Chapter 1: Introducing Economic Development  

+ Poverty: ​is more than the lack of income- it is inherently multi-dimensional as is 
economic development 
+ The nature of development Economics: ​focus on greater scope than ​traditional 
neoclassical economics ​(focus on maximizing income) and political economy => must go 
concern with economic, cultural, and political requirements that affect the structure of the 
society. 
- Traditional neoclassical economics: it concerned with the profit maximization, 
market efficiency, and determination of equilibrium. Traditional neoclassical 
economics deal with the advanced capitalist world, consumer sovereignty, price 
adjustment, and so on.  
- Political economic: goes beyond traditional economic where it studies the  social 
and institutional processes through which certain groups of economic and political 
elites influence the allocation of scarce productive resources now and in the 
future, either for their own benefit exclusively or for that of the larger population 
as well. Political economy is therefore concerned with the relationship between 
politics and economics, with a special emphasis on the role of power in economic 
decision making.  
+ Why do we need to study development economics? 
=> ​To help students to think systematically about economic problem and based the 
judgement on the relevant analytical principles and reliable statistic information  
+ The important roles of values in development economics 
1. Organize human being and social structure in basic​ ​material needs​ ​(food, clothes 
shelter) and ​nonmaterial want ​(education, knowledge, religious belief) 
+ Economic as social system:  
=>​ social system:​ interdependence between economic and non-economic factors 
(attitudes, role of value, social institution) 
=> the role of ​values, attitude, and institution​ in both domestic and international play an 
important role in the development process (take account of institutional and structure 
variable rather than just tradition economic) 
=>​ ​ ​ analyze the social system of the countries at domestic and international level.  
=> those understanding will vary from one region to the other. 
+ What do we mean by development? 

=> 1950s  Development​ is the capacity of the state to generate an annual increase of its GNP of 5% or more. 
(old view- Quantitative) 
However, this definition cannot be used due to: 

 
  
 

1. GDP and GNI 

2. Income per capita 
3. Utility of that income 
- Misreporting of income by developing country 
- High income generated for self-consumption 
- Price of non-traded good does not reflect in exchange rate 
- Markets are not competitive and externalities are not reflected 
 

=> ​1970s:   Development​ ​is redistribution from growth (giving or share to others) - emphasize more on 
non-economic social indicators (health,education,...) 
★ Economic Development focuses on the reduction or elimination of poverty, inequality 
and unemployment. (Qualitative)  
 

=>​1985:  Development​ ​based on Sen’s Capabilities Approach- economic growth enhance the lives of 
people lead to freedom that they can enjoy - convert characteristic of commodities into function  
The  Capability  Approach focuses directly on the quality of life that individuals are actually able 
to  achieve.  This  quality  of  life  is  analyzed  in  terms  of  the  core  concepts  of  ‘functionings’  and 
‘capability’. 

● Capability refers to the set of valuable functionings that a person has effective access to. 
Thus, a person’s capability represents the effective freedom of an individual to choose 
between different functioning combinations – between different kinds of life – that she has 
reason to value. (freedom that a person has in term of choice of functioning) 
● Functionings​ are states of ‘being and doing’ such as being well-nourished, having shelter. 
(what a person does with commodities given characteristic that the person possess/control- 
what people can do as an achievement ) 
● ----> Therefore, development cannot only focus on the income, but also the factors that 
impact person’s capability to function 

- Five sources that make real incomes and actual advantages differents: 
1. Personal heterogeneities  
2. Environment diversities 
3. Social climate variation 
4. Different perspectives 
5. Distribution with family  
  
 

​=>​1990s:   The challenge of development​ is to improve quality of life (high income, better education, higher 
standard of health and nutrition, less poverty, cleaner environment, more equality of 
opportunities, greater individual freedom and a richer cultural life).  
1. Economic factor​s (capital, labor, natural resources, technology, and establish markets) 
2. Non-economic factors ​(institutional, social value : attitude toward life and work, public and 
private structure, cultural traditions, system to land and property rights, integrity of 
government agencies) 
★ Development is a multidimensional process involving the change in social structures, 
popular attitude and national institution. Economic growth is also based on the 
reduction of inequality and poverty 
★ Both physical realities and state of mind (attaining better life) is a part of development 
★ Role of women is also important 
★ Components of better life change from time to time and from society to society 

 
+Three Core value of development: 
1. Sustenance: ability to meet basic needs and maintain minimum living level (food, shelter, 
protection) 
2. Self-Esteem: to be a person that there is a sense of worth and self-respect of not being use 
as a tool by others. Usually people found their worth hurt when they come into contact 
with a countries with advance economy and technology (promote human rights value- 
respect, dignity, integrity.. ) 
3. Freedom from servitude: to be able to choose according to their preference. People need 
to have freedom that involve wide range of choice in society without external constraints  
+ ​Three Objective of Development: 
1. Increase availability and widen the distribution of life-sustaining goods (food, shelter, 
health and protection) 
2. Raise levels of living (income, jobs, better education, cultural and human values) for 
better individual and national self esteem 
3. Expand range of economic and social choices (free from servitude)  
+ ​The Millennium Development Goals: (8) 
➔ Eradicate extreme poverty and hunger 
➔ Achieve universal primary education 
➔ Promote gender equality and empower women • Reduce child mortality 
➔ Improve maternal health 
➔ Combat HIV/AIDS, malaria, and other diseases  
 
