MODULE 3 Lesson Guide:

The classic post–World War II literature on economic development has been dominated by four major and
sometimes competing strands of thought. They are:

I. Linear stages of growth model

II. Theories and Patterns of structural change

III. International-dependence revolution

IV. Neoclassical, free market counterrevolution

I. LINEAR STAGES OF GROWTH MODEL.

It is the oldest and most traditional of all. It is an economic model which is heavily inspired by the Marshall Plan of
the US which was used to rehabilitate Europe’s Economy after the Post-World War II (1960s and 1970s). It assumes
that economic growth can only be achieved by industrialization.

Under the growth model, there are 2 models. They are:

1. Rostow's Stages-of-growth model of development

2. Harrod-Domar growth model

Speaking of Rostow's Stages-of-growth model of development, naay gihisgutan nga 5 steps/stages through which
all countries must pass to become developed. What are these stages?

Stage 1 - Traditional Society

Stage 2 - Preconditions to Take-Off

Stage 3 - Take-off

Stage 4 - Drive to Maturity

Stage 5 - Age of High Mass Consumption

What is highlighted/ sa Stage 1 (Traditional Society)?

- Subsistent, agriculture-based economy

- intensive labor (manual)

- no modern science and technology

- low levels of trading (only regional and local) thru barter

What is highlighted/ sa Stage 2 (Preconditions to Take-Off)?

- The people start using modern science and technology for increasing productivity

- agriculture now becomes commercialized.

To transition from stage 2 to 3, a country must invest more in Infrastructure.

What is highlighted/ sa Stage 3 (Take-off)?

- Rostow describes this stage as a short period of intensive growth, in which industrialization begins to occur, and
workers and institutions become concentrated around a new industry.
- There is greater urbanization and urban labor force increases

What is highlighted/ sa Stage 4 (Drive to Maturity)?

- This stage takes place over a long period of time, as standards of living rise, use of technology increases, and the
national economy grows and diversifies.

- agriculture started to fall.

What is highlighted/ sa Stage 5 (Age of High Mass Consumption)?

-Rostow believed that Western countries, most notably the United States, occupied this last "developed" stage.
Here, a country's economy flourishes in a capitalist system, characterized by mass production and consumerism.

- Here, countries highlighted the role of International Trade to better improve the economy.

Developed countries already passed all stages. Underdeveloped countries in traditional and preconditions stage
should just follow rules of development to self-sustaining economy.

One of the principal strategies of development necessary for any takeoff was the MOBILIZATION OF DOMESTIC
AND FOREIGN SAVING in order to generate sufficient investment to accelerate economic growth. The economic
mechanism by which more investment leads to more growth can be described in terms of the Harrod-Domar
growth model.

This model is based on a linear production function that stresses the importance of savings and investment as key
determinants of growth. This model helps to explain how growth has occurred and how it may occur again in the
future.

The model was developed independently by Roy F. Harrod in 1939, and Evsey Domar in 1946.

II. THEORIES AND PATTERNS OF STRUCTURAL CHANGE

Structural-change theory focuses on the mechanism by which underdeveloped economies transform their
domestic economic structures from a heavy emphasis on traditional subsistence agriculture to a more modern,
more urbanized, and more industrially diverse manufacturing and service economy. Two well-known
representative examples of the structural-change approach are the “two-sector surplus labor” theoretical model of
Arthur Lewis and the “patterns of development” empirical analysis of Hollis B. Chenery.

1. The Lewis Theory of Economic Development

Arthur Lewis put forward a development model of a dualistic economy, consisting of rural agricultural and urban
capitalist manufacturing sectors and service economy.

The Lewis model is a model of STRUCTURAL CHANGE since it outlines the development from a traditional economy
to an industrialized one.

In his model, Lewis focused on the need for countries to transform their structures (social, political and economic),
away from agriculture, with low productivity of labor, towards industrial activity, with a high productivity of labor.

2. Patterns of Development

The patterns of development analysis of structural change focuses on the sequential process through which the
economic, industrial and institutional structure of an underdeveloped economy is transformed over time to permit
new industries to replace traditional agriculture as the engine of economic growth.

These structural changes involve all economic functions, especially the transformation of production and changes
in the composition of consumer demand, international trade and resource use as well as changes in socio-
economic factors such as urbanization, and the growth and distribution of a country’s population.

