Introducing Economic Development: A Global Perspective PDF

Introducing Economic Development: A Global Perspective UNIT I, LESSON 1 How the Other Half Live Absolute Poverty A situation of being unable to meet the minimum levels of income, food, clothing, health care, shelter, and other essentials. Subsistence Economy...

Introducing Economic Development: A Global Perspective UNIT I, LESSON 1 How the Other Half Live Absolute Poverty A situation of being unable to meet the minimum levels of income, food, clothing, health care, shelter, and other essentials. Subsistence Economy An economy in which production is mainly for personal consumption and the standard of living yields little more than basic necessities of life—food, shelter, and clothing. Why are we poor? Why are they rich? Development The process of improving the quality of all human lives and capabilities by raising people’s levels of living, self- esteem, and freedom. Why does affluence coexist with dire poverty, not only on different continents, but also within the same country or even the same city? Can traditional, low-productivity, subsistence societies be transformed into modern, high-productivity, high-income nations? To what extent are the development aspirations of poor nations helped or hindered by the economic activities of rich nations? By what process and under what conditions do rural subsistence farmers in the remote regions of Nigeria, Brazil, or the Philippines evolve into successful commercial farmers? What are the implications of the surprisingly long stagnation in rich countries following the financial crisis for further progress on development and poverty reduction?  The Nature of Development Economics  An approach to economics that emphasizes Traditional Economics utility, profit maximization, market efficiency, and determination of equilibrium. The attempt to merge economic analysis with Political Economy practical politics— to view economic activity in its political context. The study of how economies are transformed Development Economics from stagnation to growth and from low-income to high-income status, and overcome problems of absolute poverty.  Why study Development Economics  01 What is the real meaning of development? Do the Millennium Development Goals fit with 30 these meanings? (Chapter 1) 02 What can be learned from the historical record of economic progress in the now developed world? Are the initial conditions similar or different for contemporary developing countries from what the developed countries faced on the eve of their Critical industrialization or in their earlier phases? (Chapter 2) 03 What are economic institutions, and how do they Questions shape problems of underdevelopment and prospects for successful development? (Chapter 2) 04 How can the extremes between rich and poor be so very great? Figure 1.1 illustrates this disparity. (Chapters 2, 3, 4, and 5) 05 What are the sources of national and international economic growth? Who benefits from such growth and why? (Chapters 3 and 5)  06 Why do some countries make rapid progress toward development while many others remain 30 poor? (Chapters 2, 3, and 4) 07 Which are the most influential theories of development, and are they compatible? Is underdevelopment an internally (domestically) or externally (internationally) induced Critical phenomenon? (Chapters 2, 3, and 4) 08 Questions What constraints most hold back accelerated growth, depending on local conditions? (Chapter 4) 09 How can improvements in the role and status of women have an especially beneficial impact on development prospects? (Chapters 5, 6, 7, 8, 9, and 10) 10 What are the causes of extreme poverty, and what policies have been most effective for improving the lives of the poorest of the poor? (Chapters 5, 6, 7, 8, 9, 10, and 11)  11 With world population superseding 7 billion people, on its way to a projected 9 billion before mid-century, is rapid population growth 30 threatening the economic progress of developing nations? Does having large families make economic sense in an environment of widespread poverty and financial insecurity? (Chapter 6) 12 Why is there so much unemployment and underemployment in the developing world, especially in the cities, and why do people continue to migrate to the cities from rural areas even when Critical their chances of finding a conventional job are slim? (Chapter 7) 13 Questions Under what conditions can cities act as engines of economic transformation? (Chapter 7) 14 Wealthier societies are also healthier ones because they have more resources for improving nutrition and health care. But does better health also help spur successful development? (Chapter 8) 15 What is the impact of poor public health on the prospects for development, and what is needed to address these problems? (Chapter 8)  16 Do educational systems in developing countries really promote economic development, or are they simply a mechanism to enable 30 certain select groups or classes of people to maintain positions of wealth, power, and influence? (Chapter 8) 17 As more than half the people in developing countries still reside in rural areas, how can agricultural and rural development best be promoted? Are higher agricultural prices sufficient to stimulate food production, or are rural institutional changes and infrastructure (land redistribution, local Critical government reform, roads, transport, education, credit, etc.) also needed? (Chapter 9) 18 What do we mean by “environmentally sustainable development”? Are Questions there serious economic costs for pursuing