: Quality infrastructure is essential for facilitating economic activities, improving connectivity, and attracting investments. DPWH’s projects enhance transportation efficiency, support regional development, and contribute to overall economic growth. e. Department of Social Welfare and Development (DSWD): Role: DSWD focuses on social protection, poverty alleviation, and welfare services. It administers programs like the Pantawid Pamilyang Pilipino Program (4Ps) and disaster response initiatives. Impact on Economic Development: By providing social safety nets, promoting inclusive growth, and enhancing the welfare of vulnerable populations, DSWD contributes to human capital development and social stability, which are vital for sustainable economic progress. E c o n o m i c D e v e l o p m e n t N o t e s b y M r. C l a r i n P a g e 7 | 34 ECONOMIC DEVELOPMENT NOTES 2. Governance and Institutions: Governance plays a critical role in ensuring that institutions effectively contribute to economic development. Key aspects of governance that influence economic development in the Philippines include: a. Rule of Law and Regulatory Environment: Importance: A stable and predictable legal and regulatory environment is essential for economic development. It ensures that businesses can operate efficiently, contracts are enforced, and property rights are protected. Impact: Reforms to improve the ease of doing business, reduce corruption, and enhance legal frameworks help attract investment, foster economic activity, and support entrepreneurship. b. Anti-Corruption Measures: Importance: Corruption undermines economic development by distorting markets, reducing investor confidence, and diverting resources from productive uses. Impact: Institutions like the Commission on Audit (COA) and the Office of the Ombudsman play roles in investigating and prosecuting corruption. Effective anti-corruption measures promote transparency, accountability, and trust in government institutions. The Philippines ranked 115th in the 2023 Corruption Perceptions Index, a one-notch improvement from its previous 116th ranking, the Transparency International disclosed. According to the global organization, the Philippines obtained a score of 34 out of 100, which was an increase from its score of 33 in 2022. The Transparency International said that the 2023 CPI has shown that corruption is thriving across the world. It ranks 180 countries and territories around the globe by their perceived levels of public sector corruption, scoring on a scale of 0 (highly corrupt) to 100 (very clean). The global group noted that more than two-thirds of countries scored below 50 out of 100, which strongly indicates that they have serious corruption problems. It said that the global average was stuck at only 43, while the vast majority of countries have made no progress or declined in the last decade. E c o n o m i c D e v e l o p m e n t N o t e s b y M r. C l a r i n P a g e 8 | 34 ECONOMIC DEVELOPMENT NOTES c. Decentralization and Local Governance: Importance: Decentralization allows local governments to tailor development initiatives to regional needs and priorities. It empowers local authorities to manage resources and implement programs more effectively. Impact: Strengthened local governance enhances the delivery of public services, supports regional development, and ensures that economic benefits are distributed more equitably across the country. d. Public-Private Partnerships (PPPs): Importance: PPPs leverage private sector resources and expertise to deliver public infrastructure and services. They can enhance efficiency and innovation in project implementation. Impact: Successful PPPs contribute to infrastructure development, improve service delivery, and attract private investment in critical sectors such as transportation, energy, and education. E c o n o m i c D e v e l o p m e n t N o t e s b y M r. C l a r i n P a g e 9 | 34 ECONOMIC DEVELOPMENT NOTES e. Citizen Participation and Accountability: Importance: Engaging citizens in decision-making processes and holding institutions accountable to the public are essential for effective governance. Impact: Mechanisms for citizen participation, such as public consultations and oversight bodies, ensure that government actions align with public needs and priorities. They also enhance transparency and accountability, fostering trust in institutions. The roles of institutions and governance are integral to economic development in the Philippines. Effective government institutions drive policy formulation and implementation, while strong governance practices ensure that resources are managed transparently and efficiently. Together, they contribute to creating an environment conducive to sustainable economic growth, poverty reduction, and improved quality of life for Filipinos. E c o n o m i c D e v e l o p m e n t N o t e s b y M r. C l a r i n P a g e 10 | 34 ECONOMIC DEVELOPMENT NOTES WEEK 