Chapter 1

INTRODUCING ECONOMIC
DEVELOPMENT: A GLOBAL
PERSPECTIVE
Course Facilitator: Ins. Cristy Docdocos
Economic Development Quotes
Development can be seen . . . as a process of expanding the real freedoms that
people enjoy. —Amartya Sen, Nobel laureate in economics
Our vision and our responsibility are to end extreme poverty in all its forms in the
context of sustainable development and to have in place the building blocks of
sustained prosperity for all. —Report of the High-Level Panel of Eminent Persons
on the Post-2015 Development Agenda, 2013
Under necessaries, therefore, I comprehend, not only those things which nature,
but those things which the established rules of decency, have rendered necessary
to the lowest rank of people. —Adam Smith, The Wealth of Nations
Prologue: An Extraordinary Moment
• Living conditions are improving significantly in most, though not all, parts of
the globe—if sometimes slowly and unevenly. The cumulative effect is that
economic development has been giving rise to unprecedented global
transformations
•Asia has been growing at an average rate almost triple that of high-income
Western countries, and growth has returned to Africa, heralding the promise of an
era of global convergence.
•The enormous growth of innovations such as mobile phones and of availability
of credit for small enterprises have led to benefits and fueled a new optimism.
Prologue: An Extraordinary Moment
•At the same time, the future of economic development and poverty reduction is far
from assured—many people who have come out of poverty remain vulnerable, the
natural environment is deteriorating, and national economic growth remains
uncertain.
•Economic development is a process, not of years, but of many decades.
•After the 2011 media celebration of the “BRICS” economic growth, there were
reminders that the process remains uneven and uncertain.
•Realism is needed—both about the daunting challenges and the exciting
opportunities.
How the Other Half Live
•About two-fifths of the world’s population lives on less than $2 per day
ABSOLUTE POVERTY - a situation of being unable to meet the minimum
levels of income, food, clothing, health care, shelter, and other essentials.
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
DEVELOPMENT - The process of improving the quality of all human lives and
capabilities by raising people’s levels of living, self-esteem, and freedom.
SOME QUESTIONS
•Why does affluence coexist with dire poverty, not only on different continents, but
also within the same country or even the same city?
•Can traditional, low-productivity, subsistence societies be transformed into modern,
high-productivity, high-income nations?
•To what extent are the development aspirations of poor nations helped or hindered by
the economic activities of rich nations?
•By what process and under what conditions do rural subsistence farmers in the
remote regions of Nigeria, Brazil, or the Philippines evolve into successful
commercial farmers?
THE NATURE OF DEVELOPMENT
ECONOMICS
TRADITIONAL ECONOMICS - An approach to economics that emphasizes
utility, profit maximization, market efficiency, and determination of equilibrium.
POLITICAL ECONOMICS - The attempt to merge economic analysis with
practical politics— to view economic activity in its political context.
DEVELOPMENT ECONOMICS - The study of how economies are transformed
from stagnation to growth and from low income to high-income status, and
overcome problems of absolute poverty.
Its purpose is to help us understand developing economies in order to help
improve the material lives of the majority of the global population.
WHY STUDY DEVT. ECONOMICS?
SOME CRITICAL QUESTIONS
•1. What is the real meaning of development? Do the Millennium Development
Goals fit with these meanings? (Chapter 1)
•2. What can be learned from the historical record of economic progress in the
now developed world? Are the initial conditions similar or different for
contemporary developing countries from what the developed countries faced on
the eve of their industrialization or in their earlier phases? (Chapter 2)
•3. What are economic institutions, and how do they shape problems of
underdevelopment and prospects for successful development? (Chapter 2)
WHY STUDY DEVT. ECONOMICS?
SOME CRITICAL QUESTIONS
•4. How can the extremes between rich and poor be so very great? Figure 1.1
illustrates this disparity. (Chapters 2, 3, 4, and 5)
•5. What are the sources of national and international economic growth? Who benefits
from such growth and why? (Chapters 3 and 5)
•6. Why do some countries make rapid progress toward development while many
others remain poor? (Chapters 2, 3, and 4)
•7. Which are the most influential theories of development, and are they compatible?