sustainable development as opposed to simple output growth, and who bears the major responsibility for global environmental damage—the developed North or the developing South? (Chapter 10) 19 Are free markets and economic privatization the answer to development problems, or do governments in developing countries still have major roles to play in their economies? (Chapter 11) 20 Why do so many developing countries select such poor development policies, and what can be done to improve these choices? (Chapter 11)  21 Is expanded international trade always desirable from the point of view of the development of poor nations? Who gains from trade, 30 and how are the advantages distributed among nations? (Chapter 12) 22 When and under what conditions, if any, should governments in developing countries adopt a policy of foreign-exchange control, raise tariffs, or set quotas on the importation of certain “nonessential” goods in order to promote their own industrialization or to ameliorate Critical chronic balance of payments problems? (Chapter 12) 23 What has been the impact of International Monetary Fund Questions “stabilization programs” and World Bank “structural adjustment” lending on the balance of payments and growth prospects of heavily indebted less developed countries? (Chapters 12 and 13) 24 What is meant by globalization, and how is it affecting the developing countries? (Chapters 12, 13, and 14) 25 Should exports of primary products such as agricultural commodities and iron ore be promoted, or should all developing countries attempt to industrialize by developing their own manufacturing industries as rapidly as possible? (Chapter 13)  26 How did so many developing nations get into such serious foreign- debt problems, and what are the implications of debt problems for 30 economic development? How do financial crises affect development? (Chapter 13) 27 What is the impact of foreign economic aid from rich countries? Should developing countries continue to seek such aid, and if so, under what conditions and for what purposes? Should developed countries continue to offer such aid, and if so, under what conditions Critical and for what purposes? (Chapter 14) 28 Should multinational corporations be encouraged to invest in Questions the economies of poor nations, and if so, under what conditions? How have the emergence of the “global factory” and the globalization of trade and finance influenced international economic relations? (Chapter 14) 29 What is the role of financial and fiscal policy in promoting development? (Chapter 15) 30 What is microfinance, and what are its potential and limitations for reducing poverty and spurring grassroots development? (Chapter 15) The Important Role of Values in Development Economics Values Principles, standards, or qualities that a society or groups within it considers worthwhile or desirable. Economics is a social science. It is concerned with human beings and the social systems by which they organize their activities to satisfy basic material needs (e.g., food, shelter, clothing) and nonmaterial wants (e.g., education, knowledge, spiritual fulfillment). It is necessary to recognize from the outset that ethical or normative value premises about what is or is not desirable are central features of the economic discipline in general and of development economics in particular. Economies as Social Systems: The Need to Go Beyond Simple Economics Social The organizational and institutional System structure of a society, including its values, attitudes, power structure, and traditions. Values Principles, standards, or qualities that a society or groups within it considers worthwhile or desirable. Attitudes The states of mind or feelings of an individual, group, or society regarding issues such as material gain, hard work, saving for the future, and sharing wealth.  Norms, rules of conduct, and generally Institutions accepted ways of doing things. Economic institutions are humanly devised constraints that shape human interactions, including both informal and formal “rules of the game” of economic life in the widely used framework of Douglass North. What Do We Mean by Development?  In strictly economic terms, development has traditionally meant achieving sustained rates of growth of income per Traditional capita to enable a nation to expand its output at a rate faster than the growth rate of its population. Development - seen as an economic phenomenon in which Economic rapid gains in overall and per capita GNI growth would either “trickle down” to the masses in the form of jobs and other economic opportunities or create the necessary Measures conditions for the wider distribution of the economic and social benefits of growth. Problems of poverty, discrimination, unemployment, and income distribution were of secondary importance to “getting the growth job done.” Indeed, the emphasis is often on increased output, measured by gross domestic product (GDP). Traditional Gross Domestic Product (GDP) The total final output of goods and services produced by Economic the country’s economy, within the country’s territory, by residents and nonresidents, regardless of its allocation between domestic and foreign claims. Measures The New Economic View of Development The experience of the first decades of post–World War II and postcolonial development in the 1950s, 1960s, and early 1970s, when many developing nations did reach their economic growth targets but the levels of living of the masses of people remained for the most part unchanged, signaled that something was very wrong with this narrow definition of development. 