C. INTERNATIONAL - DEPENDENCE REVOLUTION

During the 1970s, international-dependence models gained increasing support, especially among developing-
country intellectuals, as a result of growing disenchantment with both the stages and structural-change models.
Essentially, international-dependence models view developing countries as beset by institutional, political, and
economic rigidities, both domestic and international, and caught up in a dependence and dominance relationship
with rich countries.

Within this general approach are three major streams of thought: the neocolonial dependence model, the false-
paradigm model, and the dualistic-development thesis.

1. Neo-Colonial Dependence Model

It refers to the existence and continuance of underdevelopment in a highly unequal international capitalist system.
According to this theory, certain groups in the developing countries (including landlords, entrepreneurs, military
rulers, merchants, salaried public officials, and trade union leaders) who enjoy high incomes, social status, and
political power constitute a small elite ruling class whose principal interests are in perpetuation of the international
capitalist system of inequality. Directly and indirectly, they serve (are dominated by)and are rewarded by (are
dependent on) international special-interest power groups including multinational corporations, national bilateral-
aid agencies, and multilateral assistance organizations like the World Bank or the International Monetary Fund
(IMF). Therefore, a major restructuring of the world capitalist system is required to free dependent developing
nations from the direct and indirect economic control of their developed-world and domestic oppressors.

2. False-Paradigm Model

The second and less radical international-dependence approach to development, the false-paradigm model,
attributes underdevelopment to faulty and inappropriate advice provided by well-meaning but often uninformed,
biased, and ethnocentric international ‘expert’ advisers from developed-country assistance agencies and
multinational donor organizations.

To free the poor countries, changes must be made in the system of communication and the transparency of rules
and policies that are understood by many.

3. Dualistic Development Thesis

Dualism is a concept widely discussed in development economics. It represents the existence and persistence of
increasing divergences between rich and poor nations and rich and poor peoples on various levels. According to
this theory, there is a coexistence of rich, powerful and wealthy industrialized nations with poor, weak,
impoverished peasant societies in the international economy.

D. NEOCLASSICAL, FREE MARKET COUNTERREVOLUTION

This theory is also known as neo-liberal theory. It emphasizes the beneficial role of free markets, open economies,
and the privatization of inefficient public enterprises. Failure to develop, according to this theory, is not due to
exploitive internal and external forces as expounded by dependence theorists. Rather, it is primarily the result of
too much government intervention and regulation of the economy.

This approach can be implemented through the following three models:

1. Free-Market Analysis

Free-market analysis argues that markets alone are efficient if: Producers know best what to produce and how to
produce it efficiently, and Product and factor prices reflect accurate scarcity values of goods and resources.

Under free-market, competition is effective not necessarily perfect. Technology is freely available and nearly
costless to absorb. Information is correct and nearly costless to obtain.

2. Public-Choice Theory

Public-choice theory, also known as ‘new political economy approach’, goes even further to argue that
government can do nothing right. This is because that politicians, bureaucrats, citizens and states act solely from a
self-interested perspective, using their powers and the authority of government for their own selfish needs. The
conclusion, therefore, is that minimal government is the best government.

3. Market-Friendly Approach

This third approach is the most recent variant on the neoclassical counterrevolution. This approach recognizes
that there are many imperfections in LDC product and factor markets and that governments do have a key role to
play in facilitating the operation of markets through ‘non-selective’ (market-friendly) interventions.
MODULE 2 Lesson Guide:

UNSAY KALAINAN SA DEVELOPED AND DEVELOPING COUNTRIES?

Ingon sila Pearson, et. al niadtong 1969, the developing/developed countries taxonomy became common in the
1960s as a way to EASILY CATEGORIZE COUNTRIES in the context of POLICY DISCUSSIONS ON TRANSFERRING
RESOURCES FROM RICHER TO POORER COUNTRIES.

For a country classification system, some international organizations have used membership of the ORGANIZATION
OF ECONOMIC COOPERATION AND DEVELOPMENT (OECD) as a main criterion for developed country status. So
kung OECD member ka, assumed ka na nga rich country. Why?

Though not expressly stating a country classification system, the preamble to the OECD convention does include a
reference that “ECONOMICALLY MORE ADVANCED NATIONS SHOULD CO-OPERATE IN ASSISTING TO THE BEST OF
THEIR ABILITY THE COUNTRIES IN PROCESS OF ECONOMIC DEVELOPMENT”. This consequently resulted in about
80-85 percent of the world’s countries labeled as developing and 15-20 percent as developed.