 
➔ Ensure environmental sustainability 
➔ Develop a global partnership for development  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Chapter 2: Comparative Economic Development  

 
Characteristic of developing countries: 
Lower  Higher  Others 

1. Level of living and  1. Level of inequality and  1. Adverse Geography 

productivity  absolute poverty  (resources endowments) 
2. Level of human capital  2. Population growth rate  2. Underdeveloped 
(health, education, skills)  (crude birth rate)  financial and other 
3. Level of industrialization  3. Social fractionalization   markets (imperfect 
and manufacture exports  4. Rural population- rapid  market and incomplete 
migration to cities  information) 
3. Colonial legacies 
i.e.poor institutions, 
private property, 
personal taxation, tax in 
cash rather than kind 

World Bank Scheme- rank countries :   

1. Low income country (LIC) 

2. Lower Middle Income country (LMC) 
3. Upper Middle Income country (UMC) 
4. OECD and other higher income 
Basic indicators of development - old  Holistic Measure of living (UNDP) -new 

- Real income  - Health 

- Health   - Life Expectancy 
- Education  - Education  
- HDI as a holistic measure of living 
levels  

 
1. Calculating with geometric mean 
What is  -> index is now computed with a geometric mean, instead of an arithmetic mean  
new in the 
-> Traditional HDI add the three components and divided by three while new 
new HDI? 
HDI takes the cube root of the products of the three components 
 
2. Other Changes: 
 
 

- GNI replace GDP 

- Using the average actual educational attainment of the whole population  
- Value of each has been increase to focus on maximum rather than predefined cut 
off  
- Reduce goalpost for income due to the new evidence on lower possible income 
level 

How low income today differs from the developed world in their early stages? 

- Physical and human resource endowments (physical endowment- infrastructure -now 

better) 
- Per capita incomes and levels of GDP in relation to the rest of the world 
- Climate - before better  
- Population size, distribution, and growth 
- Historic role of international migration 
- International trade benefits (now benefit more i.e. Cambodia EBA) 
- Basic scientific/technological research and development capabilities (past better) 
- Efficacy of domestic institutions (past better) 

Are living standards of developing and developed states converging (catching up effect)? 

➔ It is hard to find the evidence to say. But there is evidence of “per capita income 
convergence” that weight the change in per capita income by population size 

Why is there a converging 

1. Technology transfer - no need to pay for the mistake and dead end along the way 
2. Factor accumulation - human capital is expensive in the developed world => more 
investment in developing countries. 
Causes of comparative  1. Geography 
development   2. Institutional quality- colonial and post-colonial 
3. Colonial legacy- pre colonial comparative advantage 
4. Evolution and timing of European development 
5. Inequality- human capital 
6. Type of colonial regimes 
 
 

Role of Economic Institution   1. “rules of the game”o​ f economic life 

2. Underpinning Market Economy 
3. Include Property Rights;contract enforcement 
4. Improve Coordination 
5. Restricting coercive,fraudulent, and anti-competitive behavior  
6. access to opportunities for the broad population 
7. Constraining The Power Of Elites,and managing conflict 
8. Provision Of Social Insurance 
9. Provision Of Predictable Macroeconomic Stability  

 
 
 

 
 
 
 

Chapter 3: Theories of Economic Growth & Development 

 
Four Approaches of Economic Development  
Stage of  a. Rostow’s  stage  of  growth​:  This  model  presents  stages  of  economic  growth  in 
growth  which  it  believes  that  for a country to become a developed country, it needs to pass 
theory-  five main stages including 
Linear  1. Traditional  society:  it  is  a  stage  of  agricultural-based  economy  with  intensive 
stage of  labor,  low  levels  of  trading  and  people  are  still  lacking  scientific  perspective 
growth  about the technology and the world.  
model  2. Preconditions  to  take-off:  the  society  begins  to  focus  on  manufacturing  and  a 
more  national/international  outlook,  but  it  still  has  limited  investment  on 
infrastructure and society. 
3. Take-off:  it  is  a  short  period  of  intensive  growth  where  the  industrialization 
happens and people focus on the new industry. 
4. Drive  to  maturity:  this  stage  may take a long period of time in which  standards 
of  living  rise,  the  use  of  technology  increases, and the national economy grows 
and diversifies. 
5. Age  of  high  mass  consumption:  within  this  stage,  the  country's  economy  will 
flourish  where  there  is  mass  production  and  consumerism  in  the  capitalist 
system. 
Criticism : - Too simple and doesn't explain how to shift from one sector to the other. 
- Investment not always help to generate growth 
- Need infrastructure 
- Does this belief really happen? Step by step?  
b. Harrod-Domar  growth  model:  ​this  model  explains  the  growth  of  the  economy 
based  on  saving  and  capital  output  ratio.  For  the economy to grow, it requires high 
rate saving and low level of capital output ratio. 
Criticism: saving is just necessary, but not sufficient​.   
 
