Course Title: Issues in Development

Economics
Course Code: ECN 306
Dr Monica A. Orisadare
Department of Economics
OAU, Ile-Ife, Nigeria
 Module 1
The general nature of the development
problem
1.0 Objectives
At the end of this module, learners should be able to

• Define development economics

• Trace the history of development economics

• Explain the need for a new economic order

• Identify the scope of development economics

• Explain the emergence of development economics as

2.0 Outline
• The meaning and history of development economics

• New International Economic Order (NIEO)

• Scope of development economics

• Emergence of development economics as discipline

• The challenges of development

• Factors in the perpetuation of underdevelopment

• Assignment
The meaning of development economics
• The study of economic development is one of the newest,
most exciting, and most challenging branches of the broader
disciplines of economics and political economy. Recall in your
ECN 203 –Introductory Applied Economics I class; some basic
concept of 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.

• Traditional neoclassical economics deals with an advanced

capitalist world of perfect markets; consumer sovereignty;
automatic price adjustments; decisions made on the basis of
marginal, private-profit, and utility calculations; and
equilibrium outcomes in all product and resource markets.
• Traditional neoclassical economics assumes economic
“rationality” and a purely materialistic, individualistic, self-
interested orientation toward economic decision making.

• Political economy goes beyond traditional economics to

study, among other things, the social and institutional
processes through which certain groups of economic and
political elites influence the allocation of scarce productive
resources.

• Development economics to a greater extent than

traditional neoclassical economics or even 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 will most efficiently bring the fruits of economic
progress to the broadest segments of their populations.
• It must focus on the mechanisms that 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.
The history of development economics
• The following are some of the factors for the emergence of
development economics as a discipline;

i. Post-WWII theories
• The origins of modern development economics are often
traced to the need for, and likely problems with the
industrialization of eastern Europe in the aftermath of World
War II- Paul Rosenstein-Rodan, Kurt Mandelbaum, Ragnar
Nurkse, and Sir Hans Wolfgang Singer.

• Only after the war did economists turn their concerns

towards Asia, Africa and Latin America.
• Authors such as Simon Kuznets and W. Arthur Lewis were
analysts of not only economic growth but also structural
transformation.
ii. After the 1930s: Development economics as it
is commonly understood
Early studies of development ‘30s-’40s Latin
America;Western perspective (end of WWII): a
way to study (and control, monitor) what was
happening in previous colonies;“Studying the
underdeveloped world”; “the late comers” In
Rostow words once the America decides not to
go to war with Russia or China they have to find
other ways to protect their interests (a mixture
of political economic and military activity).

• Thus, the USA need to develop a more rigorous

economic policy in ASIA.
iii. Bretton Woods Institutions
In 1944 in the Bretton Woods Conference (USA) the new rules
governing the world economy were defined parallel to the
creation of the UN the year after
1. A fixed exchange rate system with the dollar as a reference
currency;

2. An International Monetary Fund (IMF), whose aim was to

monitor the monetary policies of the member countries and
provide short-term loans;

3. A World Bank, who should lend money to lower income

countries; these are long-term loans to support economic
development;

4. Opening of the international trade, with the GATT (General

Agreement on Trade and Tariffs) which then became WTO in
iv. Failure of Economic theories
Linear-stages-of-growth model
• This theory modifies Marx's stages theory of development
and focuses on the accelerated accumulation of capital,
through the utilization of both domestic and international
savings as a means of spurring investment, as the primary
means of promoting economic growth and, thus,
development.

• The linear-stages-of-growth model posits that there are a

series of five consecutive stages of development which all
countries must go through during the process of
development.

• These stages are "the traditional society, the pre-

conditions for take-off, the take-off, the drive to maturity,
• Simple versions of the Harrod–Domar model
provide a mathematical illustration of the
argument that improved capital investment
leads to greater economic growth.

• Such theories have been criticized for not

recognizing that, while necessary,
capital accumulation is not a sufficient condition
for development.

• This has led to the major criticism that the

theory assumes that the conditions found in
developing countries are the same as those
v. Structural-change theory
• Structural-change theory deals with policies focused on
changing the economic structures of developing countries
from being composed primarily of subsistence agricultural
practices to being a "more modern, more urbanized, and
more industrially diverse manufacturing and service
economy."

• There are two major forms of structural-change theory: W.

Lewis' two-sector surplus model, which views agrarian
societies as consisting of large amounts of surplus labor
which can be utilized to spur the development of an
urbanized industrial sector, and

• Hollis Chenery's patterns of development approach, which

holds that different countries become wealthy via different
• The pattern that a particular country will
follow, in this framework, depends on its size
and resources, and potentially other factors
including its current income level and
comparative advantages relative to other
nations.

