Economic Development

Development
It process by which the economic well-being and quality of life of a nation, region, local
community, or an individual are improved according to targeted goals and objectives. Each
country is on different scale of development some are developing, some are underdeveloped
and some are developed.

Different Standard of Living

Living standard signifies the Stylized sets of material living conditions. Quality of life differs
drastically, depending largely on where a person was born those born in Developed countries most
likely have a high standard of living as compared to the people who are born in a under developed
and developing countries. There is a 4-strata schema that was created by Hans Rosling that classifies
peoples on basis of Living Standard.

Lowest Stratum: Extreme Poverty

At the “bottom,” there are more than one billion people in extreme poverty, or suffer acute
problems such as nutrition, health, and primary education, or both. The World Bank estimated in
2017 that 768.5 million—nearly three-quarters-of-a-billion people are below the extreme poverty
income line of $1.90 per day. In 2018 the United Nations estimated in its ‘Multidimensional Poverty
Index’ that nearly 1.3 billion people live with acute deprivations.

Second-Lowest Stratum
A typical person in the second-lowest of the “strata” is not officially classified as extremely poor, though
from the perspective of an average person in a rich country they would be viewed as very poor indeed.
In fact, a typical family in this stratum may live on about twice that line, $3.80 per day per person. Close
to 3 billion people may be thought of as living in this stratum. They are almost as likely to live in an
urban area as in a rural area.

Second-Highest Stratum
A typical family in the second-highest of the strata may live on about $15 per person per day. More than
two billion people may be thought of as living in this stratum. Such families typically live in urban areas.
But their jobs are usually not very stable and are often informal. Such families typically live in urban
areas. But their jobs are usually not very stable and are often informal.

Highest (“Rich”) Stratum

Close to a billion people live on the highest stratum, which most other people in the world consider rich.
Most are certainly not millionaires, let alone ultra-rich; but they live very comfortably. A family in this
stratum living in North America, Western Europe, or Japan might live on an income of perhaps $75 per
person per day. They work in formal jobs, generally with at least some protections. They may have a
comfortable suburban house that has a small yard with a garden, and two cars.
Classification of countries
Countries are often classified by levels of income and human development. Countries are often
classified by levels of income and human development, as we examine in detail in the next chapter.
They are also grouped by levels of poverty, quality of governance, and many other dimensions.

The World Bank classifies countries according to four ranges of average national income: Low, Lower-
Middle, Upper-Middle, and High. Low-Income Country (LIC) is countries with a GNI per capita of less
than $996 in 2018. Lower-middle income countries (LMCs), countries with a GNI per capita incomes
between $996 and $3,895 in 2018.Upper-middle income countries (UMCs), countries with a GNI per
capita between $3,896 and $12,055 in 2018. High Income Counties (HIC), countries with a GNI per capita
of more than $12,055. 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.

Of the world population of about 7.7 billion people in 2018, about 16% live in high-income countries
(HICs), more than 60% of the world’s people now live in “middle-income countries” and about three-
quarters-of-a-billion people—roughly 10% of the world’s population—live in LICs, a majority of these
countries are located in sub-Saharan Africa, where population is growing fastest. The United Nation’s
designation of “least-developed countries” is similar to LICs; for inclusion, a country has to meet criteria
of low education and health, and high economic vulnerability, as well as low income. But in most
countries in this group, great progress has been made, as life expectancy, school enrolments, and
average incomes have risen substantially.

Recognizing that well-being cannot be measured by income alone, the United Nations Development
Program (UNDP) classifies countries taking account of their health and education attainments in
addition to income, in its Human Development Index (HDI).

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

Reason to study Development Economics

The scope and the work that development economics do is much broader than the name suggest. In
development economics Theory plays an essential role, but development economics is largely a research
discipline. It uses formal models of topics such as decision making within households to problems of
economy-wide transformation and provides insights into findings, clarifications of the logic of arguments
about development processes and policies, and development of new hypotheses from ever-growing
available data, often collected by development economists. It incorporates research in political economy
and institutional, behavioral and experimental economics; it overlaps and links with other subfields
including labor, public, urban, agricultural, environmental, and international economics. Development
economics also address the economic, social, political, and institutional mechanisms, both public and
private, necessary to bring rapid and large-scale improvements in levels of living along with traditional
topics in economics such as the efficient allocation and growth of productive resources. In many low-
and middle-income countries, when commodity and resource markets are typically highly imperfect,
consumers and producers have limited information, major structural changes are taking place in both
the society and the economy, the potential for multiple equilibrium rather than a single equilibrium is
common, and disequilibrium situations often prevail. In many cases, economic calculations are
influenced by political and social priorities, such as unifying the nation, replacing foreign advisers with
local decision makers, resolving tribal or ethnic conflicts, or preserving religious and cultural traditions.
At the individual level, family, clan, religious, or tribal considerations may matter at least as much as
private, self-interested utility or profit-maximizing calculations. Thus, development economics becomes
an important subject of study facing above mentioned economic conditions.