 
 

The  a. The  Lewis  Model:  this model explains that the transfer of surplus labour from the 

structural  agriculture  sector  to  the  modern  industrial  sector  will  promote  industrialization 
change  and  create  sustained  development.  Therefore, the Lewis two sectors model mainly 
model of  focuses on two sectors: agriculture and manufacture.  
Lewis and  - What  type  of  farmer  that  will  move?  =>  farmers  without  real  skills  or 
Chenery  agriculture 
  - How to attract them? => wage that is better than agriculture but not really high 
- Lewis  assumes  that  there  will  be  no  wage competition among manufacture and 
no shortage of workers in agriculture.  
Criticism: - Rate of labor transfer may not be proportional  
- Is it true that there will always be a surplus in rural areas? 
- Not mention the role of institution 
- Assumption of diminishing returns in modern sector is not true 

Theory of  a. The  neoclassical  dependence  model​:  it  centers  on  the  relationship  between  the 
internation core  and  the  periphery  that  create  unequal  power.  Based  on  this  model,  it explains 
al  the  existence  of  underdevelopment  occurs  owing  to  the  exploitative  economic, 
dependence  political,  and  cultural  policies  from  former  colonial  rulers  toward  less  developed 
  countries. 
b. The  false paradigm model: this model claims that the problem of development for 
developing  countries  happens  due  to  the  wrong  use  of strategies or experts that are 
given  by  the  West.  The  development  strategies  by  the  West  is  an  incorrect  model 
for them to follow.  
c. The  Dualistic  Development  :  notion  of  the  world  as  dual  societies  between  rich 
nation and poor nation.  
Four key arguments:  
1. Different set of conditions 
2. The coexistence of not merely transitional 
3. Superiority fails to show sign of diminishing  
4. Superior element does not pull up the inferior element.  
 

Neoclassical counterrevolution  
The above approach fail to addressed: 
1. Free Market Approach => laisaifare (without govt interference) 
2. Public choice approach => govt cant show development 
3. Market-friendly approach => govt intervene when there is market failure 
Traditional neoclassical growth theory  
Solow Growth Model​ is a growth model that aims to understand the change of economic growth rate 
 
 

which results from the dynamic changes of ​three factors such as capital, labor, and technology.​ In the 
Solow growth model, the changes in saving rate does not have a permanent effect on the economy 
which differs from the assumption of the Harrod-Domar model.  

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 

Chapter 4: Contemporary Models of Development & 

Underdevelopment 
+ Coordination failure => agents fail to coordinate their actions which make the outcome 
worse off.  
+ Model often depicts by graphing an S-shape function and the 45 degree line 

The Big Push​ :   - It is a model on how market failure can lead to a need for public policy 
to get the long process of economic development. (Based on govt 
support- sometimes market failure need public policy intervention) 

- It believe that to start the industrialization, govt need to provide 

infrastructure, training, not just private sector alone  
- Six assumptions: 
1. One factor of production 
2. Two sectors 
3. Same production function for each sector 
4. Consumers spend an equal amount on each good 
5. Closed Economy 
6. Perfect competition - no monopoly  
- Big push is necessary when :  
1. Intertemporal Effects  
2. Urbanization Effects  
3. Infrastructure Effects 
4. Training Effects  
- Problem of Big Push:  
1. Inefficient advantages - unsure if the set up from govt will help 
them to get profit  
2. Behavior and Norms: can set up but there will be conflicting 
idea between foreign investment  
3. Linkage: cooperate with each other from one sector to the other 
4. Inequality, multiple equilibria, and growth  

The O-Ring Model  - For industrial to develop, it requires economic actor to cooperate with 
each other  
- The complementaries will provide economic development but also 
provide problem if one economic agent focus on their own interest 
 
 

(inequality) 

Self Discovery  - Let the economy discover what sector they should develop because 
developing has a problem with information.  
- Industrial policy may help identify the true direction: 
1. First step: encourage exploration 
2. Second step: after knowing the result, move inefficient sector 
into more efficient sector 
- Three building block of theory: 
1. Uncertain about the product to be produce efficiently 
2. Need local adaption 
3. Limitation can be rapid 

Hausmann-Rodrik-Ve - Focus on country’s most constraint on economic growth  

lasco  - “No one size fit all” in development policy - careful research to 
determine the constraint  

 
 
 

Chapter 5: Poverty, Inequality and Development 

Measuring Inequality  
1. Size distribution  Deals with individual persons or households and the total 
(quintiles and deciles)  incomes they receive  
Method:  
- Arrange all individuals by ascending personal 
incomes and then divide the total population into 
distinct groups, or sizes.  
- Divide the population into successive ​quintiles 
(fifths) or ​deciles ​(tenths) according to ascending 
income levels and then determine what proportion of 
the total national income is received by each income 
group  

Quintiles​: population divided into quintiles would be divided 

into five groups with equal size. 