Is underdevelopment an internally (domestically) or externally (internationally)
induced phenomenon? (Chapters 2, 3, and 4)
WHY STUDY DEVT. ECONOMICS?
SOME CRITICAL QUESTIONS
•8. What constraints most hold back accelerated growth, depending on local
conditions? (Chapter 4)
•9. How can improvements in the role and status of women have an especially
beneficial impact on development prospects? (Chapters 5, 6, 7, 8, 9, and 10)
•10. What are the causes of extreme poverty, and what policies have been most
effective for improving the lives of the poorest of the poor? (Chapters 5, 6, 7, 8,
9, 10, and 11)
WHY STUDY DEVT. ECONOMICS?
SOME CRITICAL QUESTIONS
•11. With world population superseding 7 billion people, on its way to a projected
9 billion before mid-century, is rapid population growth threatening the
economic progress of developing nations? Does having large families make
economic sense in an environment of widespread poverty and financial
insecurity? (Chapter 6)
• 12. Why is there so much unemployment and underemployment in the
developing world, especially in the cities, and why do people continue to migrate
to the cities from rural areas even when their chances of finding a conventional
job are slim? (Chapter 7)
WHY STUDY DEVT. ECONOMICS?
SOME CRITICAL QUESTIONS
•13. Under what conditions can cities act as engines of economic transformation?
(Chapter 7)
•14. Wealthier societies are also healthier ones because they have more resources for
improving nutrition and health care. But does better health also help spur successful
development? (Chapter 8)
•15. What is the impact of poor public health on the prospects for development, and
what is needed to address these problems? (Chapter 8)
• 16. Do educational systems in developing countries really promote economic
development, or are they simply a mechanism to enable certain select groups or
classes of people to maintain positions of wealth, power, and influence? (Chapter 8)
THE IMPORTANT ROLE OF VALUES
IN DEVELOPMENT ECONOMICS
• Economics is a social science - concerned with human beings and the social systems
by which they organize their activities to satisfy basic material needs and nonmaterial
wants.
• It is necessary to recognize from the outset that ethical or normative value premises
about what is or is not desirable are central features of the economic discipline in
general and of development economics in particular.
• Economics cannot be value-free in the same sense as, say, physics or chemistry.
• The validity of economic analysis and the correctness of economic prescriptions
should always be evaluated in light of the underlying assumptions or value premises.
ECONOMIES AS SOCIAL SYSTEMS
SOCIAL SYSTEM - The organizational and institutional structure of a society,
including its values, attitudes, power structure, and traditions.
• Economics and economic systems, especially in the developing world, must be
viewed in a broader perspective than that postulated by traditional economics.
• Must be analyzed within the context of the overall social system of a country
and, indeed, within an international, global context as well.
•Many of the failures of development policies have occurred precisely because
these noneconomic variables were excluded from the analysis.
WHAT DO WE MEAN BY
DEVELOPMENT?
TRADITIONAL ECONOMIC MEASURES
• Development 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.
• GNI per capita (monetary growth of GNI per capita less inflation) - used to measure the
overall economic well-being of a nation
• In the past, focus was on rapid industrialization, often at the expense of agriculture and
rural development
• Problems of poverty, discrimination, unemployment, and income distribution were of
secondary importance to “getting the growth job done.”
• Emphasis is often on increased output, measured by gross domestic product (GDP)
THE NEW ECONOMIC VIEW OF
DEVELOPMENT
• 1970s - Economic development was redefined in terms of the reduction or
elimination of poverty, inequality, and unemployment within the context of a
growing economy.
• “Redistribution from growth”
• must be conceived as a multidimensional process involving major changes in
social structures, popular attitudes, and national institutions, as well as the
acceleration of economic growth, the reduction of inequality, and the eradication
of poverty
AMARTYA SEN’S “CAPABILITY”
APPROACH
•1998 Nobel laureate in economics, argues that the “capability to function” is what
really matters for status as a poor or nonpoor person.
