I.

INTRODUCTION

Over the years, our government has created several development plans to help our
country grow, starting from the 1950s. These plans focused on population growth,
economic progress, and good governance. They were made by intelligent planners,
but they were also influenced by different economic growth models, even if the
planners didn’t realize it.

Today, as the world rapidly changes, our country is trying to catch up with our
neighbors through projects like "Build, Build, Build." However, our political system
makes long-term progress difficult because leaders change every six years and often
introduce new projects instead of continuing past ones. This lack of consistency
makes investors hesitant.

Some economists believe that poor countries naturally grow faster and eventually
catch up with rich nations. But in reality, that’s not always the case. Many factors—like
low savings, high population growth, and political instability—can slow us down. Over
time, economic theories have shifted focus, from land ownership in the past to
innovation and technology today. To truly develop, we need a balanced approach that
considers social, political, and economic factors together.

ll. HISTORICAL GLOBAL PERSPECTIVE

The main concern "modernization" (industrialization) and economic growth rather than
distribution and/or poverty alleviation Underdevelopment was seen as a structural
problem, due to market failures the underdeveloped countries were trapped in "vicious
circles of poverty a) Missing markets (e.g. savings and credit markets); b) Market
failures-leg wage setting in agriculture); c) Poorly working markets (low supply
elasticated).

Listening to the poor explain what poverty in like in their own words is more vivid than
reading descriptions. of it. Listen to some of the voices of the poor about the experience
of poverty in Box1.1. From these, it is clear that what people living in poverty need and
want extend beyond increased income to health, education, and especially for women-
empowerment. These correspond to enhanced capabilities and to the achievement of
the Millennium Development Goals.

Development economics is a distinct yet very important extension of both traditional

economics and political economy. Development economics focuses primarily on the
economic, social, and institutional mechanisms needed to bring about rapid and large-
scale improvements in standards of living for the masses of poor people in developing
nations.

A. Subsistence economy. - An 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.

B. Development.

The process of improving the quality of all human lives and capabilities by raising
people's levels of living, self-esteem, and freedom. The possibilities of a "better" life will
probably be provoke, and the opportunities for such a life will become feasible.
Aspirations will be raleed, but so bill frustrations as people understand the depth some
of their dep vations more clearly. In short, the development process has been set in
motion.

lll. TRADITIONAL ECONOMIC MEASURES

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—how much of real goods and
services is available to the average citizen for consumption and investment. Economic
development in the past has also been typically seen in terms of the planned alteration
of the structure of production and employment so that agriculture’s share of both
declines and that of the manufacturing and service industries increases. Development
strategies have therefore usually focused on rapid industrialization, often at the expense
of agriculture and rural development.

IV. THE NATURE OF DEVELOPMENT ECONOMICS

Traditional economics -is concerned primarily with the efficient, least-cost allocation of
scarce productive resources and with the optimal growth of these resources over time
so as to produce an ever-expanding range of goods and services.

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.

Development economics has an even 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 Africa, Asia, Latin America, and the formerly socialist transition economies.
Unlike the more developed countries (MDCs), in the less developed countries, most
commodity and resource markets are 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 equilibria rather than a single equilibrium is more
common, and disequilibrium situations often prevail (prices do not equate supply and
demand).

Globalization- The increasing integration of national economies into expanding

international markets.

Social Systems- The organizational and institutional structure of a society, including its
values, attitudes, power structure, and traditions.

V. Meaning and Measurement of Economic Development/ Comparative View

Basic Indicators of Development

 Purchasing Power Parity (PPP) tries to adjust for differences in prices, but it's
not perfect because prices vary a lot, especially between urban and rural areas.
For example, between urban and rural areas, making it hard to get a truly
accurate picture.
 Indicators of Health and Education- I read that health and education are really
important for a country's well-being. They're both a cause and a result of
development. How many kids people have is also related to how healthy and
educated they are. And there are different ways to measure how well people can
read and write.