Deciles​: population divided into deciles would be divided 

into ten equal numerical groups.  

2. Lorenz curves  A graph depicting the variance of the size distribution of 
income from perfect equality.  
- 45 degree line is called the line of equality 
- If the Lorenz curve goes above 45 degree line ⇒ no 
inequality 
- If the Lorenz curve goes below 45 degree line ⇒ 
inequality 

3. Gini coefficients    Measuring the income inequality ranging from 0 (perfect 

equality) to 1 (perfect inequality).  
- 0.5 and 0.7 (unequal income distribution) 
- 0.2 to 0.35 (relatively equal distribution) 

4. Functional Distribution  Instead of looking at the individual, functional distributions 

explain the share of total national income that each of the 
factors of production (inputs required to produce goods and 
services such as land, labor, and capital) receives without 
including the ownership of the factors. 
 
 
Measuring Absolute Poverty 

Absolute poverty:​ the condition of being unable to meet the subsistence essential of food, 
​ hich refers to the proportion of 
clothing and shelter. It is measured by ​headcount index (H/N) w
a country’s population living below the poverty line.  

⇒ Headcount/ number of poor person (H); Poverty line (​Yp);​Actual income that poor earn (​Yi); 
Total population (N) 

Total Poverty Gap (TPG)​:​ Tell how much the poor need to earn to get out of poverty

Average Poverty Gap (APG):​ ​income that each person need to earn to get out of poverty  

Average income shortfall (AIS):​ ​the extra amount of income that each poor person need to earn 
to get out of poverty 

The Multidimensional Poverty Index 

- Poverty cannot be measured solely based on income; therefore, multidimensional poverty 

index (MPI) was introduced by using dual cutoff.  

1st: cutoff levels within each dimension (analogous to falling below a poverty line for 
example $1.25 per day for income poverty)  

2nd: cutoff in the number of dimensions in which a person must be deprived (below a 
line) 

*Because income poverty alone can't tell all of the picture, we need MPI to tell more stories. 

 
 
 

MPI  Health  1. If there is a child die in the family 

indicators  2. If any adult or child in the family is malnourished 
 

Education  1. If there are household member completed 5 years of 

schooling 
2. If any school-aged child is out of school for grades 1 
through 8 (each counts one-sixth toward the MPI) 

Standard of  1. Lack of electricity  

living   2. Insufficiently safe drinking water 
3. Inadequate sanitation 
4. Inadequate flooring 
5. Unimproved cooking fue 
6. Lack of more than one of 5 assets – telephone, radio, 
TV, bicycle, and motorbike.  
 

Poverty, Inequality, and Social Welfare  

Limiting cases of dualistic development: 

1. The  ● The development in the traditional sector (agriculture) will 

modern-sector  make the poor (farmer) earn more. 
enlargement  ● The two-sector economy develops by enlarging the size of its 
growth typology:   modern sector while maintain- ing constant wages in both 
sectors (depicted by the Lewis model in Chapter 3) It 
  corresponds roughly to the historical growth pattern of Western 
developed nations and, to some extent, the pattern in East Asian 
economies such as China, South Korea, and Taiwan.  
● ​Traditional- sector enrichment growth causes the Lorenz curve 
to shift ​uniformly upward and closer toward the line of 
equality  
● Growth results in higher in- come, a ​more equal ​relative 
distribution of income, and less poverty. 

2. The  ● The economic growth is limited to a fixed number of people in 

modern-sector  the modern sector, with both the numbers of workers and their 
enrichment  wages held constant in the traditional sector. This roughly 
growth typology:  describes the experience of many Latin Ameri- can and African 
economies.  
  ● Growth results in higher incomes, a ​less equal r​ elative 
 
 

distribution of income, and no change in poverty. 

● Modern-sector enrichment growth causes the Lorenz curve to 
shift downward and farther from the line of equality  

3. The  ● The benefits of growth are divided among traditional-sector 

traditional-sector  workers, with little or no growth occurring in the modern 
enrichment  sector. This process roughly describes the experiences of 
growth typology:   countries whose policies focused on achieving substantial 
reductions in absolute poverty even at very low incomes and 
with relatively low growth rates such as Sri Lanka, and the 
state of Kerala in southwestern India. 
● Finally, in the case of Lewis-type ​modern-sector enlargement 
growth, absolute incomes rise and absolute poverty is reduced, 
but 
● The Lorenz curves will always cross, indicating that we cannot 
make any unambiguous statement about changes in relative 
inequality: It may improve or worsen.  

