ECON317: ECONOMIC GROWTH AND

DEVELOPMENT I

Lecturer: Dr. Adu Owusu Sarkodie

[email protected]

Department of Economics

11/3/2024 1
 Session Overview
We shall begin this course by asking the following
questions in this lecture: what is development and
what is it all about? How to think about it? And why
does it matter? In seeking to answer these questions,
we will discuss some of the many definitions of
development. We shall also discuss what is
distinctive about sociological approaches to
development, whether it is desirable to approach
development from a multi-disciplinary perspective,
and what the current state of development studies is.
Slide 2
 Session Outline
The key topics to be covered in the session are as
follows:
Part 1: Difference between economic growth and
development

Part 2: Indicators used to measure development

Part 3: Characteristics of the developing world

Part 4: The sustainable development goals

Slide 3
 Session Learning Objectives
• At the end of the session, the student will

• Introduce the students to the course,

learning outcomes, guidelines, instructions,
and the reading materials

• Study the concept of development, know

how it is measured and the advantages of
studying development
Slide 4
Topic One

DIFFERENCE BETWEEN ECONOMIC

GROWTH AND DEVELOPMENT
Slide 5
 Economic Growth
vs
Economic Development
• How do we measure economic growth?

• How do we measure economic

development?

• What is the link between economic

growth and development?

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 Economic Growth
• This refers to increases in economic
activities.

• It is measured by the growth of Gross

Domestic Products (GDP) and growth of
GDP per capita

• For it to be impactful, economic growth

must be sustained for a long time.
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 Fundamental questions
• How do we explain differences between rich and
poor regions of the world?

• Fundamental to these, are the following

questions:

• Why are some countries much poorer than

others?

• Why do some countries achieve economic growth

while others stagnate?

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 What causes economic
growth?

Gross capital formation Barriers to trade

Geographic endowments Levels of infrastructure

Technological innovation Political stability

Institutions Macroeconomic stability

Culture Climate

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 Meaning of Economic Development
• Economic development goes beyond economic growth

• Economic development refers to improvement in the

standard of living.

• Evidently, the primary objective of nearly every

country in the world is to achieve economic
development: – raising the well-being and social
capabilities of persons resident in these countries.

• How do we assess how much development has

occurred over a period of time?

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• Economic growth definition is restrictive, as it limits the term to
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.

• The development experience of industrialized countries suggests

that development is seen as a planned alteration of the structure
of production and employment

• Such that agriculture's share of both GDP and employment

declines and that of the manufacturing and service sectors
increases.

• In other words, development must be characterized by Structural

Changes.
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• Development was earlier thought of as an economic
phenomenon in which rapid gains in overall and per
capita GNI growth would “trickle down” to the masses
in the form of jobs and other economic opportunities
or create the necessary conditions for the wider
distribution of the economic and social benefits of
growth.

• In 1950s and 60s, many developing countries reached

economic growth targets but levels of living of the
masses remained for the most part unchanged,
signaling that there was something wrong with this
narrow definition of development.
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• In the 1970s, broader definition to include reduction or elimination
of poverty, inequality, and unemployment within the context of a
growing economy

• The question to ask about a country's development are therefore:

• what has been happening to poverty?
• What has been happening to unemployment?
• What has been happening to inequality?

• If all three of these have declined from high levels, then beyond
doubt this has been a period of development for the country
concerned. If one or two of these central problems have been
growing worse, especially if all three have, it would be strange to
call the results “development” even if per capita income doubled.

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• The link between economic growth and development
have shifted from the top-bottom approach (growth
to develop)

• To the bottom-up approach which is to empower the

poor and the vulnerable to participate in the growth
process.

• Some of these bottom–up approaches include the

introduction of social intervention programmes such as
education, health, rural development, rural
electrification, among others
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• Economic development must incorporate other aspects of
the social, economic and political dimensions of societies,
not captured by the per capita income measure.

These other aspects will typically include the following:

• the removal of poverty and undernutrition,
• reduction in inequality, mortalities, and unemployment,
• avoidance of discrimination,
• access to sanitation, clean drinking water, and health
services,
• slow rate of growth of the population,
• political and social freedoms, etc.
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 Income and Happiness: Comparing Countries

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 How the Other Half live
• An overview of living conditions around the world
reveals a situation of stark inequality.

• As people throughout the world awake each morning

to face a new day, they do so under different
circumstances.

• Can you imagine what different circumstances people

throughout the world face when they wake to face a
new day?

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When one is poor, she has no say in public, she feels
inferior. She has no food, so there is famine in her
house; no clothing, and no progress in her family.
—A poor woman from Uganda

For a poor person everything is terrible—illness,

humiliation, shame. We are cripples; we are afraid of
everything; we depend on everyone. No one needs us.
We are like garbage that everyone wants to get rid of.
—A blind woman from Tiraspol, Moldova

Life in the area is so precarious that the youth and

every able person have to migrate to the towns or join
the army at the war front in order to escape the
hazards of hunger escalating over here.
—Participant in a discussion group in rural Ethiopia
 How the Other Half Live
• When food was in abundance, relatives used to share it. These days of hunger,
however not even relatives would help you by giving you some food.
—Young man in Nichimishi, Zambia
• We have to line up for hours before it is our turn to draw water.
—Mbwadzulu Village (Mangochi), Malawi
• [Poverty is] . . . low salaries and lack of jobs. And it’s also not having medicine,
food, and clothes. --Discussion group, Brazil
• Don’t ask me what poverty is because you have met it outside my house. Look at
the house and count the number of holes. Look at the utensils and the clothes I
am wearing. Look at everything and write what you see. What you see is poverty.
—Poor man in Kenya
• A universal theme reflected in these seven quotes is that poverty
is more than lack of income – it is inherently multidimensional, as
is economic development.
 What is Development?
• Important to first distinguish between:
a. Development as a state or condition-static
b. Development as a process or course of change-
dynamic

• Development is not purely an economic

phenomenon but rather a multi-dimensional
process involving reorganization and reorientation
of entire economic AND social system
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• Development the is process of improving the
quality of all human lives with three equally
important aspects.