3 & 4 Gross Domestic Product (GDP) Definition: GDP is the total monetary value of all final goods and services produced within a country's borders over a specific period, usually a year or a quarter. It measures the size of an economy and is used as an indicator of economic health. Types: Nominal GDP: GDP measured at current market prices, without adjusting for inflation. Real GDP: GDP adjusted for inflation, providing a more accurate reflection of an economy's size and growth over time. Gross National Product (GNP) Definition: GNP is the total monetary value of all final goods and services produced by the residents of a country in a given period, including the value of income earned by citizens abroad but excluding the income earned by foreigners within the country. It reflects the economic output and income of a country's residents, regardless of where the production takes place. GNP vs. GDP: While GDP focuses on location (i.e., within a country's borders), GNP focuses on ownership (i.e., by a country's residents). E c o n o m i c D e v e l o p m e n t N o t e s b y M r. C l a r i n P a g e 11 | 34 ECONOMIC DEVELOPMENT NOTES Source: International Monetary Fund E c o n o m i c D e v e l o p m e n t N o t e s b y M r. C l a r i n P a g e 12 | 34 ECONOMIC DEVELOPMENT NOTES Per Capita Definition: "Per capita" is a Latin term meaning "per person." It is commonly used in economic indicators to provide a measure on an individual basis by dividing the total value by the population. Examples: GDP per Capita: The GDP of a country divided by its population, which gives an average economic output per person. It is often used as an indicator of the average standard of living. GNP per Capita: The GNP of a country divided by its population, indicating the average income earned by a country's residents. E c o n o m i c D e v e l o p m e n t N o t e s b y M r. C l a r i n P a g e 13 | 34 ECONOMIC DEVELOPMENT NOTES Source: https://www.forbesindia.com/article/explainers/top-10-richest-countries-in-the- world/87305/1 E c o n o m i c D e v e l o p m e n t N o t e s b y M r. C l a r i n P a g e 14 | 34 ECONOMIC DEVELOPMENT NOTES Human Development Index (HDI) Definition: HDI is a composite index used to measure and compare the overall well-being and quality of life of people in different countries. It was developed by the United Nations Development Programme (UNDP) and includes three key dimensions: Life Expectancy: Reflects the ability to live a long and healthy life. Education: Measured by mean years of schooling for adults and expected years of schooling for children. Standard of Living: Measured by Gross National Income (GNI) per capita adjusted for purchasing power parity (PPP). Purpose: HDI provides a broader measure of human development than economic indicators alone, as it includes health, education, and income, reflecting the multidimensional nature of development. E c o n o m i c D e v e l o p m e n t N o t e s b y M r. C l a r i n P a g e 15 | 34 ECONOMIC DEVELOPMENT NOTES E c o n o m i c D e v e l o p m e n t N o t e s b y M r. C l a r i n P a g e 16 | 34 ECONOMIC DEVELOPMENT NOTES Economic Growth and Economic Development are related concepts, but they differ in scope, focus, and implications: Economic Growth Economic Development Refers to the increase in a country's output of Involves economic growth but also includes goods and services, typically measured by the improvements in living standards, reduction in rise in Gross Domestic Product (GDP) or poverty, enhancement of health, education, Gross National Product (GNP). and the overall well-being of the population. Measurement: Quantitative; often measured Measurement: Qualitative and quantitative; by the annual percentage increase in GDP. measured through indicators like Human Development Index (HDI), poverty rates, literacy rates, life expectancy, and income distribution. Scope: Narrow; focuses on the expansion of Scope: Broader; encompasses economic, economic output. social, and institutional improvements. Indicators: GDP, GNP, per capita income, Indicators: HDI, poverty levels, literacy rates, industrial output, etc. life expectancy, income equality, etc. Impact: Primarily affects the economy's size Impact: Aims to create sustainable and output, without necessarily improving the improvements in the quality of life, leading to quality of life for all citizens. long-term prosperity and human welfare. E c o n o m i c D e v e l o p m e n t N o t e s b y M r. C l a r i n P a g e 17 | 34 ECONOMIC DEVELOPMENT NOTES Short-term: Can be observed in a relatively Long-term: Often involves structural changes short period (e.g., quarterly or annual growth in the economy and society and is seen over a rates). longer period. Key Takeaways: Economic growth is primarily concerned with increasing the economy's output, while economic development is concerned with improving the quality of life and well-being of the population. Growth is measured by GDP and similar metrics, while development uses a broader range of indicators, including social and human factors. Growth can occur without development, meaning a country can have a growing economy but still have widespread poverty or inequality. Development, on the other hand, implies improvements in both economic and social conditions. Theories of economic development provide frameworks for understanding how countries achieve economic progress and improve the living standards of their populations. 