Characteristics in the developing world

 Lower Levels of Living and productivity

 Lower levels of human capital
 Higher levels of poverty and inequality
 High population growth
 Greater social fractionalization
 Large rural population coupled with rural exodus
 Low industrialization and low levels of manufactured exports
 Adverse geography
 Underdeveloped markets
 Colonial legacy
1. Institutions
2. Dependence

CONVERGENT ECONOMY (of incomes, wealth, and levels of well-being). There's a

"convergence" theory in economics that suggest, over time, that "poor nations should
catch up with rich nations." The theory argues that countries are poor will have a higher
marginal products of capital (human and physical) and consequently a higher rate of
return to capital the law of diminishing returns. This means that a dollar (as standard) of
extra savings will have a higher payoff in less developed countries, allowing it grow
faster. Economic growth literature the term "convergence" can have two meanings. The
first kind un-conditional or absolute beta-convergence (sometimes called "Sigma-
Convergence) and "Beta-Convergence".

TYPES OF CONVERGENCE

1. RELATIVE CONVERGENCE - This looks at relative changes in economic growth

rates over time, and has found very little evidence for unconditional relative
convergence.

2. CONDITIONAL RELATIVE CONVERGENCE- Has however been noted among

OECD countries.

3. ABSOLUTE CONVERGENCE- This is more robust measure of convergence

because there is a lag period during which income accumulates to the point where
relative changes make enough difference to outweigh relative stagnation in a large
number of smaller developing countries.

4. POPULATION WEIGHTED-These studies highlight that increases in high-population

counties such as India and China have outweighed relative stagnation in a large
number of smaller developing countries.

5. WORLD-AS-ONE- This approach uses house-hold level data across all countries to
measure income divergence between the rich and poor.

BETTER MEASURE OF ECONOMIC DEVELOPMENT

-Using income as a measure of development is a weak tool, and efforts have been
made to replace GNP per capita with a more reliable measure- usually an index of
several economic and social variables.

*PHYSICAL QUALITY OF LIFE INDEX (PQLI)- It is one measure of welfare, which

combines three indicators infant mortality rate, life expectancy (at age one, to not
overlap with infant mortality), and adult literacy rate, the ability to read and write in any
language (in percentage). The first two variables represent the effects of nutrition, public
health, income and the general environment.

*HUMAN DEVELOPMENT INDEX

The UN-Development Program (UNDP) defines human development as "a process of

enlarging people's choices. The most critical ones are to lead along and healthy life, to
be educated and enjoy a decent standard of living".

THEORIES OF ECONOMIC GROWTH AND DEVELOPMENT

Keynesian growth theory (1940-50's) -process of capital of formation is determined by

savings and Investment.

Modernization Theory this theory suggests that economic dimension alone is

insufficient and adds theories on institutional and social change.

Neoliberal Development Theory- grew in the 1970s and designed to counteract

impact of Keynesian. It was experimental experience on the new emphasis on supply
side factors in development- private initiatives and market led growth by the developed
countries and adopted by LCD's.

Popular Development- It is a development process that avoids 'grand theories' and

emphasizes solutions viewed in context of development which is part of historical
process.

3 CORE VALUES OF DEVELOPMENT

1. SUSTENANCE. The ability to meet basic needs.

2. SELF-ESTEEM. To be a person.
3. FREEDOM FROM SERVITUDE. To be able to choose.

3 OBJECTIVES OF DEVELOPMENT

1. To increase the availability and widen the distribution of basic life-sustaining

goods such as food, shelter, health, and protection
 2. To raise levels of living including, in addition to higher incomes, the provision of
more jobs, better education, and greater attention to cultural and humanistic
values, all of which will serve not only to enhance material well-being but also to
generate greater individual and national self-esteem.
3. To expand the range of economic and social choices available to individuals and
nations by freeing them from servitude and dependence not only in relation to
other people and nation-states but also to the forces of ignorance and human
misery.