“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 is valued, ultimately, not for their own sake, but as means to human welfare and freedom.”
Sen also states 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. Sen identifies five sources of disparity between (measured) real incomes
and actual advantages

(1) Personal heterogeneities, such as those connected with disability, illness, age, or gender.

(2) Environmental diversities, such as heating and clothing requirements in the cold or infectious
diseases in the tropics, or the impact of pollution.

(3) Variations in social climate, such as the prevalence of crime and violence, and “social capital”.

(4) Distribution within the family—economic statistics measure incomes received in a family.

(5) Differences in relational perspectives, meaning that some goods are essential because of local
customs and conventions.

In a richer society, the ability to partake in community life would be extremely difficult without certain
commodities. But, looking at real income levels or even the levels of consumption of specific
commodities cannot suffice as a measure of well-being. One may have a lot of commodities, but these
are of little value if they are not what consumer’s desire. Sen goes on to note that functioning depends
also on certain “(1) social conventions in force in the society in which the person lives, (2) the position of
the person in the family and in the society, (3) the presence or absence of festivities such as marriages,
seasonal festivals and other occasions such as funerals, (4) the physical distance from the homes of
friends and relatives”
In part, because such factors, even on so basic a matter as nutrition, can vary so widely among
individuals, measuring individual well-being by levels of consumption of goods and services obtained
confuses the role of commodities by regarding them as ends in themselves rather than as means to an
end. As Sen Stresses, a person’s own valuation of what kind of life would be worthwhile is not
necessarily the same as what gives pleasure to that person. If we identify utility with happiness in a
particular way, then very poor people can have very high utility. Sometimes even malnourished people
either have a disposition that keeps them feeling rather blissful or have learned to appreciate greatly
any small comforts they can find in life, such as a breeze on a very hot day, and to avoid disappointment
by striving only for what seems attainable.

Sen Then defines capabilities as the freedom that a person has in terms of the choice of functioning’s,
given his personal features and his command over commodities. Sen’s perspective helps explain why
development economists have placed so much emphasis on health and education, and more recently on
social inclusion and empowerment, and have referred to countries with high levels of income but poor
health and education standards as cases of “growth without development.”

Other perspectives
In 1971, Denis Goulet asserted, “Development is legitimized as a goal because it is an important,
perhaps even an indispensable, way of gaining esteem. Nobel Laureate in economics W. Arthur Lewis
stressed the relationship between economic growth and freedom from servitude when he concluded
that “the advantage of economic growth is not that wealth increases happiness, but that it increases the
range of human choice.”Lewis’s point is a caution against “fetishising” income growth or thinking of
utility as depending only on income; of course this does not mean happiness is unimportant, or that
people would refrain from making choices that improved their happiness. Happiness is a key concern for
economic development.

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. 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. The “happiness science” findings
call into question the centrality of economic growth as an objective for high-income countries. But they
also reaffirm the importance of economic development in the developing world, whether the objective
is solely happiness or, more inclusively and persuasively, expanded human capabilities. s. Happiness
researcher Richard Layard identifies seven factors that surveys show affects 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.
The Sustainable Development Goals
Seventeen Goals

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. These 17 goals include to end poverty and
hunger; ensure healthy lives, quality education, gender equality, water and sanitation, and modern
energy; promote inclusive growth, employment, resilient infrastructure, industrialization, innovation,
and improved cities; reduce inequality; combat climate change and environmental damage; and
promote peace, justice, and global partnership. Goals were assigned 169 targets to be achieved by 2030;
some were much more specific than others. There were also 304 indices to be used to track progress, of
which 232 were agreed upon by the end of 2018.

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 programmers
that were not. They managed to receive regular and sustained attention from their adoption in 2000
until their end date of 2015.

The Millennium Development Goals, 2000–2015

n 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.

The MDGs were developed at the UN in consultation with the developing countries, to ensure that they
addressed their most pressing problems. In addition, key international agencies, including the World
Bank, IMF, and OECD, helped develop the Millennium Declaration and had a collective policy
commitment to attacking poverty directly. The MDGs assigned responsibilities to rich countries,
including increased aid, removal of trade and investment barriers, and eliminating unsustainable debts
of low-income countries. The eight MDG goals toward which progress was pledged were: to 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; and develop a global partnership for development.