1. Classical Theories a. Adam Smith's Theory of Economic Growth (The Invisible Hand) Concept: Adam Smith argued that individuals seeking to maximize their own gain, through production and trade, would inadvertently contribute to the economic prosperity of society as a whole. He emphasized the importance of free markets and competition. Example: The rise of industrial economies in 18th and 19th century Europe, where increased trade and competition led to rapid economic growth. b. David Ricardo's Comparative Advantage Concept: Ricardo introduced the idea that countries should specialize in producing goods where they have a comparative advantage (lower opportunity cost) and trade with others, leading to overall gains in economic welfare. Example: The success of export-oriented economies like South Korea, which specialized in electronics and automobiles. E c o n o m i c D e v e l o p m e n t N o t e s b y M r. C l a r i n P a g e 18 | 34 ECONOMIC DEVELOPMENT NOTES 2. Modernization Theory Concept: This theory suggests that economic development occurs through a process of modernization, where societies transition from traditional, agrarian economies to modern, industrialized ones. It often emphasizes the adoption of Western-style institutions, technology, and cultural values. Example: The rapid industrialization and economic growth in Japan during the Meiji Restoration (late 19th century), where Western technologies and organizational methods were adopted. 3. Dependency Theory Concept: Dependency theory argues that underdeveloped countries are trapped in a cycle of dependence on developed nations, which exploit their resources and labor. This theory critiques the global capitalist system and emphasizes the need for structural change to achieve genuine development. Example: The economic struggles of many Latin American countries in the 20th century, where dependency theorists argued that reliance on exporting raw materials to developed countries hindered their development. 4. Structuralism Concept: Structuralism emphasizes the importance of internal factors within developing countries, such as the structure of their economies and social institutions. It advocates for government intervention to overcome structural obstacles to development, such as income inequality and poor infrastructure. Example: The import substitution industrialization (ISI) strategy adopted by countries like Brazil and India in the mid-20th century, where governments sought to reduce dependency on imports by promoting domestic industries. 5. Endogenous Growth Theory Concept: This theory focuses on internal factors within an economy that contribute to economic growth, particularly the role of technology, innovation, human capital, and knowledge. It suggests that investment in education, research, and development can lead to sustained economic growth. Example: The rise of Silicon Valley in the United States, where significant investments in education, research, and innovation have driven long-term economic growth and technological advancement. E c o n o m i c D e v e l o p m e n t N o t e s b y M r. C l a r i n P a g e 19 | 34 ECONOMIC DEVELOPMENT NOTES 6. Neo-Classical Growth Theory (Solow-Swan Model) Concept: This theory emphasizes the role of capital accumulation, labor force growth, and technological progress in driving economic growth. It suggests that, over time, economies converge to a steady-state growth rate determined by these factors. Example: The post-World War II economic boom in Western Europe and North America, where high levels of investment in capital and technology led to rapid economic growth. 7. Big Push Theory Concept: Proposed by Paul Rosenstein-Rodan, this theory suggests that large-scale, coordinated investment across multiple sectors is necessary to overcome the barriers to development in underdeveloped economies. The idea is that a "big push" can jumpstart the economy and lead to sustained growth. Example: The Marshall Plan after World War II, where the United States provided significant economic aid to rebuild European economies, leading to rapid recovery and growth. 