MODELS OF DEVELOPMENT AND UNDERDEVELOPMENT

The Solow-Swan model explains economic growth using a production function (Y = T

Kα Lβ) where Y is output, T is technology, K is capital, and L is labor. The model
suggests that long-run growth isn't affected by economic policy because growth
depends on technology and the relative proportions of capital and labor. Criticisms
include its narrow scope, unrealistic assumptions, and the non-continuous nature of
economic development.

The AK model of economic growth assumes technological progress increases with

capital accumulation, leading to constant growth. The Harrod-Domar model, however,
uses a fixed technology, meaning growth depends on the balance of capital and labor.
Other models, like Rostow's stages of growth and Lewis' model, focus on different
phases of development, including a "take-off" stage and the role of surplus labor moving
from agriculture to industry. Criticisms often highlight the limitations of these models in
explaining sustained growth and the complexities of real-world economies.

The AK model of economic growth is criticized for its "one-size-fits-all" approach. The
product-variety model emphasizes innovation's role in increasing productivity and
economic growth, while the Schumpeterian model highlights the importance of "creative
destruction," where new innovations replace older ones. Criticisms of these models
include their limitations in accounting for the complexities of real-world economic growth
and the influence of factors like institutions and policies

.
WHAT CAUSES UNDERDEVELOPMENT?

Underdevelopment isn't simply a lack of resources; it's a complex issue with historical
roots. While factors like low income and education are common, historical events like
colonialism played a significant role in hindering the development of many countries.
Colonial exploitation, forced labor, and the disruption of traditional economies all
contributed to underdevelopment. Conversely, successful development in countries like
Japan demonstrates that strong government-business cooperation, adaptation, and
technological advancement can overcome these challenges.

VICIOUS CIRCLE

Gunnar Myrdal's "vicious circle" theory explains poverty as a self-perpetuating cycle.

Low incomes lead to low savings, hindering investment and productivity, which keeps
incomes low. A critique argues that markets for basic goods are large enough that
productivity improvements could break this cycle.

BALANCED GROWTH

Balanced growth means investing equally across many different industries at once – a
"big push," as some call it. The idea is to break free from the poverty trap by expanding
everything simultaneously. The other approach, unbalanced growth, is more strategic.
It focuses on investing in specific sectors first, like capital goods industries. The
thinking is that these investments will create a ripple effect, stimulating growth in other
areas. This makes sense to me, but the challenge here is identifying the right sectors to
invest in and dealing with the risk that my investments might not pay off. It's a bit of a
gamble, but potentially a more efficient way to use limited resources.

ACCORDING TO PROF. HIRSCHMAN

Professor Hirschman categorizes investments into two types: convergent investments,

which are driven by profit and create more economic benefits than they consume (like
manufacturing), and divergent investments, which prioritize social good and create less
direct economic benefit but are essential for overall societal function (like education and
infrastructure).
UNDERDEVELOPMENT AS A COORDINATION FAILURE

Neo-classical economic theories failed to explain why developing economies often don't
reach their full potential. This is because these theories assume individual actors will
act in their own self-interest, neglecting the importance of coordination. When everyone
needs to cooperate for optimal results (like a "where-to-meet" dilemma), a lack of
coordination leads to sub optimal outcomes, a phenomenon called "coordination
failure."

MULTI-EQUILIBRIA

The provided graph illustrates how positive feedback loops in investment decisions
create multiple possible economic equilibrium points. This contrasts with standard
economic models that typically assume a single equilibrium.

- Positive y-intercept: A small number of actors will always invest, regardless of others'
actions.

- Initially small slope: Early investments have little impact on overall expectations.

- Exponentially increasing slope: As more invest, their combined effect on

expectations grows rapidly.

- Gradually decreasing slope: Eventually, most gains from complementarities are

achieved, and further investment has less impact.