• “the expansion of commodity productions...are valued, ultimately, not for their own
sake, but as means to human welfare and freedom.”
• 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.
FUNCTIONINGS - What people do or can do with the commodities of given
characteristics that they come to possess or control.
Sen’s Five Sources of Disparity:
• Personal heterogeneities (disability, illness, age, or gender);
• Environmental diversities (heating and clothing requirements in the cold or infectious
diseases in the tropics, or the impact of pollution);
• Variations in social climate (prevalence of crime and violence, and “social capital”;
• Distribution within the family (Example: when girls get less medical attention or
education than boys do)
• Differences in relational perspectives (some goods are essential because of local
customs and conventions)
Thus, looking at real income levels or even the levels of consumption of specific
commodities cannot suffice as a measure of well-being.
Capabilities (according to Sen)
• The freedoms that people have, given their personal features and their command over
commodities.
• explains 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.”
• Human “well-being” means being well, in the basic sense of being healthy, well
nourished, well clothed, literate, and long-lived, and more broadly, being able to take part
in the life of the community, being mobile, and having freedom of choice in what one
can become and can do.
Development and Happiness
• Happiness is part of human well-being, and greater happiness may in itself expand
an individual’s capability to function.
• Research findings: The average level of happiness or satisfaction increases with a
country’s average income. But the relationship is seen only up to an average income
of roughly $10,000 to $20,000 per capita.
• 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
Development and Happiness
• Studies show that financial security is only one factor affecting happiness.
SEVEN FACTORS THAT AFFECT AVERAGE NATIONAL HAPPINESS:
• family relationships
• financial situation
• work
•community and friends
• health
•personal freedom
•personal values
THREE CORE VALUES OF
DEVELOPMENT
SUSTENANCE - The basic goods and services, such as food, clothing, and
shelter, that are necessary to sustain an average human being at the bare
minimum level of living.
SELF-ESTEEM - The feeling of worthiness that a society enjoys when its
social, political, and economic systems and institutions promote human values
such as respect, dignity, integrity, and self-determination.
FREEDOM - A situation in which a society has at its disposal a variety of
alternatives from which to satisfy its wants and individuals enjoy real choices
according to their preferences.
THE CENTRAL ROLE OF WOMEN
• . Globally, women tend to be poorer than men.
• They are also more deprived in health and education and in freedoms in all its
forms.
• Women have primary responsibility for child rearing, and the resources that they
are able to bring to this task will determine whether the cycle of transmission of
poverty from generation to generation will be broken.
• Mothers tend to spend a significantly higher fraction of income under their control
for the benefit of their children than fathers do.
• To make the biggest impact on development, then, a society must empower and
invest in its women.
THE THREE 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
human values, all of which will serve not only to enhance material wellbeing 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.
THE MILLENNIUM
DEVELOPMENT GOALS
• A set of eight goals adopted by the United Nations in 2000: 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. The goals are assigned specific targets to be achieved by 2015.
Sustainable Development Goals
1. Leave no one behind—to move “from reducing to ending extreme poverty, in
all its forms;” in particular, to “design goals that focus on reaching excluded
groups.”
2. Put sustainable development at the core, “to integrate the social, economic,
and environmental dimensions of sustainability.”
3. Transform economies for jobs and inclusive growth, while moving to
sustainable patterns of work and life.
Sustainable Development Goals
5. Forge a new global partnership so that each priority should involve
governments and also others, including people living in poverty, civil society and
indigenous and local communities, multilateral institutions, business, academia,
and philanthropy
4. Build peace and effective, open, and accountable institutions for all, which
“encourage the rule of law, property rights, freedom of speech and the media,
open political choice, access to justice, and accountable government and public
institutions.”
Sustainable Development Goals
The High-Level Panel also agreed on well-recognized and illustrative universal
goals and national targets for the SDGs, including an outright end by 2030 of
poverty, hunger, child marriage, and preventable under-5 deaths, and specific
targets on stunting, social protection coverage, and maternal mortality.
End of Chapter 1