 
 

Kuznets’s Inverted-U Hypothesis: Growth ⇒ Inequality   

Kuznets curve​: a graph reflecting the relationship between a country's income per capita and its 
equality of income distribution.  

- The development of the country moves along the curve.  

- At the beginning of development, there will be inequality but once development is 
achieve inequality will drop ⇒ using gini coefficient 

Economic Characteristic of High Poverty Group 

1. Rural poverty:  - poor mostly resided in rural areas ⇒ primarily engaged in 
agricultural and associated activities, that they are more likely to 
be women and children than adult males, and that they are often 
concentrated among minority ethnic groups and indigenous 
peoples.   

2. Women:  - More likely to be poor and malnourished 

- Less likely to receive medical services, clean water, sanita- tion, 
and other benefits 
- Prevalence of female-headed households, the lower earning 
 
 

capacity of women 
- Their limited control over their spouses’ income 
- Less access to education, formal-sector employment, social 
security, and government employment programs 
- Income disparity between male and female  

⇒ women’s financial resources are meager and unstable 

relative to men’s.  

3. Ethnic  - Majority of indigenous groups live in extreme poverty and that 

minority:  being indigenous greatly increases the chances that an individual 
will be mal- nourished, illiterate, in poor health, and unemployed.  

4. Poor countries:  - High levels of absolute poverty can also retard a country’s 
growth prospects. 
- Higher national incomes greatly facilitate poverty reduction, 
while at the same time, poverty still needs to be addressed 
directly. 

Policy Recommendation: Area of intervention 

1. Altering the functional  Returns to labor, land, and capital as determined by 
distribution   factor prices, utilization levels, and the consequent 
shares of national income that accrue to the owners of 
  each factor.  
   
   
   
 

2. Mitigating the size  the functional income distribution of an economy 

distribution   translated into a size distribution by knowledge of how 
  ownership and control over productive assets and labor 
  skills are concentrated and distributed throughout the 
  population.  
  Result:​The distribution of these asset holdings and skill 
endowments ultimately determines the distribution of 
personal in- come.  
 
 
 

3. Moderating (reducing) the  Result:​Such taxation increases government revenues 

size distribution at the  that decrease the share of disposable income of the very 
upper levels ​ (through  rich—revenues that can, with good policies, be invested 
progressive taxation of  in human capital and rural and other lagging 
personal income and  infrastructure needs, thereby promoting inclusive 
wealth)  growth. (An individual or family’s disposable income is 
  the actual amount available for expenditure on goods and 
  services and for saving.)  
   
 

4. Moderating (increasing) the  Result:​ Such public policies raise the real income levels 
size distribution at the  of the poor above what their personal income levels 
lower levels : ​through  would otherwise be, and, as will become clear in later 
public expenditures of tax  chapters, can do so sustainably when they build the 
revenues to raise the  capabilities and assets of people living in poverty.  
incomes of the poor either 
directly (e.g., by 
conditional or 
unconditional cash 
transfers) or indirectly 
(e.g., through public 
employment creation such 
as local infrastructure 
projects or the provision of 
primary education and 
health care). 
 
 
 
 
Policy Option 

1. Changing relative  - It is a traditional economic approach 

price  - Argued that as a result of institutional constraints and 
faulty government policies, the relative price of labor 
in the formal, modern, urban sector is higher than what 
would be determined by the free interplay of the forces 
of supply and demand.   

2. Progressive  *asset ownership: The ownership of land, physical capital 

redistribution of asset  (factories, buildings,machinery, etc.), human capital, and 
ownership  financial resources that generate income for owners.  
i.e. having land that you dont use need to pay more tax 
 
 

3. Progressive taxation  - focus on personal and corporate incomes, with the rich 
required to pay a progressively larger percentage of 
  their total income in taxes than the poor.   

⇒ the more you earn the more you pay 

4. Transfer payments  - Direct money transfer and subsidized the poor: through 
and public provision  good programs, direct govt policies and other form of 
of goods and services   public consumption subsidies.  

 
 

 
 
 

Chapter 6: Population Growth and Economic Development: Causes, 

Consequences,and Controversies 
Structure of World Population 

1. Geographical Region  Based on ​region​ i.e. large population in India compared 

to Europe 

2. Fertility and Mortality  Based on​ birth and death rate​ ⇒ the rate of population 
Trends  increase is quantitatively measured ⇒ the size can be 
decreased or increased due to natural increase and 
international migration. 

3. Age Structure and  Based on age structure. If a country has such structure, 
dependency burdens   the ​youth dependency ratio​ (the proportion of youth) will 
contribute to economic growth.  
⇒ Youth dependency can also lead to ​hidden momentum 
of population growth ​( birth rate fall but there is still an 
existing youthful population expanding the population 
base of potential parents. 
 