• Three Core Values of Development

1. Sustenance: The Ability to Meet Basic Needs. Raising
peoples’ living levels, i.e. incomes and consumption,
levels of food, medical services, education through
relevant growth processes
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 2. Self-Esteem: To Be a Person. Creating
conditions conducive to the growth of peoples’
self-esteem through the establishment of
social, political and economic systems and
institutions which promote human dignity and
respect

3. Freedom from Servitude: To Be Able to

Choose. Increasing peoples’ freedom to choose
by enlarging the range of their choice variables,
e.g. varieties of goods and services
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 Economics and Development Studies

• Economies as Social Systems: The Need to

Go Beyond Simple Economics
• Social Systems
– Interdependent relationships between economic and
non-economic factors
• Success or failure of development policy
– Importance of taking account of institutional and
structural variables along with more traditional
economic variables
Topic two

MEASURING ECONOMIC
DEVELOPMENT
Slide 26
 What Do We Mean by Development?

• Traditional Economic Measures

– Gross National Income (GNI)
– Income per capita
– Utility of that income?
• The New Economic View of Development
– Leads to improvement in wellbeing, more broadly
understood
• Amartya Sen’s “Capability” Approach
– Functionings as an achievement
– Capabilities as freedoms enjoyed in terms of functionings
– Development and happiness
– Well being in terms of being well and having freedoms of choice
 Basic Indicators / measurement of
Development

1. Gross Domestic Product (GDP) or per capita GDP

2. Gross National Income (GNI) per capita GNI
3. Purchasing Power Parity (PPP): the use of real
exchange rate instead of the nominal exchange
rate.
4. Human Development index (HDI)
5. Capability Approach
6. Poverty, inequality, gender parity, peace &
security ,etc
 1. Gross Domestic Product (GDP) or
per capita GDP
• GDP measures the monetary value of all
goods and services produced in a country at a
given time.

• GDP divided by the population results in GDP

per capita.

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 2. Gross National Product (GNP) or per
capita GNP
• GNP measures the monetary value of all goods
and services produced in a country at a given time
by only the nationals of a country.

• We subtract the contribution by foreigners and

add the contribution by nationals abroad
• GNP = GDP + net factor income abroad

• GNP divided by the population results in GNP per

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 3. Purchasing Power Parity (PPP)
▪ It measures the value of $1 in different
countries. In other words, what can $1 buy?

▪ The use of real exchange rate instead of the

nominal exchange rate.
• RER = E (P*/P)
Where E is the nominal exchange rate
P* is the foreign price
P is the domestic price and

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 4. Human Development index (HDI)

• Health
• Life Expectancy
• Education
• HDI as a holistic measure of living levels
•

• HDI can be calculated for groups and regions in a

country
– HDI varies among groups within countries
– HDI varies across regions in a country
– HDI varies between rural and urban areas
11/3/2024 ECON 317 36
 5. The Capability Approach

• It views development as freedom

• Freedom / opportunities to live the desired life
• It recognizes inequality in the resources needed to live a
meaningful life.
– Being well-clothed
– Being mobile
– Being able to take part in the life of the community
– Being happy – as a state of being - may be valued as a
functioning

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 Poverty, inequality, gender parity,
peace & security ,etc
• Some view development as living above the
poverty.
• Other economists are interested in how income is
distributed
• There are others who are interested in how
resources are distributed between males and
females.
• Many view development as the presence of peace
and security, among others
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Topic three

CHARACTERISTICS OF THE
DEVELOPING WORLD
Slide 39
Characteristics of the Developing World
1. Lower levels of living and productivity
2. Lower levels of human capital (health,
education, skills)
3. Higher Levels of Inequality and Absolute
Poverty
–Absolute Poverty
–World Poverty
4. Higher Population Growth Rates
–Crude Birth rates
 Characteristics of the Developing World
cont’d
5. Greater Social Fractionalization
6. Larger Rural Populations but Rapid Rural-to-
Urban Migration
7. Lower Levels of Industrialization and
Manufactured Exports
8. Adverse Geography
– Resource endowments
 Characteristics of the Developing World cont’d

9. Underdeveloped Financial and Other

markets
– Imperfect markets
– Incomplete information
10. Colonial Legacy and External Dependence
– Institutions
– Private property
– Personal taxation
– Taxes in cash rather than in kind
Topic four

SUSTAINABLE DEVELOPMENT

Slide 43
 Sustainable Development Goals
(SDGs)

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 Assignment 1

• Assess Ghana’s performance in achieving the

Sustainable Development Goals (SDGs).

• Type in Times New Roman, font size 12, double spaced,

and not more than 1,000 words.

• To be submitted on 19th November 2024, in Class.

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