Economic Development

Module 1
Prof. Irah Dianne Nicolas
Nature of Development Economics
What is Economic Development?
A branch of economics that focuses on improving fiscal, economic, and social conditions in developing
countries. Development economics considers factors such as health, education, working conditions,
domestic and international policies, and market condition with a focus on improving conditions in the
world's poorest countries.

Traditional Economics
An approach to economics that emphasizes utility, profit maximization, market efficiency, and
determination of equilibrium

Political Economy
The attempt to merge economic analysis with practical politics to view economic activity in its political
extent.

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Evolution of States and the Development of Economic Systems

A. Tribe
A social division in a traditional society consisting of families or communities linked by social, economic, religious,
or blood ties, with a common culture and dialect, typically having a recognized leader.

The basic social unit was the “tent,” which was basically a nuclear family headed by a man. The division of labor fell
along gender lines. Their political system is egalitarian and informal. The head of the tribe was nominated by the age
and wisdom, so, the aged person was to be the chief or head of the tribe because of the agedness and
experience. Economic relations are usually of subsistence type.

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Subsistence
Economy What is Subsistence?
The action or fact of maintaining or supporting oneself at a
minimum level. A condition of just having enough money or
food to stay alive.

Subsistence Economy
A non-monetary economy which relies on natural resources
to provide basic needs. Production is mainly for personal
consumption and the standard of living yields little more
than necessities of life – food, shelter, and clothing.
Subsistence economies can be found in developing and
underdeveloped countries.

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Evolution of States and the Development of Economic Systems

B. Barter Trade System

Is an act of trading goods or services between two or more parties without the use of money. In essence, bartering
involves the provision of one good or service by one party in return for another good or service from another party.
In ancient times, this system involved people in the same area, however today bartering is global.

C. City-state
A political system consisting of an independent city having sovereignty over contiguous territory and serving as a
center and leader of political, economic, and cultural life. The majority of a polis’s population lived in the city, as it
was the center of trade, commerce, culture, and political activity.

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Evolution of States and the Development of Economic Systems
D. Nation State and Mercantilism

What is Nation?

It is a large group of people that inhabit a specific territory and are connected by history, culture, or another commonality.

What is State?

It is a body of government, the rules, the laws, the government officials and their titles, the physical boundaries.

Nation State
It is a territorially bounded sovereign polity that is ruled in the name of a community of citizens who identify themselves as a nation. As a
political model, the nation-state fuses two principles: the principle of state sovereignty, first articulated in the Peace of Westphalia (1648),
which recognizes the right of states to govern their territories without external interference; and the principle of national sovereignty, which
recognizes the right of national communities to govern themselves.

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Evolution of States and the Development of Economic Systems

Mercantilism
It is an economic system of trade that spanned from the 16th century to the 18th century. Mercantilism is based on
the principle that the world's wealth was static, and consequently, many European nations attempted to accumulate
the largest possible share of that wealth by maximizing their exports and by limiting their imports via tariffs and in
an effort to collect precious metal like silver and gold.

E. Capitalism
It is an economic and political system in which a country's trade and industry are controlled by private owners for
profit, rather than by the state. The underlying theme of Capitalism is the use of wealth to create more wealth. The
simplest form of this is lending money at interest, reviled in the Middle Ages as the sin of usury.

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Evolution of States and the Development of Economic Systems

F. Modern State
In geographic terms, “the sovereign person having jurisdiction over the people and activities that take place within its
borders.”

Legitimacy of Authority
1. Traditional - The ability and right to rule is passed down, often through heredity.
2. Charismatic - Found in a leader whose mission and vision inspire others.
3. Legal Rational - Derives from a system of institutional procedure, wherein government institutions establish and
enforce law and order in the public interest.

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Evolution of States and the Development of Economic Systems
G. Command Economy
Command economy, also known as planned economy, is an economic system wherein factors of production are
controlled by central authority such as Government. They also determine investment and income. In this system, the
central bureaucracy does more of the planning instead of the market, they answer the key economic questions. In
command economy, government sets the price, control production and limit or entirely prohibit competition. Private
ownership or land, labor, and capital is non-existent to use in support of the central economic plan.

Characteristics of Command System

1. Government controls the pricing of goods and services.
2. Government makes all decisions for finances in the country.
3. State has absolute power over all resources.
4. There is no competition.

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Evolution of States and the Development of Economic Systems

Socialism
It is an economic system where means of production and distribution are owned by the society. Socialism is based on the
assumption that all people naturally want to take active part or cooperate but are restrained from doing so by the competitive
nature of capitalism thus this system intend that everyone in society own the factors of production.
Communism
It is an economic system that advocates for a classless society in which all the property and wealth is owned by public.
According to the theory developed by Karl Marx and Friedrich Engels in an 1848 book entitled “The Communist Manifesto”,
pure communist results to a classless society wherein each individual are equal and there’s no need for money or obtaining
individual wealth. Since there is no need for money, individual is compensated not based on their contribution but rather on
their needs. And all the property serves as a public property, no individual possesses private or personal property

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Evolution of States and the Development of Economic Systems
Difference & Similarities between Communism and Socialism
Similarities
1. Individuals contribute to society based on their own ability.
2. Government plays a large role in economic planning.
3. Both opposing capitalism

Differences
1. Basic Philosophy
Communism - From each according to his ability, to each according to his needs.
Socialism - From each according to his ability, to each according to his contribution

2. Ownership of Economic Resources

Communism- All resources are publicly owned and controlled by government. Individuals does not hold personal property.
Socialism - Individuals own personal property but all industrial and production capacity is communally owned and managed by a democratically
elected government.

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Evolution of States and the Development of Economic Systems
Difference & Similarities between Communism and Socialism
Differences
3. Distribution of Economic Production
Communism - Production intends to meet all basic human needs and is distributed to the people at no charge.
Socialism- Production intends to meet individual and societal needs and distributed according to individual ability and contribution.

4. Class Distinction
Communism- Class is abolished. The ability to earn more than other workers is nonexistent.
Socialism - Classes exist but differences are diminished. It is possible for other to earn more than others.

5. Religion
Communism - Religion is abolished.
Socialism - freedom of religion is allowed.

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Evolution of States and the Development of Economic Systems

H. Mixed Economy
It is a system that combines aspects of both capitalism and socialism. A mixed economic system protects private property and
allows a level of economic freedom in the use of capital, but also allows for governments to interfere in economic activities
to achieve social aims.

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Development
What is Development?
Development has traditionally meant 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. Levels and rates of growth
of “real” per capita gross national income (GNI) (monetary growth of
GNI per capita minus the rate of inflation) are then used to measure the
overall economic well-being of a population population—how much of
real goods and services is available to the average citizen for
consumption and investment.

The process of improving the quality of all human lives and capabilities
by raising people’s levels of living, self-esteem, and freedom.

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Three Core Values of Development

Development

Sustenance Self-esteem Freedom for Servitude

ability to meet basic needs. to be a person ability to choose

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Thank you for
joining today's class.

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