1970s, economic development came to be redefined in terms of the reduction or elimination of poverty, inequality, and unemployment within the context of a growing economy. “Redistribution from growth” became a common slogan. -Dudley Seers -Denis Goulet Development Development must therefore be conceived of as a multidimensional process involving major changes in social structures, popular attitudes, and national institutions, as well as the acceleration of economic growth, the reduction of inequality, and the eradication of poverty. Sen's "Capabilities" Approach The view that income and wealth are not ends in themselves but instruments for other purposes goes back at least as far as Aristotle. Amartya Sen, the 1998 Nobel laureate in economics, argues that the “capability to function” is what really matters for status as a poor or nonpoor person. As Sen puts it, “the expansion of commodity productions...are valued, ultimately, not for their own sake, but as means to human welfare and freedom.” Sen argues that poverty cannot be properly measured by income or even by utility as conventionally understood; what matters fundamentally is not the things a person has—or the feelings these provide—but what a person is, or can be, and does, or can do. What matters for well-being is not just the characteristics of commodities consumed, as in the utility approach, but what use the consumer can and does make of commodities. To make sense of the concept of human well-being in general, and poverty in particular, we need to think beyond the availability of commodities and consider their use. Functionings What people do or can do with the commodities of given characteristics that they come to possess or control.  5 sources of disparity between 1. personal heterogeneities (measured) real 2. environmental diversities incomes and 3. variations in social climate actual 4. differences in advantages relational perspectives 5. distribution within the family Capabilities The freedom that people have, given their personal features and their command over commodities. Sen’s perspective helps explain why development economists have placed so much emphasis on health and education, and more recently on social inclusion and empowerment, and have referred to countries with high levels of income but poor health and education standards as cases of “growth without development. For Sen, human “well-being” means being well, in the basic sense of being healthy, well nourished, well clothed, literate, and long-lived, and more broadly, being able to take part in the life of the community, being mobile, and having freedom of choice in what one can become and can do. Development and Happiness Clearly, happiness is part of human well-being, and greater happiness may in itself expand an individual’s capability to function. As Amartya Sen has argued, a person may well regard happiness as an important functioning for her well-being. - average level of happiness or satisfaction increases with a country’s average income -financial security is only one factor affecting happiness -aside from not being poor, the evidence says people are happier when they are not unemployed, not divorced or separated, and have high trust of others in society, as well as enjoy high government quality with democratic freedoms and have religious faith Three Core Values of Development Three Sustenance: The Ability to Meet Basic Needs Core values of Development Self-Esteem: To Be a Person Freedom from Servitude: To Be Able to Choose The Central Role of Women Globally, women tend to be poorer than men. They are also more deprived in health and education and in freedoms in all its forms. Moreover, women have primary responsibility for child rearing, and the resources that they are able to bring to this task will determine whether the cycle of transmission of poverty from generation to generation will be broken. Children need better health and education, and studies from around the developing world confirm that mothers tend to spend a significantly higher fraction of income under their control for the benefit of their children than fathers do. Women also transmit values to the next generation. To make the biggest impact on development, then, a society must empower and invest in its women Three Objectives of Development We may conclude that development is both a physical reality and a state of mind in which society has, through some combination of social, economic, and institutional processes, secured the means for obtaining a better life. Whatever the specific components of this better life, development in all societies must have at least the following three objectives: 1. To increase the availability and widen the distribution of basic life-sustaining goods such as food, shelter, health, and protection 2. To raise levels of living, including, in addition to higher incomes, the provision of more jobs, better education, and greater attention to cultural and human values, all of which will serve not only to enhance material well being but also to generate greater individual and national self-esteem 3. To expand the range of economic and social choices available to individuals and nations by freeing them from servitude and dependence, not only in relation to other people and nation-states, but also to the forces of ignorance and human misery  The Future of the Millennium Development Goals (MDGs) Reference: Todaro, Michael P. and Stephen C. Smith. Economic Development. 12 ed. United States: Pearson, 2015. Thank you!