MODULE 1 - ECONDEV opportunities to realize one’s goals and aspirations in

DEFINITION OF ECONOMIC DEVELOPMENT life. It also means more freedom to make choices,
“To achieve economic development”—this has always with the confidence to pursue them given one’s
been the goal of every government, every nation. abilities and resources.
• Throughout history, we have seen how countries
struggle to succeed in providing their citizens a TRADITIONAL MEASURES OF ECONOMIC
prosperous and sustainable economy. DEVELOPMENT
• We have also witnessed how, despite massive efforts To help us understand how economic growth and
and policy reforms, many countries remain poor and economic development are measured, some important
“developing”. economic concepts need to be defined. These concepts
may be familiar to you already as you may have
The primary concern of Economics is SCARCITY--how encountered them in your previous Economics courses.
everyone satisfies the unlimited wants and needs in
a world of limited resources. GROSS DOMESTIC PRODUCT (GDP)
SCARCITY • The market value of all final goods and services
produced in a country in a period of time, almost always
• circumstance in which the amount of something
one year.
available is insufficient to satisfy the desire for it.
• The expenditure approach of computing GDP has the
• a condition where the number people desired to
following formula:
consume is greater than their capacity to spend or
GDP = C + I + G + (X – M)
pay for.
where:
• The problem of scarcity occurs because people and
C= personal consumption expenditures
societies, in general, are unable to satisfy their
I= gross private domestic investment
unlimited wants and needs given the available
G= government expenditures
resources.
X= exports
M=imports
➢ Since the central concern in Economics is the scarcity
of resources, there is a need for a systematic and
Gross National Product (GNP):
logical way of allocating them. For instance,
• Output produced by a nation’s factors of production no
households have limited income to allocate goods
matter where it takes place. Alternatively, this is
and services.
measured in terms of income, thus gross national
➢ Moreover, the firm's production is limited by costs of
income (GNI) is more commonly used.
production and the government agencies' budget is
limited, so goals must be carefully chosen. This is
Note
where the study of economics comes in handy.
➢ GDP is geographically focused, including only output
produced within a nation’s borders regardless of
Economists study the decisions made by households,
whose factors are used.
firms, and governments. They also explain how our
➢ For example
economic systems operate, make predictions for the
• Suppose a Japanese firm is operating in the
future and recommend ways to realize favorable
Philippines. Its production and income will be
predictions.
included in the computation of the Philippines'
➢ Thus, to understand the concept of development
GDP (because the production and operations
requires a deep understanding of how the economy
take place inside the country) and
works and how the problem of scarcity is addressed
• In the computation of Japan’s GNP or GNI
by societies. To achieve development is to overcome,
(because the resources used are Japanese-
to a large extent, economic problems of production,
owned). In the same way, if a Filipino firm
consumption and allocation of resources, as
operates in South Korea, the firm’s income will
determined by the choices made by the population,
be part of South Korea’s GDP and the
whether individually or collectively.
Philippines’ GNI.
DEVELOPMENT
GDP per capita (GDP per person) or income per capita
Todaro and Smith (2015) define development as “the
• The expenditure and income of the average person in
process of improving the quality of all human lives
the economy. This is computed as "GDP divided by the
and capabilities by raising people’s levels of living,
number of the population" and is commonly used as a
self-esteem, and freedom.”
measure of a nation’s standard of living.
➢ This means that aside from having increased
income, development also means having improved
quality of life by having more capabilities and
 or two of these central problems have been growing
Economists have traditionally limited the definition of worse, especially if all three have, it would be strange to
development to “achieving sustained rates of growth call the result “development” even if per capita income
of income per capita” in order to produce goods and doubled.”
services at a rate faster than its population growth. Thus,
development usually meant changing the structure of Based on the above questions, Todaro and Smith
production and employment from the agricultural sector to (2015) provide this insight on the definition of
manufacturing and service industries. Agriculture and development:
rural development often suffer as rapid industrialization is “Development must therefore be conceived of as a
being promoted. In short, the emphasis is to increase multidimensional process involving major changes in
production, as measured by GDP, and the problems of social structures, popular attitudes, and national
poverty, discrimination, unemployment and income institutions, as well as the acceleration of economic
distribution are not of primary focus. growth, the reduction of inequality, and the eradication of
poverty. Development, in its essence, must represent the
Other concepts that will be useful for future whole gamut of change by which an entire social system,
discussions are: tuned to the diverse basic needs and evolving aspirations
• Nominal GDP of individuals and social groups within that system, moves
-values the production of goods and services at away from a condition of life widely perceived as
current prices. unsatisfactory toward a situation or condition of life
• Real GDP regarded as materially and spiritually better.”
-values the production of goods and services at
constant prices. THREE CORE VALUES AND OBJECTIVES OF
• Business cycles (economic fluctuations) DEVELOPMENT
the rise and fall of economic activity relative to the SOCIETIES AND INDIVIDUALS
long-term growth trend of the economy • strive to achieve common goals that relate to the
• Expansion (also known as economic growth) fundamental human needs. These three core values
a period when real GDP is growing are sustenance, self-esteem and freedom.
• Recession (or economic contraction)
a fall in the level of real GDP for at least six months, Sustenance: The ability to meet basic needs
or two quarters of the year • The primary purpose of all economic activities of
• Depression production and consumption is to provide for the
a very severe recession needs and wants of the people and to help them
overcome the helplessness and suffering that come
THE NEW ECONOMIC VIEW OF DEVELOPMENT from having deficiencies on food, shelter, health and
• From the previous section you learned that protection.
development has been traditionally narrowly defined • This means that increasing per capita incomes,
as increases in the nation’s production and income, eliminating absolute poverty, providing employment
as measured by its gross domestic product (GDP). opportunities and decreasing income inequalities are
However, the experiences of many developing “necessary but not the sufficient conditions for
countries in the 1960s and 1970s, which worsened in development.”
the 1980s and 1990s, proved that having increases in
the GDP is not enough to improve the lives of their Self-Esteem: To Be a Person
citizens. Despite having high GDP, they still have to • Self-esteem refers to the “sense of worth and self-
deal with the problems of unemployment, inequality respect, of not being used as a tool by others for their
and uneven income distribution. This paved the way own ends.” This may be identified as authenticity,
for the reconsideration of how development is identity, dignity, respect, honor or recognition and its
defined. nature and form varies across societies and cultures.
As the world puts value on material wealth and gives
• Dudley Seers (as cited in Todaro and Smith, 2015) recognition to people who have wealth and power,
posed this assertion to emphasize this need to achieving development is said to be a significant way
have a better definition of development: of having esteem.
“The questions to ask about a country’s development are
therefore: What has been happening to poverty? What Freedom from Servitude: To Be Able to Choose
has been happening to unemployment? What has been • According to Amartya Sen, a Nobel laureate in
happening to inequality? If all three of these have declined economics and leading development thinker,
from high levels, then beyond doubt this has been a “development is freedom”.
period of development for the country concerned. If one
• It involves the ability to free one’s self from social
servitude to nature and other people, oppression,
poverty, among others.
• It means having expanded range of choices and the
ability to pursue such choices.
• For example, to have development is to be able to
enjoy you wish to enjoy like food, travel, leisure as
well as have good access to services like health,
education and transportation. Human freedom also
covers the components of political freedom such as
“personal security, the rule of law, freedom of
expression, political participation and equality of
opportunity.”

The Three Objectives of Development

➢ At this point you may have learned that development
is achieved through a combination of social,
economic, and institutional processes, all for the
attainment of improving people’s lives. Thus, among
the common development objectives for all societies
should be:

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