8. Human Development Theory Concept: This theory, associated with the work of economists like Amartya Sen, emphasizes the importance of human capabilities and well-being in economic development. It argues that development should be measured not just by economic growth but by improvements in health, education, and overall quality of life. Example: The United Nations' Human Development Index (HDI), which includes indicators like life expectancy, education, and income, as a measure of development in countries like Norway and Switzerland. Each of these theories offers a different perspective on the complex process of economic development, and in practice, successful development often involves a combination of factors and strategies from multiple theories. E c o n o m i c D e v e l o p m e n t N o t e s b y M r. C l a r i n P a g e 20 | 34 ECONOMIC DEVELOPMENT NOTES Modern economic development theory encompasses a range of models and approaches that attempt to explain the process by which economies grow and develop, particularly in the context of low-income or developing countries. Over time, several key theories have emerged, each with its perspectives on what drives economic development, the role of institutions, markets, and government policies, as well as the challenges involved. 1. Modernization Theory Modernization theory, prominent in the mid-20th century, suggests that development follows a linear progression from traditional to modern societies. It argues that economic development involves transitioning from agrarian economies to industrialized and service-based economies, driven by the adoption of modern technologies, values, and institutions. Criticisms: Eurocentrism: Critics argue that modernization theory is Eurocentric, imposing a Western model of development on all societies without accounting for cultural and historical differences. Neglect of Structural Factors: It is criticized for underestimating the structural factors that can inhibit development, such as inequality, colonial legacies, and global power dynamics. Deterministic: The theory is often viewed as deterministic, suggesting that all countries must follow the same path to development. 2. Dependency Theory Dependency theory emerged in the 1960s and 1970s as a critique of modernization theory. It argues that underdevelopment in poorer countries is the result of their exploitation and dependency on developed nations. According to this view, the global economic system perpetuates inequalities, with developed countries benefiting at the expense of the underdeveloped world. Criticisms: Overemphasis on External Factors: Critics of dependency theory argue that it overemphasizes the role of external factors and underplays the importance of internal policies and institutions in shaping development outcomes. Lack of Agency: The theory has been criticized for portraying developing countries as passive victims, lacking agency to change their circumstances. Inflexibility: The theory is seen as overly rigid, not accounting for cases where countries have successfully developed through integration into the global economy. 3. Neoliberalism and Market-Oriented Theories Neoliberalism gained prominence in the 1980s, advocating for free markets, deregulation, privatization, and reducing the role of the state in economic affairs. According to this approach, E c o n o m i c D e v e l o p m e n t N o t e s b y M r. C l a r i n P a g e 21 | 34 ECONOMIC DEVELOPMENT NOTES economic development is best achieved through market efficiency, open trade, and investment, with minimal government intervention. Criticisms: Inequality and Social Costs: Critics argue that neoliberal policies often exacerbate income inequality and lead to social dislocation by prioritizing market efficiency over social welfare. Environmental Degradation: The focus on economic growth and deregulation can lead to environmental degradation, as market forces may not account for externalities such as pollution. Failure in Practice: Many critics point to instances where neoliberal policies have led to economic crises, social unrest, and deepening poverty, particularly in developing countries. 4. Endogenous Growth Theory Endogenous growth theory, developed in the 1980s and 1990s, emphasizes the role of knowledge, human capital, innovation, and technological change as drivers of economic growth. Unlike traditional growth models, it suggests that growth can be sustained without diminishing returns, as investment in education, research, and innovation leads to continuous improvements in productivity. Criticisms: Overemphasis on Technology: Critics argue that endogenous growth theory overemphasizes the role of technology and human capital, potentially neglecting other important factors such as political stability, social structures, and income distribution. Policy Prescriptions: Some critics question the practical applicability of the theory, noting that the policies it suggests may not be easily implemented in countries with weak institutions or limited resources. 