But, due to the absence of a methodology in classifying countries based on the level of development, this module
focused on the development taxonomies of the

I. IMF,

II. UNDP, and

III. World Bank.

I. THE INTERNATIONAL MONETARY FUND (IMF)’S COUNTRY CLASSIFICATION SYSTEMS

the IMF refers to the classification of countries as:

* ADVANCED AND;

* EMERGING AND DEVELOPING ECONOMIES.

Mao nay pag define sa nasod either advanced or emerging and Developing Economies.

The main criteria used by the IMF in country classification are:

* per capita income level

* export diversification

* degree of integration into the global financial system.

So based ani nga criteria, what man ning Advanced Countries?

a. Advanced Economies are sub-categorized into five (5).

* 1. Euro Area - Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,
Malta, Netherlands, Portugal, Slovak Republic, Slovenia, and Spain

* 2. Major Advanced Economies (G7) - Canada, France, Germany, Italy, Japan, United Kingdom, United States

* 3. Newly Industrialized Asian Economies - Hong Kong SAR, Korea, Singapore and Taiwan Province of CChin

* 4. Other Advanced Economies (Advanced Economies excluding G7 and Euro Area) - Australia, Czech Republic,
Denmark, Hong Kong SAR, Iceland, Israel, Korea, New Zealand, Norway, Singapore, San Marino, Sweden,
Switzerland, Taiwan Province of China

* 5. the European Union - Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France,
Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal,
Romania, Slovak Republic, Slovenia, Spain, Sweden, United Kingdom
b. The Emerging and Developing Economies are sub categorized into seven (7):

* Central and Eastern Europe - Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Hungary, Kosovo, Latvia,
Lithuania, FYR Macedonia, Montenegro, Poland, Romania, Serbia, Turkey)

* Commonwealth of Independent States - Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyz Republic,
Moldova, Mongolia, Russia, Tajikistan, Turkmenistan, Ukraine, Uzbekistan

* Developing Asia - Afghanistan, Bangladesh, Bhutan, Brunei Darussalam, Cambodia, China, Fiji, India, Indonesia,
Kiribati, Lao P.D.R.�Malaysia, Maldives, Myanmar, Nepal, Pakistan, Papua New Guinea, Philippines, Samoa,
Solomon Islands, Sri Lanka, Thailand, Timor-Leste, Tonga, Tuvalu, Vanuatu, Vietnam

* ASEAN-5 - Indonesia, Malaysia, Philippines, Thailand, and Vietnam

* Latin America and the Caribbean - Antigua and Barbuda, Argentina, The Bahamas, Barbados, Belize, Bolivia,
Brazil, Chile, Colombia, Costa Rica, Dominica, Dominican Republic, Ecuador, El Salvador, Grenada, Guatemala,
Guyana, Haiti, Honduras, Jamaica, Mexico, Nicaragua, Panama, Paraguay, Peru, St. Kitts and Nevis, St. Lucia, St.
Vincent and the Grenadines, Suriname, Trinidad and Tobaco, Uruguay, Venezuela

* Middle East and North Africa - Algeria, Bahrain, Djibouti, Egypt, Iran, Iraq, Jordan, Kuwait, Lebanon, Libya,
Mauritania, Morocco, Oman, Qatar, Saudi Arabia, Sudan, Syria, Tunisia, United Arab Emirates, Yemen

* Sub-Saharan Africa - Angola, Benin, Botswana, Burkina Faso, Burundi, Comoros, Democratic Republic of the
Congo, Republic of Congo, Côte d'Ivoire, Equatorial Guinea, Eritrea, Ethiopia, Gabon, The Gambia, Ghana, Guinea,
Guinea-Bissau, Kenya, Lesotho, Liberia, Madagascar, Malawi, Mali, Mauritius, Mozambique, Namibia, Niger,
Nigeria, Rwanda, São Tomé and Príncipe, Senegal, Seychelles, Sierra Leone, South Africa, South Sudan, Swaziland,
Tanzania, Togo, Uganda, Zambia, Zimbabwe

II. THE WORLD BANK’S COUNTRY CLASSIFICATION SYSTEMS

The classification tables include all World Bank members, plus all other economies with populations of more than
30,000.

But the World Bank’s classification of the world’s economies is based on:

- estimates of gross national income (GNI) per capita.

The most current World Bank Income classifications by GNI per capita (updated July 1 of every year) are as follows:

a. Low income

b. Lower middle income

c. Upper middle income

d. High income

Low- and middle-income economies are usually referred to as developing economies,

and the Upper Middle Income and the High Income are referred to as Developed Countries.

