Chapter 1 Economics Development.pptx

Chapter One
 Topics Included:
 Nature of Economics and Dev’t. Economics
Economic Growth vs Economic Development:
Definition and Measurement
 Goals and Objectives of Economic Dev’t.
 Millennium Development Goals (MDGs)
 Sustainable Development Goals

Discuss Issues
What is your understanding on the
following issues:
 Traditional economics (Neoclassical )
 Political economy
 Development economics

 Nature of Development Economics
Traditional economics (Neo classical )
 Deals with the issues of utility and profit
maximization behavior of economic agents,
market efficiency and equilibrium analysis.
It believes that efficient allocation of scarce
resources can be realized through market
mechanism (with no any government
intervention).
 Political economy
Economic and political elites (the influential
and powerful few) directly influence the
allocation of scarce resources.
This this deals with the role of political power
in economic decision making.

 Development economics
 Goes beyond efficient allocation of existing
scarce resources and;
 requires economic, social, political, and
institutional changes necessary to bring
rapid and large-scale improvements in
levels of living of the peoples;
 Involves transformations of the entire
society to a better level of living.

 It is thus, the study of how economies/
countries are transformed from stagnation
to growth and from low income to high-
income status, and overcome problems of
absolute poverty.
 It studies world development patterns
and disparities and how better
performance are achieved.

World development patterns and disparities
 Why some countries achieved a higher level of
living and well-being while many others are
largely trapped in poverty?
 There are many Less Developed Countries
(LDCs) than Developed Countries (DCs) in the
world.
 A few DCs (dark black on the map) with only
15% of the world population produces 50% of the
world’s goods (GDP) while many more LDCs
(dark gray on the map) with 50% of the world’s
population produce only 15% of the world GDP.

Meaning of Development
Map Showing the distributions of DC and
LDCs

Meaning of Development
 Have you ever visited a foreign country
(developed country in Europe or North
America)? Anyone!
 How does life differ in such countries as
compared to that of LDCs?
 What do you think has brought such
difference in living standards?
 What does development mean to you?

Economic Measures Dev’t
• Traditionally development means;
achieving sustained rates of growth of real
income per capita to enable a nation to
expand its output at a rate faster than the
growth rate of its population.
Note the concept of ‘per capita national
income and “real per capita national
income”.
 The term per capita income is used to capture the
effect of population growth
 The term “real” is used to capture the effect of
inflation.

 It requires growth of per capita income in
excess of inflation (π)- called as growth of
real per capita income
Growth in GDPpc - π > 0, where inflation
rate is π = ΔPrice/Price
 If π > Growth in GDPpc then purchasing
power is falling even when income is
increasing.
 So “development” may not occur even if
GDPpc is growing when inflation growing
even faster.

The New Economic View of Development
 Development is defined as a
multidimensional process involving major
changes in:
- Social structures, popular attitudes,
national institutions, Acceleration of
economic growth, reduction of inequality
and eradication of extreme poverty.
 If income is increasing in a country but
poverty, unemployment, and/or inequality
worsen “it would be strange to call the result
‘development’” (Seers, 1996).

 Thus, Development
 must represent the whole change by which the
entire social system moves away from a
condition of life widely perceived as
unsatisfactory toward a condition of life
regarded as materially and spiritually better.
 Reading Assignment!
 Why Study Development Economics? Some
Critical Questions that necessitated the Study
of Development Economics are listed on
Michael P. Todaro and Stephen C. Smith
Economic Development, 12th edition (2015),
Page 11.. Go through it and you will share the
whole list of the questions in calss.

 Consequently, development economics must
be concerned with the formulation of
appropriate public policies designed to
effect major economic, institutional, and
social transformations of entire societies
in a very short time.
 Economic development strategies that seek to
raise agricultural output, create employment,
and eradicate poverty have often failed in the
past because policy advisers neglected to view
the economy as an interdependent social
system in which economic and noneconomic
forces work together.

Amartya Sen’s Capability Approach to
Define Development
 According to Amartya Sen Capabilities are
the freedoms that people have, given their
personal features and their command over
commodities.
 Amartya Sen (1999) pointed out that
“Development requires the removal of major
sources of unfreedom; poverty as well
domination, poor economic opportunities as
well as systematic social deprivation, neglect of
public facilities as well as intolerance or over
activity of repressive states”.