5. Institutionalism Institutional theories of economic development argue that the quality of institutions—such as legal frameworks, property rights, governance, and the rule of law—is crucial for economic development. Institutions shape the incentives for economic activity, reduce transaction costs, and provide the stability needed for long-term investment and growth. Criticisms: Vagueness: Critics often point out that institutional theories can be vague, with "good institutions" being a catch-all phrase that lacks clear operational definitions. Overemphasis on Institutions: Some argue that these theories may overstate the role of institutions while downplaying other factors such as geography, culture, or historical contingencies. E c o n o m i c D e v e l o p m e n t N o t e s b y M r. C l a r i n P a g e 22 | 34 ECONOMIC DEVELOPMENT NOTES Implementation Challenges: Building and reforming institutions is a complex and lengthy process, often hindered by entrenched interests and political dynamics, making institutional reform difficult to achieve in practice. 6. Human Development and Capability Approach Developed by Amartya Sen and others, the capability approach focuses on enhancing people's capabilities—their freedom to lead the kind of life they value. This approach emphasizes human development, well-being, education, health, and social inclusion as central to the development process, rather than merely focusing on economic growth. Criticisms: Operational Challenges: Critics point out that the capability approach can be difficult to operationalize in terms of measurable indicators and policy prescriptions. Resource Allocation: There are debates about how to prioritize different capabilities, especially in resource-constrained settings where trade-offs may be necessary. Relatively New: As a relatively newer approach, some critics argue that it lacks the theoretical depth and empirical validation compared to more established theories. E c o n o m i c D e v e l o p m e n t N o t e s b y M r. C l a r i n P a g e 23 | 34 ECONOMIC DEVELOPMENT NOTES WEEK 5 & 6 Economic development indicators are statistical measures used to assess the economic performance and overall development of a country or region. These indicators help in evaluating the economic progress, standard of living, and well-being of the population. Below are some key economic development indicators and methods of measurement: 1. Gross Domestic Product (GDP) Definition: GDP is the total monetary value of all goods and services produced within a country over a specific period (usually annually or quarterly). Measurement: Nominal GDP: Measured at current market prices, without adjusting for inflation. Real GDP: Adjusted for inflation, providing a more accurate reflection of an economy's size and growth over time. GDP per Capita: GDP divided by the population, indicating the average economic output per person and providing insight into the standard of living. 2. Human Development Index (HDI) Definition: HDI is a composite index that measures average achievement in three basic dimensions of human development: health (life expectancy at birth), education (mean years of schooling and expected years of schooling), and standard of living (GNI per capita). Measurement: Ranges from 0 to 1, with higher values indicating higher levels of human development. 3. Gini Coefficient (Income Inequality) Definition: The Gini coefficient is a measure of income distribution within a population, ranging from 0 (perfect equality) to 1 (perfect inequality). Measurement: Calculated based on the Lorenz curve, which plots the cumulative share of income earned by different segments of the population. E c o n o m i c D e v e l o p m e n t N o t e s b y M r. C l a r i n P a g e 24 | 34 ECONOMIC DEVELOPMENT NOTES The Gini coefficient is a measure of income inequality within a country or a population. Here’s a straightforward way to explain it: Concept: The Gini coefficient quantifies how income is distributed among the population. It’s a number between 0 and 1, where: 0 represents perfect equality (everyone has the same income). 1 represents perfect inequality (one person has all the income, and everyone else has none). E c o n o m i c D e v e l o p m e n t N o t e s b y M r. C l a r i n P a g e 25 | 34 ECONOMIC DEVELOPMENT NOTES 4. Poverty Rate Definition: The percentage of the population living below the poverty line, which is defined by a specific income threshold (often $1.90 per day in international comparisons). Measurement: Based on household surveys and income data, indicating the proportion of people unable to meet basic needs. E c o n o m i c D e v e l o p m e n t N o t e s b y M r. C l a r i n P a g e 26 | 34 ECONOMIC DEVELOPMENT NOTES E c o n o m i c D e v e l o p m e n t N o t e s b y M r. C l a r i n P a g e 27 | 34 ECONOMIC DEVELOPMENT NOTES 5. Employment Indicators Unemployment Rate: The percentage of the labor force that is jobless and actively seeking employment. Labor Force Participation Rate: The proportion of the working-age population that is either employed or actively seeking work. Underemployment: The percentage of workers employed part-time or in jobs that do not utilize their skills fully. 