• However, the structural-change approaches to

development economics have faced criticism
for their emphasis on urban development at
the expense of rural development which can
lead to a substantial rise in inequality between
internal regions of a country.
• The two-sector surplus model, which was
developed in the 1950s, has been further
criticized for its underlying assumption that
predominantly agrarian societies suffer from a
surplus of labor.

• Actual empirical studies have shown that such

labor surpluses are only seasonal and drawing
such labor to urban areas can result in a
collapse of the agricultural sector.

• The patterns of development approach has

been criticized for lacking a theoretical
vi. International dependence theory
• International dependence theories gained
prominence in the 1970s as a reaction to the failure
of earlier theories to lead to widespread successes in
international development.

• Unlike earlier theories, international dependence

theories have their origins in developing countries
and view obstacles to development as being primarily
external in nature, rather than internal.

• These theories view developing countries as being

economically and politically dependent on more
powerful, developed countries which have an interest
in maintaining their dominant position.
• There are three different, major formulations
of international dependence theory:
neocolonial dependence theory, the false-
paradigm model, and the dualistic-
dependence model.

• The first formulation of international

dependence theory- neocolonial dependence
theory, has its origins in Marxism and views
the failure of many developing nations to
undergo successful development as being the
result of the historical development of the
international capitalist system
vii. Neoclassical theory
• With the rise of several conservative governments in the
developed world during the 1980s, neoclassical theories
represent a radical shift away from International
Dependence Theories gained prominence.

• Neoclassical theories argue that governments should not

intervene in the economy; in other words, these theories
are claiming that an unobstructed free market is the best
means of inducing rapid and successful development.

• Competitive free markets unrestrained by excessive

government regulation are seen as being able to
naturally ensure that the allocation of resources occurs
with the greatest efficiency possible and the economic
growth is raised and stabilized.
• Within the realm of neoclassical theory, there are several
different approaches each with subtle, views regarding the
extent to which the market should be left unregulated.

• These different takes on neoclassical theory are the free

market approach, public-choice theory, and the market-
friendly approach.

• Of the three, both the free-market approach and public-

choice theory contend that the market should be totally free,
meaning that any intervention by the government is
necessarily bad.

• Public-choice theory is arguably the more radical of the two

with its view, closely associated with libertarianism, that
governments themselves are rarely good and therefore
should be as minimal as possible.
• The market-friendly approach, unlike the other
two, is a more recent development and is
often associated with the World Bank.

• This approach still advocates free markets but

recognizes that there are many imperfections
in the markets of many developing nations and
thus argues that some government
intervention is an effective means of fixing
such imperfections.
•
New International Economic Order (NIEO)
• The New International Economic Order (NIEO) was a set of proposals put
forward during the 1970s by some developing countries through the
United Nations Conference on Trade and Development to promote their
interests by improving their Term of trade by increasing exports from the
third to the first world transfers of capital to the third world, transfers of
technology to the third world

• increased development assistance, as well as provisions for increasing aid

and to alter the international monetary system

• developed-country tariff reductions, and other means.

• It was meant to be a revision of the international economic system in favour

of Third World countries, replacing the Bretton Woods system, which had
benefited the leading states that had created it – especially the
United States.
Scope of development economics
The following are examples of some of the need
behind studying development and what is to be
studied in development economics:

• Problem of World Poverty

• Meaning Of Economic Development
• Models Of Economic Growth
• Theories Of Under-Development And Development
• Problems Of Population (Population explosion-
limited resources, unemployment, migration,
urbanization and environment )- Optimal
population?
• Dualistic Theories- i.e., they have a few
developed cities and so many backward cities,
use of capital intensive technologies along
with rising unemployment; and the existence
of mass poverty accompanied by a few rich etc

• World Development Institutions and Foreign

Aid
Scope of development economics Cont’
The following are some of the questions addressed
in development economics:
• 1. What is the real meaning of development? Do
the Development Goals fit with these meanings?

• 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?
• 3. What are economic institutions, and how do
they shape problems of underdevelopment and
prospects for successful development?

• 4. How can the extremes between rich and poor

be so very great?

• 5. What are the sources of national and

international economic growth? Who benefits
from such growth and why?

• 6. Why do some countries make rapid progress

toward development while many others remain
• 7. Which are the most influential theories of
development, and are they compatible? Is
underdevelopment an internally (domestically) or
externally (internationally) induced phenomenon?

• 8. What constraints most hold back accelerated

growth, depending on local conditions?

• 9. How can improvements in the role and status of

women have an especially beneficial impact on
development prospects?

• 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?
Recap
• This module looked at the definition
development economics;
• Trace the emergence and history of
development economics as a discipline
• Identify the scope of development economics
• Some of the questions addressed by
development economics
Assignment
• Distinguish between traditional economics,
political economics and development economics

• Mention some factors responsible for the

development of development economics as a
discipline

• Identify five scope of development economics

• State three major question that development

economics addresses
• Thank You