Demographic Transition: ​The phasing-out process of population growth rates from a virtually 
stagnant growth stage characterized by high birth rates and death rates through a rapid-growth 
stage with high birth rates and low death rates to a stable, low- growth stage in which both birth 
and death rates are low.  

- Stage I: High birth rate and death rate 

- Stage II: Continue high birth rate, decline death rate 

- Stage III:Falling birth rate and death rate⇒ eventually stabilize  

 

Causes of High Fertility : 

1. The Malthusian Population Trap  The threshold population level anticipated by 
Thomas Malthus (1766–1834) at which 
population increase was bound to stop 
because life sustaining resources, which 
increase at an arithmetic rate, would be 
insufficient to support the human population, 
 
 

which increases at a geometric rate.  

Criticism: 
- Not take account of the role and 
impact of technological progress  
- Based on a hypothesis about a macro 
relationship between population 
growth and levels of per capita income 
that does not stand up to empirical 
testing of the modern period.  
- Focus on wrong variable ⇒ “per 
capita income” as determinant of 
population growth rate 
However, it should centre on the 
microeconomics of family size 
decision making that individuals 
become the principal determinant of a 
family's decision to have more or 
fewer children. 

2. The Microeconomic Household  - Look more closely at the microeco- 

Theory of Fertility  nomic determinants of family fertility 
in an attempt to provide a better 
theoretical and empirical explanation 
for the observed falling birth rates 
associated with stage 3 of the 
demographic transition.  
- The demand of children depends on 
household income  
 
Cd = f(Y, Pc, Px, tx), x = 1, . . . , n 
 
 

3. The Demand for Children in  - Children is viewed as an economic 

Developing Countries  investment good ⇒ child labor and 
financial support for parent in old age 
- First two or three children are viewed 
as “consumer goods” ⇒ Farming…  
- Additional children are considered as 
“investment good ⇒ send to school 
for long term investment  
 
 
 
 

Implication for Development and Fertility:  1. Education of women increases ⇒ 

the birth rate in poor countries are likely to  change role and status 
fall if there is a change in socioeconomic : 
2. Wage increasing for female 
nonagricultural wage ⇒ raises the 
 
price of traditional child-rearing 
activities ⇒ discourage to have child 
cuz need to give up their income 

3. Rise family income⇒ by direct 

employment of husband and wife or 
distribution of income from rich to 
poor 

4. Decreased of infant mortality rate ⇒ 

expand public health care and better 
nutrition for both mother and child 

5. Develop old age and other social 

security system (if you feel safe when 
you are young⇒ don't feel the need to 
have children) 

6. Expand schooling opportunities ⇒ so 

that parents can know better about 
child quality  
 

Population growth is not a real problem due to:       - -  

- The problem is not population growth but other issues. 

- Population growth is a false issue deliberately created by dominant rich- country agencies 
and institutions to keep developing countries in their dependent condition. 
- For many developing countries and regions, population growth is in fact desirable.  
   

   

 
 
 
 

Consequences of High Fertility (real  1. Underdevelopment 

problem) 
2. World resources depletion and 
environmental destruction 

3. Population distribution: distribution in 

space ⇒ some regions are 
underpopulated some are not 

4. Subordination of women: population 

growth ⇒ women lack of economic 
opportunity 
⇒ Population growth is a desirable phenomenon i.e. China  

Population growth is a real problem   1. The extremist argument : population 

and global crisis 
⇒ cause of poverty, low levels of 
living, malnutri- tion, ill health, 
environmental degradation, and a wide 
array of other social problems.  
⇒ population stabilization or decline 
is the most urgent task even it requires 
coercive measure to make it done 

2. The theoretical argument: 

population-poverty cycle and the need 
for family-planning program 
⇒​Population-poverty cycle: ​A 
theory to explain how poverty and 
high population growth become 
reinforcing. 
- The main argument advanced 
by economists who hold that 
too rapid population growth 
yields negative economic 
consequences and thus should 
be a real con- cern for 
developing countries.   

3. Other empirical argument: 7 negative 

consequences: 
- Economic growth: become to 
  
 

dependent on agriculture eps poor 

countries 
- Poverty and Inequality: fall to the 
poor who are landless and bear the 
burden of environmental damage. 
Women as well 
- Education: large family size with 
low income ⇒ less opportunities to 
education their child  
⇒National level: population growth 
leads to thin expenditure on 
education, lowering the quality 
of human capital making less 
quantity.  
- Health 
- Food 
- Environment  
- International Migration  
 

    How Developed 
Countries Can Help 
Some policy approaches:   What developing countries can do?  Developing Countries 
with Their Population 
   
Programs? 