6. Inflation Rate Definition: The rate at which the general level of prices for goods and services rises, eroding purchasing power. Measurement: Calculated using price indices such as the Consumer Price Index (CPI) or Producer Price Index (PPI). 7. Balance of Payments Definition: A statement that summarizes a country’s transactions with the rest of the world, including exports, imports, and capital flows. Measurement: Current Account Balance: Measures trade balance, net income from abroad, and net current transfers. Capital and Financial Account: Records capital transfers and transactions in financial assets and liabilities. The balance of payments (BoP) is a comprehensive record of a country’s economic transactions with the rest of the world over a specific period, typically a year. Its purpose is multi-faceted: Economic Analysis: It provides a detailed overview of a country's economic transactions, helping policymakers, economists, and analysts understand the economic health and stability of a country. E c o n o m i c D e v e l o p m e n t N o t e s b y M r. C l a r i n P a g e 28 | 34 ECONOMIC DEVELOPMENT NOTES Policy Formulation: By tracking trade, investment, and financial flows, the BoP helps governments and central banks formulate economic policies, including those related to trade, exchange rates, and foreign investment. Exchange Rate Management: The BoP can influence a country’s exchange rate policy. For instance, persistent deficits might put downward pressure on the currency, while surpluses might lead to currency appreciation. Investment Decisions: Investors use BoP data to gauge the attractiveness of a country for investment. A stable and healthy BoP can signal a robust economic environment, attracting foreign investment. International Relations: It helps in assessing a country’s economic relationships with other nations, influencing trade agreements and international financial assistance. Economic Forecasting: BoP data aids in forecasting future economic conditions, such as potential inflationary pressures or economic slowdowns, based on trends in trade and capital flows. Overall, the balance of payments is crucial for maintaining economic stability, informing policy, and fostering international economic relations. 8. Foreign Direct Investment (FDI) Definition: The net inflows of investment to acquire a lasting management interest (10% or more of voting stock) in an enterprise operating in an economy other than that of the investor. Measurement: Typically measured as a percentage of GDP, reflecting the attractiveness of a country to foreign investors. E c o n o m i c D e v e l o p m e n t N o t e s b y M r. C l a r i n P a g e 29 | 34 ECONOMIC DEVELOPMENT NOTES 9. Infrastructure Development Definition: The state of a country’s physical infrastructure, including transportation, telecommunications, energy, and water supply systems. Measurement: Indicators include the length of roads and railways, electricity generation capacity, internet penetration, and access to clean water. 10. Environmental Sustainability Indicators Carbon Emissions: Total greenhouse gas emissions produced by a country, often measured in metric tons per capita. Renewable Energy Use: The percentage of energy consumption derived from renewable sources. Ecological Footprint: The measure of human demand on nature, indicating the amount of natural resources used and waste generated. 11. Social Development Indicators E c o n o m i c D e v e l o p m e n t N o t e s b y M r. C l a r i n P a g e 30 | 34 ECONOMIC DEVELOPMENT NOTES Literacy Rate: The percentage of people who can read and write in a population, often disaggregated by gender. Life Expectancy: The average number of years a person can expect to live, reflecting the overall health of a population. Infant Mortality Rate: The number of infant deaths per 1,000 live births, an important indicator of healthcare quality and access. 12. Technology and Innovation Indicators Research and Development (R&D) Expenditure: The percentage of GDP spent on R&D, indicating the level of investment in innovation. Patent Applications: The number of patents filed per year, reflecting the level of technological advancement. 13. Education Indicators School Enrollment Rates: The percentage of eligible children enrolled in primary, secondary, and tertiary education. Educational Attainment: The highest level of education completed by the adult population. 