BIG PUSH MODEL

The Big Push model argues that a single firm won't invest in modernizing an economy
because it fears being undercut by later firms that benefit from the initial investment.
Therefore, a large, coordinated investment (often government-led) is needed to create a
critical mass of investment, lowering costs for everyone and stimulating growth.

MDG Retrospective: Glass Half Full Or half empty

• Shorthand: “Halving Poverty” (and Halving Hunger)

• Income poverty target reached – by official definition of fraction living under $1 a day

equivalent (now adjusted to $1.90)

• Progress on hunger (fraction hungry fell from about 23% to 14%) but not halved – and

nearly 900 million still hungry

• Under-5 Mortality dropped about 41%: progress; but not halved, let alone cut by two
thirds

• Maternal deaths about halved – but not cut by three-quarters

• Clean drinking water target met, and slum target met; but the sanitation goal not met

• Great progress on several diseases including TB and malaria

• Progress on enrollments, but universal goal not met - 57 million children still not in

primary school – generally the poorest

• Development assistance is now about flat, and probably falling in real terms

Some Criticisms that have been raised concerning the Original MDGs Framework

• Not ambitious enough, it merely projects past rates of improvement

• Goals not prioritized; stove-piped: overlooks goal complementarity

• Setting a specific end date could discourage aid if targets not met

• The $1 a day poverty measure misses’ intensity of poverty

• $1.25 (or $1.90 as purchasing-power adjusted) per day is too low a bar

• Lack of goals on reducing rich country agricultural subsidies, which harm low income

farmers in developing countries

• Nothing on improving legal and human rights of the poor

• No goals for slowing climate change harming developing countries

• Nothing on expanding gender equity outside of / beyond education

• 15 years was too long to prod early action and accountability of leaders

• No goal on global social safety net guaranteeing minimums of life

• Did not seem to apply to developed countries except as aid donors

The 17 Sustainable Development Goals 2015-2030

1. End poverty in all its forms everywhere

2. End hunger, achieve food security and improved nutrition and promote sustainable

agriculture

3. Ensure healthy lives and promote well-being for all at all ages

4. Ensure inclusive & equitable quality education & promote lifelong learning
opportunities

for all

5. Achieve gender equality and empower all women and girls

6. Ensure availability and sustainable management of water and sanitation for all

7. Ensure access to affordable, reliable, sustainable and modern energy for all

8. Promote sustained, inclusive and sustainable economic growth, full and productive

employment and decent work for all

9. Build resilient infrastructure, promote inclusive and sustainable industrialization,

foster

innovation

10. Reduce inequality within and among countries

11. Make cities and human settlements inclusive, safe, resilient and sustainable

12. Ensure sustainable consumption and production patterns

13. Take urgent action to combat climate change and its impacts

14. Conserve and sustainably use oceans, seas, marine resources for sustainable

development

15. Protect, restore and promote sustainable use of terrestrial ecosystems, sustainably

manage forests, combat desertification, and halt and reverse land degradation and halt

biodiversity loss

16. Promote peaceful and inclusive societies for sustainable development, provide
access

to justice for all and build effective, accountable and inclusive institutions at all levels

17. Strengthen means of implementation and revitalize global partnership for

sustainable

development.

The original Millennium Development Goals (MDGs) faced criticism for being
insufficiently ambitious, lacking prioritization, having unrealistic targets, and overlooking
important areas like climate change, human rights, and social safety nets. The
subsequent Sustainable Development Goals (SDGs) aimed to address these
shortcomings.

THE BENEFIT AND COST OF ECONOMIC GROWTH AND DEVELOPMENT

Economic growth, while beneficial in reducing poverty and increasing freedom of

choice, comes at a cost. It can lead to materialism, social disruption, environmental
damage, and increased inequality. Furthermore, the rising expectations fueled by
observing wealthier nations make it difficult for less developed countries to choose
stagnation, even if it would avoid these negative consequences. The challenge is to
find ways to achieve economic development that minimizes these negative impacts.