1. Attend to underlying  1. Persuasion through media and education  1. Research into 

socioeconomic condition  (both formal and informal system)  technology of 
that impact development  2. Family planning programs  fertility control 
2. Family planning programs  3. Address incentives and disincentives for  2. Financial 
should provide education  having children through the principal  assistance for 
and technological means to  variables influencing the demand for  family planning 
regulate fertility  children  programs  
3. Developed countries have  4. Coercion is not a good option 
responsibilities too   5. Raise the socioeconomic status of women 
6. Increase employment opportunities for   
women (increases opportunity cost of 
 
having more children, as in microeconomic 
household theory) 
 
 

Chapter 7: Urbanization and Rural-Urban Migration: Theory and 

Policy 
The role of cities: 
- Agglomeration economies: cost advantages to producers and consumers from location in 
cities and towns which take the form of urbanization economies and localization 
economies. 
⇒ Urbanization economies: effects with general growth of a concentrated geographic 
region 
⇒Localization economies effects captured by a particular sector of the economy such as 
finances or automobiles as they grow within the area.         

- Saving on firm-to-firm, firm-to-consumer transportation 

- Firms locating near workers with skills they need 
- Workers locating near firms that need their skills 
- Firms benefit from (perhaps specialized) infrastructure 
- Firms benefit from knowledge spillovers in their and related industries 
- (Also: consumers may benefit from urban amenities)  
1. Industrial districts  
- It serves as a core to sector efficiency  
- Cluster theory of competitive advantage 
- Able to learn from other firms doing similar work ⇒ learning takes place in a 
form of formal and informal relationship. 
2. Efficient urban scale  
- Cities also encounter congestion ( an action taken by one agent that decreases the 
incentives for the other agents to take similar action) 
- The higher the urban density ⇒ the higher cost of real estates 
The urban giant problems: 
1. There may be general urban bias 
2. Cities are capital intensive so may expect large cities commonly located in developed 
countries 
3. But urbanization in developing countries has taken place at unexpectedly rapid pace 
4. Huge informal sectors in shantytowns, favelas 
5. Large fraction of workers outside formal sector 
6. Much urban growth is in mid-size cities, but urban bias remains a serious issue in many 
developing countries  
7. There may be First-City Bias (favoring largest city)  
Causes of Urban Giantism: 
  
 

1. Import substitution industrialization: less trade, incentive to concentrate in a single city 

largely to avoid transportation costs 
2. “Bread and circuses” to prevent unrest (evidence: stable democracies vs unstable 
dictatorships) 
3. Hub and spoke transportation system (rather than web) makes transport costs high for 
small cities 
4. Compounding effect of locating the national capital in the largest city  
Why do we need to promote the urban informal sector? 
* Informal sector: ​refers to the domain where the workers are self-employed with small-scale
production using labor-intensive technology that are family or individual-owned. Those job can
be ranging from street vending, hawking, knife sharpening, prostitution, carptenters, barbers, and
so on.

Pro Con

1. Informal sectors create surpluses generating growth in urban 1. It is about the relationship between rural
areas. and urban migration where there is a
2. Provides reasonable savings to developing countries in labor absorption in the informal sector.
terms of employing workers due to its low capital intensity. 2. It is related to environmental issues as
3. Informal sectors allow those who have semi-skilled or this sector tends to produce pollute air
unskilled to have a job in order to support their living and congestion.
4. The informal sector can form human capital with lower cost 3. There will be a revealed preference in
compared to the formal sector. which formal-sector employment begins
5. Informal sectors can offer basic commodities for the poor to participate in informal-sector jobs
and take lead in recycling waste materials.
⇒ Therefore, it is seen that the urban labors
6. The informal sector enables efficient allocation of resources
market can bring both positive and
by using proper technologies using local resources.
negative aspects. Even though this sector
7. Women in the informal sector⇒ where the majority of the 
urban female labor force is employed ⇒ greatly improve  is not recognized, it has made a huge
women’s financial flexibility and the productivity of their  contribution to the urban economy in the
ventures. However, to enable women to reap these benefits,  developing world.
governments must repeal laws that restrict women’s rights 
to own property, conduct financial transac- tions, or limit 
their fertility.  
 
 

Migration and Development: 

- Rural-to-urban migration was viewed positively until recently 
- The current view is that this migration is greater than the urban areas’ abilities to 
⇒ Create jobs 
⇒ Provide social services  

Toward and Economic Theory of Rural-Urban Migration 

Todaro migration  - A theory that explains rural-urban migration  Five Policy Implications: 
model:   as an economically rational process despite 
high urban unemployment.  1. Reduction of urban bias 
  - The decision depends on expected rather  2. Imbalances in expected 
than actual wage differentials  income opportunities is 
- The probability of obtaining a city job is  crucial 
inversely related to the urban  3. Indiscriminate 
unemployment rate  educational expansion 
- High rates of migration are outcomes of  fosters increased migration 
rural urban imbalances   and unemployment 
4. Wage subsidies and 
  scarcity factor pricing can 
be counterproductive 
Harris-Todaro  - Tell us the factor that push people to 
5. Programs of integrated 
Model   migrate 
rural development should 
- An equilibrium version of the Todaro 
be encouraged 
migration model that predicts that expected 
incomes will be equated across rural and   
urban sectors when taking into account 
informal- sector activities and outright 
unemployment. 