14. Quality of Life Indicators Happiness Index: Measures the well-being and happiness of a population, often based on surveys. Access to Healthcare: Proportion of the population with access to essential healthcare services. https://www.philstar.com/nation/2024/03/20/2341955/report-philippines-2nd-happiest-country- southeast-asia 15. Composite Indices Sustainable Development Goals (SDG) Index: A composite measure that tracks countries' progress toward achieving the United Nations' 17 SDGs. Global Competitiveness Index (GCI): Measures the set of institutions, policies, and factors that determine a country’s level of productivity and competitiveness. These indicators provide a comprehensive picture of a country's economic development and are used by policymakers, researchers, and international organizations to assess progress, identify challenges, and formulate strategies for sustainable development. E c o n o m i c D e v e l o p m e n t N o t e s b y M r. C l a r i n P a g e 31 | 34 ECONOMIC DEVELOPMENT NOTES The United Nations Sustainable Development Goals (SDGs) are a collection of 17 interlinked global goals designed to be a "blueprint to achieve a better and more sustainable future for all." Adopted by all United Nations Member States in 2015 as part of the 2030 Agenda for Sustainable Development, the SDGs aim to address a wide range of global challenges, including poverty, inequality, climate change, environmental degradation, peace, and justice. Overview of the 17 SDGs: No Poverty: End poverty in all its forms everywhere. Zero Hunger: End hunger, achieve food security and improved nutrition, and promote sustainable agriculture. Good Health and Well-being: Ensure healthy lives and promote well-being for all at all ages. Quality Education: Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all. Gender Equality: Achieve gender equality and empower all women and girls. Clean Water and Sanitation: Ensure availability and sustainable management of water and sanitation for all. Affordable and Clean Energy: Ensure access to affordable, reliable, sustainable, and modern energy for all. Decent Work and Economic Growth: Promote sustained, inclusive, and sustainable economic growth, full and productive employment, and decent work for all. Industry, Innovation, and Infrastructure: Build resilient infrastructure, promote inclusive and sustainable industrialization, and foster innovation. Reduced Inequality: Reduce inequality within and among countries. Sustainable Cities and Communities: Make cities and human settlements inclusive, safe, resilient, and sustainable. Responsible Consumption and Production: Ensure sustainable consumption and production patterns. Climate Action: Take urgent action to combat climate change and its impacts. Life Below Water: Conserve and sustainably use the oceans, seas, and marine resources for sustainable development. Life on Land: Protect, restore, and promote sustainable use of terrestrial ecosystems, manage forests sustainably, combat desertification, and halt and reverse land degradation and biodiversity loss. E c o n o m i c D e v e l o p m e n t N o t e s b y M r. C l a r i n P a g e 32 | 34 ECONOMIC DEVELOPMENT NOTES Peace, Justice, and Strong Institutions: Promote peaceful and inclusive societies for sustainable development, provide access to justice for all, and build effective, accountable, and inclusive institutions at all levels. Partnerships for the Goals: Strengthen the means of implementation and revitalize the global partnership for sustainable development. REFERENCES 1. Bautista, R. M. (1999). The Philippines: Economic development and growth. In G. R. Aspinall & R. M. Bautista (Eds.), Philippine politics and society in the twentieth century (pp. 45-67). Routledge. 2. Balisacan, A. M., & Hill, H. (2003). The Philippine economy: Development, policies, and challenges. University of the Philippines Press. 3. De Dios, E. (2018). Economic development in the Philippines: Historical and contemporary perspectives. Philippine Journal of Development, 40(1), 25-42. https://doi.org/10.3892/pjd.2018.0014 E c o n o m i c D e v e l o p m e n t N o t e s b y M r. C l a r i n P a g e 33 | 34 ECONOMIC DEVELOPMENT NOTES 4. Kerkvliet, B. J. (1995). The Philippines in the 20th century: Economic and social transformations. In J. Sidel (Ed.), Capital, coercion, and crime: Bossism in the Philippines (pp. 91-110). Stanford University Press. 5. Quisumbing, A. R., & McConnell, C. (2009). Poverty and economic development in the Philippines: A historical overview. In A. R. Quisumbing & C. McConnell (Eds.), Poverty, inequality, and economic development (pp. 23-46). Oxford University Press. 6. United Nations. (2015). Transforming our world: The 2030 Agenda for Sustainable Development. United Nations. https://sdgs.un.org/2030agenda 7. United Nations Development Programme. (2020). Human Development Report 2020: The next frontier—Human development and the Anthropocene. United Nations Development Programme. http://hdr.undp.org/sites/default/files/hdr2020.pdf 8. World Bank. (2023). World Development Indicators. World Bank. https://databank.worldbank.org/source/world-development-indicators 9. Deng, X. (1984). Building socialism with Chinese characteristics. In Selected Works of Deng Xiaoping, Vol. 3 (pp. 1-24). Foreign Languages Press. 10. Piketty, T. (2014). Capital in the twenty-first century. Harvard University Press. E c o n o m i c D e v e l o p m e n t N o t e s b y M r. C l a r i n P a g e 34 | 34