Week 1 - Introduction to Development Economics - Presentation.pdf

Introduction to Development Economics WEEK 1: MODULE  Objectives To clearly understand the very definition of Development Economics at its societal, political and cultural context. Development economics is a broader concept than economic growth. Development reflects soci...

Introduction to Development Economics WEEK 1: MODULE  Objectives To clearly understand the very definition of Development Economics at its societal, political and cultural context. Development economics is a broader concept than economic growth. Development reflects social and economic progress and requires economic growth. Growth is a vital and necessary condition for development, but it is not a sufficient condition as it cannot guarantee development. According to Sen, development is about creating freedom for people and removing obstacles to greater freedom Traditional economics which comprises classical and neoclassical economics is concerned with how scarce productive resources are efficiently allocated with growth over time in order to produce an over expanding range of goods and services.  Meaning of Development Development is really much more than simply economic growth, it goes far beyond the objective of increased average income to include factors like education or elimination of poverty, inequality and unemployment within the context of growing economy. Development has been conceived as a multi-dimensional process involving economic as well as social and environmental changes A critical factor in the development process is the non-economic dimensions of development problems. Goals of Economic Development Different countries have different priorities in their development policies. The questions to ask are: Is the development goal to increase national wealth or improving the well-being of the majority of the population or ensuring people’s freedom? Measurement of Development GNP per capita is an index of economic growth. In practice, economists use gross national product (GNP) per capita or gross domestic product (GDP) per capita for the same purpose.  Comparing Levels of Development A wealth of natural resources is not the most important determinant of development success rather, the productivity with which countries use their productive resources physical capital, human capital and natural capital -is widely recognized as the main indicator of their level of economic development. Economists calculate how productively countries use their capital, but such calculating are challenging because of the difficulty of putting values on elements of natural and human capital. Many Views of the Development Economic development is based on the following three ingredients: economic growth, quality of life and human development. These three ingredients of economic development are interrelated with each other, differences among the three come from the emphasis placed on each of the three: economic growth is quantitative, while the other two indicate qualitative dimensions of development. Human development (HDI/Human Development Index) is objective while quality of life (QLI/Quality of Life Index) subjective. Many international economic variables affect economic development. Many Views of the Development Knowledge-economy is based on the notion that knowledge and ideas are the key factor of prosperity and economic growth. Superior knowledge capitalization is considered to be the driving force of the economic growth and productivity, which can offer a sustainable competitive advantage Resource-based economy depends on natural resources. Many Views of the Development Resource curse theory- countries with abundant natural resources, such as oil, often fail to democratize because the elite can live off the natural resources rather than depend on popular support for tax revenues. Savings and economic growth are closely related with each other. Governments of the countries offer a number of saving and investment schemes that are tax exempt in order to promote the practice of saving. Many Views of the Development The main obstacle or constraint on development was relatively low level of new capital formation in most poor countries. During 1970 and 80s, the export-oriented industrialization was particularly characteristic of the development of the national economies of the Asian Tigers/Dragons: Hong Kong, South Korea, Taiwan and Singapore. According the World Bank, corruption increases the cost of doing business up to 10% globally Many Views of the Development The Global Competitiveness Index (GCI) measures a set of institutions, policies, and factors that sustain current and medium-term levels of economic prosperity. The index assesses the ability of countries to provide high levels of prosperity to their citizens. Types of political system have been argued to affect the quality of life. Democratic political system with market- economy as well as with a higher degree of political freedom enhances the quality of life. Authoritarian political systems turn out to be more conflict-ridden than democratic counterparts and they lower the quality of life. Many Views of the Development Ethnic diversity affects trade. Ethnic diversity could boost trade by involving more ethnic networks: a higher ethnic concentration is associated with a larger trade-enhancing impact of migration. Demographic variables such as ethnic composition, urbanization and population growth have significant effects on quality of life. A large defense/military spending disproportionate to economic capacity is siphoning off the resources, which otherwise could have been used for economic growth and quality of life. There is a positive correlation between military expenditures and economic growth over the period 1950-65. The Human Development Index (HDI) The HDI was introduced in 1990 as part of the United Nations Development Programme (UNDP) to provide a means of measuring economic development in three broad areas - per capita income, health and education. The HDI tracks changes in the level of development of countries over time. Each year, the UNDP produces a development report, which provides an update of changes during the year, along with a report on a special theme, such as global warming and development, and migration and development. Evaluation of the HDI The HDI index is for a single country, and as such does not distinguish between different rates of 1.) development within a country, such as between urban and traditional rural communities. Critics argue that the equal weighting between the 2.) three main components is rather arbitrary. Development is largely about freedom, but the index does not directly measure this. For example, access to 3.) the internet might be regarded by many as a freedom which improves the quality of people's lives. Evaluation of the HDI As with the narrow measure of living standards, GDP 4.) per capita, there is no indication of the distribution of income. In addition, the HDI excludes many aspects of economic and social life that could be regarded as contributing to 5.) or constraining development, such as crime, corruption, poverty, deprivation, and negative externalities. GDP is calculated in terms of purchasing power parity, 6.) and the value can change.  Module Analysis Economic growth and development have been and will be a permanent preoccupation of mankind and an always present topic of scientific debates.. The promises for better became true in the case of the great powers and of the economic decision makers, while the second- and third-world states were left with Economic growth and development have been and will be a permanent preoccupation of mankind and an always present topic of scientific debates. hope.