For the 2022 fiscal year, country income is calculated using the World Bank Atlas method:

A. Low-income economies are defined as those with a GNI per capita, of $1,035 or less;

B. Lower middle-income economies are those with a GNI per capita between $1,036 and $4,045:

C. Upper middle-income economies are those with a GNI per capita between $4,046 and $12,535;

D. High-income economies are those with a GNI per capita of $12,536 or more
III. UNITED NATIONS DEVELOPMENT PROGRAMME’S (UNDP) COUNTRY CLASSIFICATION SYSTEM

The UNDP’s country classification system is calculated from the Human Development Index (HDI), which aims to
take into account the multifaceted nature of development. HDI is a composite index of three indices measuring
countries achievement in three things:

* longevity,

* education and

* income.

In the classification system:

* Developed countries are countries in the top quartile of the HDI distribution (very high human development) -

* Developing countries consists of countries in three groups:

* High human development group

* Medium human development group

* Low human development group

CHARACTERISTICS OF A DEVELOPING COUNTRY

A developing country is a nation that fares poorly on the HDI and has low levels of industrialization.

Some of the most important features of developing countries are listed below and explained thereafter.

* Low Industrial Base

* Low Human Development Index (HDI)

* High marginal Productivity of Capital

* Low labor productivity

* Poor Institutions

* Imperfect Markets

* Low technology proliferation

* Raw material exporting

* Relative land abundance

* Plenty of challenges

MODULE 1 LESSON GUIDE:

1. Economics, aside from being divided into two major branches - Macroecon and Microecon, it is further
subdivided into other minor branches. However, there do exist a number of overlaps between and amongst these
sub-disciplines. As an example, some of the topics we will cover in this course will also include aspects of
environmental economics and agricultural economics sub disciplines (and many more others).

2. Economic Development has a greater scope. In addition to being concerned with the efficient allocation of
existing scarce (or idle) productive resources and with their sustained growth over time, it must also deal with the:

- economic,

- social,

- political, and
- institutional mechanisms, both public and private, necessary to bring about RAPID (at least by historical
standards) and LARGE-SCALE improvements in levels of living for the peoples of the world…

3. According to Todaro and Smith, ang Econ dev starts with these two: traditional economics and political
economy. And traditional econ mao na ang usual economics nga nahibaw an sa uban, more on money, GNP, GDP,
basta dealing with kwarta, income and usually numbers. Ang political economy more than pa sa traditional. Giapil
ug consider ang different institutions nga needed pd sa pagpadagan sa kwarta especially sa ila influence and
power.

4. Traditionally, development means achieving sustained rates of growth of income per capita to enable a nation to
expand its output at a rate faster than the growth rate of its population. Further, it explains that development is an
economic phenomenon in which rapid gains in overall and per capita GNI growth would either “trickle down” or
munaog sa katawhan in the form of jobs and other economic opportunities nga ma avail nato or create the
necessary conditions for the wider distribution of the economic and social benefits sa paglambo.

5. With the New Economic View of Development nga nagstart niadtong 1970s, economists claim that development
is a multidimensional process involving MAJOR changes in:

- social structures,

- popular attitudes, and

- national institutions,

So, remember nga major changes of those three PLUS the

- acceleration of economic growth,

- the reduction of inequality,

- and the eradication of poverty.

6. Amartya Sen said development is freedom meaning, FREEDOM IS BOTH THE MEANS (PAAGI) AND THE ENDS
(TUMONG) OF DEVELOPMENT.

For Sen, development is:

- enhanced by democracy,

- naay protection of human rights (freedom of the press, speech, assembly, and so forth increase the likelihood of
honest, clean, good government)

- expands human freedom (political freedom, economic facilities, social opportunities, transparency and security).

- may enhancement pa jud sa freedom that allow people to lead lives that they have reason to live.

7. Todaro and Smith said that there are three Core Values of development nga maoy gigamit as conceptual basis
and practical guideline for understanding the INNER meaning of development. Mao ni ang gipangandoy sa tanang
tawo ug society ug related kini sa paninghanglan sa tawo. These 3 are Sustenance, Self-Esteem, Freedom from
Servitude.

- When we say the Value of Sustenance, it is the Ability to Meet Basic Needs.

- When we say, the value of self-esteem, it means To Be a Person. Self-esteem means sense of worth and self-
respect, of not being used as a tool by others for their own ends.

- When we say the core value of Freedom from Servitude, meaning To Be Able to Choose. Freedom involves an
expanded range of choices for societies. It involves freedom from bondage, serfdom, and other exploitative
economic, social, and political relationships.