WA ​is agricultural income, 

LM ​is employment in manufacturing 

​LUS ​is total urban labor pool 

 
 

WM i​ s the urban minimum wage 

● Agriculture wage is usually lower than 

manufacturing wage  
● Based on the formula, if WM goes up ⇒ 
also rise in WA 

⇒ WM high ⇒ attract people lead to 

shortage in WA 

⇒ WA need to increase uts wage too 

● Based on the formula, when LUS (supply 

of labor) high ⇒ WM and WE won't rise 
due to oversupply.  

 
 

A Comprehensive Migration and Employment Strategy 

1. Create a urban-rural balance 

2. Expand small-scale, labor intensive industries 
3. Eliminate factor price distortions 
4. Choose appropriate labor-intensive technologies of production 
5. Modify the linkage between education and employment 
6. Reduce population growth 
7. Decentralize authority to cities and neighborhoods  
   

   

 
 
 
 

Midterm   

Key Term: 

1. Prisoner Dilemma: ​A situation in which both parties would be better off cooperating than 
competing, but each party will benefit the most by cheating if the others adhere to 
cooperative agreements. Thus, allowing any agreement to be unravelled. 
2. Capability to functions approach 
3. Complementarity​: refers to the action taken by a firm or organization to provide incentive 
to other agents to take similar actions. It usually involves the investment whose return 
depends on other investment of other agents.  
4. Institution:​ refers to an established corporation or organization to serve public purpose, it 
serves as a rule of game in society given the platform to shape human interaction. 
Institutions comprise for example contracts and contract enforcement, protection of property 
rights, the rule of law, government bureaucracies, and financial markets. It also constrain the 
power of the elite and manage conflict provision of social insurance.  
5. Capital output ratio:​ refers to a ratio that illustrate the units of capital required to produce 
a unit of output over a period of time         

T/F 

1. Harrod Model 
2. Lewis 
3. Market friendly  
4. False paradigm  
 
 
5. Neoclassical 

Questions 

1. What is development?        

There are three stages to understand the term development: 

• ​Traditional economic measure​: development refers to the achievement of sustained growth 

rates of income per capita to enable a nation to expand its output at the rate faster than the 
growth rate of its population.Within this measure, GNI is used to evaluate the overall economic 
well-being of a population. 

> Strengths: The strength of this definition is that its focus is on economic factor, hence, it can 
help to provide an insight to the economy of that country 

> Weaknesses: misinterpret economic realities and does not specifically address effectiveness 
distribution  

• ​New economic view on development​: development refers to the reduction or elimination of 
poverty, inequality, and unemployment within the context of growing economy. Redistribution 
from growth became a common slang. Development can be viewed to be a multidimensional 
process with major changes in social structure, popular attitudes, national institutions, and the 
eradication of poverty.  

> Strengths: This kind of definition addresses the weakness of the traditional definition as it 
starts to dwell into the factors that affect living standards and well-being of people. 

> Weakness: it is still lacking in terms of providing a comprehensive understanding of the 

development.  

• ​Amartya Sen’s capability approach​: development needs to focus on enhancing the live we 
lead and the freedom we enjoy based on capability to function. The concept centers on human 
well-being in general. Functioning is what a person can do with the commodities given 
characteristic that they come to control while capability is the freedom that a person has in terms 
of choice of functioning and the command over commodities.  

> Strengths: cover each individual capacity, and not just focus on overall population 

> Weaknesses: by focusing too much on the term of human well-being, it overlooks other 
quantitative factors.  
 
 
2. Capability to function give what insight? 

The concept of capabilities function can help us to gain insight into development goals as 
it focuses on the capability of performing tasks and activities that people find necessary or 
desirable in their lives. Functional capability can be measured by questions about what a person 
can ​do, or by demonstrations of actual ability (e.g., getting up from a chair, demonstrating ability 
to hold food on a spoon and bring it to one's mouth, opening a medicine bottle and taking out the 
correct number of pills). By understanding this concept, the development goals will be clear and 
practical as it focuses on the actions or activities of the people rather than the theory or the idea 
of what people will do.  

3. ​Three core value of development: 

- Sustenance: ability to meet basic needs and maintain minimum living level 
- Self-Esteem: to be a person (promore human rights value- respect, dignity, integrity.. ) 
- Freedom from servitude: to be able to choose according to their preference 

CT: Given the diversity in the developing country, do you think there should be a single unified 
theory of development? Why or why no? 

- One country have different level from the other 

1.Level of standard living and labor productivity 

2. Level of Economic inequality and absolute poverty 

3. Size of population 

4. Geography 

5. Level of industrialization 

6. Common history of colonial exploitation and a lot of dependence of foreign aid and 
market