Additional Insights on Economic Development Chapter 1

1.1 Introduction

The study of economic development raises some of the world’s biggest questions. Why
do living conditions differ so drastically for people across different countries and regions,
with some so poor and others so rich?
Why are there such disparities not only in income and wealth, but also in health,
nutrition, education, freedom of choice, women’s autonomy, environmental quality,
access to markets, security, and political voice?

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

1.2 How living levels differs around the world?

Living standards strata Stylized sets of material living conditions; the 4-strata schema was
created by Hans Rosling.
 Subsistence economy- 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

1.3 How Countries Are Classified by Their Average Levels of

Development: A First Look
The World Bank classifies countries according to four ranges of average national
income: Low, Lower-Middle, Upper-Middle, and High.
Gross national income (GNI) is the total domestic and foreign output claimed by residents of a
country, consisting of gross domestic product (GDP) plus factor incomes earned by foreign
residents, minus income earned in the domestic economy by nonresidents.

 Low-Income Country (LIC). In the World Bank classification, countries with a GNI per
capita of less than $996 in 2018. Conditions in some of them, such as Afghanistan,
Congo, Somalia, South Sudan, and Yemen.
 Upper-middle income countries (UMCs). In the World Bank classification, countries
with a GNI per capita between $3,896 and $12,055 in 2018. More than 60% of the world
population.
 Lower-middle income countries (LMCs). In the World Bank classification, countries
with a GNI per capita incomes between $996 and $3,895 in 2018.
 High-income countries (HICs). Of the world population of about 7.7 billion people in
2018, about 16% live in high-income countries (HICs). These countries have Gross
national income (GNI) per capita of at least $12,056. This is less than would be thought
of as “upper income” in many HICs such as Japan, the United Kingdom, and the United
States, with average incomes several times this level
Recognizing that well-being cannot be measured by income alone, the United Nations
Development Programme (UNDP) classifies countries taking account of their health and
education attainments in addition to income, in its Human Development Index (HDI).

1.3 Economics and Development Studies

Development economics is the study of how economies are transformed from stagnation to
growth and from low- income to high-income status, and overcome problems of extreme
poverty.

Development economics incorporates research in political economy and institutional,

behavioural and experimental economics; it overlaps and links with other subfields including
labour, public, urban, agricultural, environmental, and international economics. And it draws
extensively from other social science disciplines including history, political science,
psychology, and sociology.

In addition to traditional topics in economics such as the efficient allocation and growth of
productive resources, development economics must also address 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.

Thus, development economics, to a greater extent than traditional neoclassical economics

or political economy, must be concerned with the economic, cultural, and political
requirements for effecting rapid structural and institutional transformations of entire societies
in a manner that brings the fruits of economic progress to all their populations. It includes
research on mechanisms that can keep families, regions, and even entire nations in poverty
traps, in which past poverty causes future poverty, and on the most effective strategies for
breaking out of these traps. Consequently, a larger government role and some degree of
coordinated economic decision making directed toward transforming the economy are
usually viewed as essential components of development economics.

Geographic scope-The geographic scope of development studies is generally considered

to be most of Asia; sub-Saharan Africa, the Middle East and North Africa; Latin America and
the Caribbean; and often the formerly Communist transition economies of East and
Southeast Europe. Many insights from development economics have been applied also to
“lagging” areas of high-income countries, including indigenous peoples’ territories and other
relatively deprived communities. Indeed, economic development is an ongoing, dynamic
process.

A dynamic field- Because of the many differences in the severity of problems facing
countries, and the complexity of the development process, development economics must be
eclectic, attempting to combine relevant concepts and theories from traditional economic
analysis with new models and broader multidisciplinary approaches, including studies of the
historical and contemporary development experiences of countries throughout the world.
Development economics is a field on the crest of a breaking wave, with new theories and
new data constantly emerging. These theories and statistics sometimes confirm and
sometimes challenge traditional ways of viewing the world. The ultimate purpose of
development economics, however, remains unchanged: to help us understand how to
improve the lives of the global population.

Central Role of Women:

Development scholars generally view women as playing a central role in the development
drama, which must be the first thought rather than an “afterthought.” Globally, women tend
to be poorer than men; they are also more deprived in health, education and in freedoms in
all its forms. These facts alone lead to the special focus on women in development.
Moreover, women in developing countries have primary responsibility for child rearing, and
the resources that they are able to bring to this task will determine how readily the cycle of
transmission of poverty from generation to generation can 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 women.
1.4 The Meaning of Development: Amartya Sen’s
“Capability” Approach
Amartya Sen, winner of the 1998 Nobel Prize in economics, argues that “capability to
function” is what really matters for status as a poor or non-poor 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. For
example, a book is of little value to an illiterate person (except perhaps as cooking fuel or as
a status symbol). Or, as Sen noted, a person with a parasitic disease will be less able to
extract nourishment from a given quantity of food than someone without parasites. 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: to address what Sen
calls functionings—that is, what a person does (or can do) with the commodities of given
characteristics that they come to possess or control.

Freedom of choice, or control of one’s own life, is itself a central aspect of most
understandings of well-being. A functioning is a valued “being or doing,” and, in Sen’s view,
functionings that people have reason to value can range from being healthy, being well
nourished, and well clothed, to being mobile, having self-esteem, and “taking part in the life
of the community.

1.5 Happiness and Development

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.
Economists have explored the empirical relationship across countries and over time
between subjectively reported satisfaction and happiness and factors such as income.
However, there is wide variation in the relationship between income and happiness,
especially across developing countries. One of the findings is that the average level of
happiness or satisfaction increases with a country’s average income.

Not surprisingly, studies show that financial security is only one factor affecting happiness.
Happiness researcher Richard Layard identifies seven factors that surveys show affect
average national happiness: family relationships, financial situation, work, community and
friends, health, personal freedom, and personal values. In particular, 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.25 The importance of these factors may
 shed light on why the percentage of people reporting that they are not happy or satisfied
varies so widely among developing countries with similar incomes.

1.6 The Sustainable Development Goals: A Shared

Development Mission
In September 2015, the member countries of the United Nations adopted 17 Sustainable
Development Goals (SDGs), to be achieved by 2030, thereby committing to substantial
achievements in ending multidimensional poverty and improving the quality of life. The
resolution affirmed: “We are determined to end poverty and hunger, in all their forms and
dimensions, and to ensure that all human beings can fulfil their potential in dignity and
equality and in a healthy environment.”

Along with the United Nations, the World Bank, the International Monetary Fund (IMF),
OECD, and the World Trade Organization (WTO), NGOs from developing as well as
developed countries had a voice in their formulation. The goals are officially used by most
development agencies and many independent NGOs.

The scope and expanded ambition of the SDGs would not have been possible without the
Millennium Development Goals (MDGs) as a precedent. The MDGs were a milestone in
thinking and policy about development, and were considered surprisingly successful, given
other UN resolutions and programmes that were not.
1.7.2 The Millennium Development Goals, 2000–2015
In 2000, the member countries of the United Nations adopted eight MDGs, committing
themselves to making substantial progress toward the eradication of poverty and achieving
other human development goals by 2015. Until the SDGs, the MDGs were the strongest
statement of the international commitment to ending global poverty. They acknowledged the
multidimensional nature of development and poverty alleviation; an end to poverty requires
more than just increasing incomes of the poor. The MDGs provided a unified focus in the
development community unlike anything that preceded them.