Development as Freedom
 Development consists of the
removal of various types of lack
of freedom that leave people with
littel choice and little opportunity
for exersicing their reasoned
agency.
 Human freedom tends to
promote freedoms of other kinds:
many different interconnections
between distinct instrumental
freedoms

Three Basic Goals of Development
 Sustenance: The ability to meet basic needs (
food, clothing, and shelter), that are necessary
to sustain an average human being at the bare
minimum level of living.
 Self-esteem: A sense of self-worth or self-
respect and dignity that society enjoys.
 Freedom of choice( to be able to choose) A
situation in which a society has a variety of
alternatives from which to satisfy its wants
and individuals enjoy real choices according
to their preferences.

Three Objectives of Development
to Achieve the Basic Goals
1. To increase the availability and widen the
distribution of basic life-sustaining goods
(food, shelter, health, protection)
2. To raise the levels of living (higher
incomes, more jobs, better education,
etc.)
3. To expand the range of economic and
social choices available

The New Human Development Index
 Human Development Index (HDI) An index
measuring national socioeconomic development,
based on measures of education, health, and
adjusted real income per capita.
 It ranks each country on a scale of 0 (lowest
human development) to 1 (highest human
development), with:
 Low human development (index of 0.0 – 0.499)
 Medium human development (index of 0.5 –
0.799);
 High human development (index of 0.80 – 1.0.)

 The Index is based on three goals or end
products of development:
Longevity:- a long and healthy life as
measured by life expectancy at birth;
 knowledge as measured by a combination of
average schooling attained by adults and
expected years of schooling for school-age
children; and
 a decent standard of living as measured by
real per capita gross

Millennium Development Goals (MDGs)
 In September 2000, the 189 member
countries of the United Nations at that time
adopted eight Millennium Development
Goals (MDGs), committing themselves to
making substantial progress toward the
eradication of poverty and achieving other
human development goals by 2015.
 The question is do the Millennium
Development Goals fit with meanings of
Development we discussed? What about the
targets?(See Todaro page 25)

Millennium Development Goals (MDGs)
The eight MDGs
Goal 1: Eradicate extreme poverty and hunger
Goal 2: Achieve universal primary education
Goal 3: Promote gender equality and empower women
Goal 4: Reduce child mortality
Goal 5: Improve maternal health
Goal 6: Combat HIV/AIDS, malaria and other diseases
Goal 7: Ensure environmental sustainability
Goal 8: Develop a Global Partnership for Development
Data on all countries and their progress toward the MDG
goals at: http://www.mdgmonitor.org/

From MDGs…
 The greatest achievement of the MDGs was to
mobilize broad support for a global development
agenda
 While there was progress on many of the MDGs
in certain areas, the global promise went
unfulfilled by 2015
 Three major criticisms of the MDGs are
(1) it was developed by a small group of experts
and was not member state driven
(2) it is too aid focused/donor driven and
(3) it completely overlooked the issue of inequality

Sustainable Development Goals
 The UN intergovernmental process planned to
begin in September 2014 to agree the successor
framework to the MDGs which were set expire in
2015
 The Post 2015 SDGs go beyond aid and will
address three pillars of Sustainable
Development: Economic, Social, Environmental
 There are currently 17 Focus areas that serve as
the foundation from which the SDG
recommendations will be prioritized

The SDGs are …
 A set of 17 goals for the world’s future,
through 2030
 Backed up by a set of 169 detailed Targets
 Negotiated over a two-year period at the
United Nations
 Agreed to by nearly all the world’s nations,
on 25 Sept 2015

What is new and different about the 17 SDGs?
 First, and most important, these goals apply to
every nation … and every sector. Cities,
businesses, schools, organizations, all are
challenged to act. This is called Universality
Second, it is recognized that the goals are all
inter-connected, in a system. The aim is not to
achieve just one goal, but all. This is called
Integration
Finally, it is widely recognized that achieving
these goals involves making very big,
fundamental changes in how we live on Earth.
This is called Transformation

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 age
4. Ensure inclusive and quality education for all and
promote lifelong learning
5. Achieve gender equality and empower women and
girls
6. Ensure access to water and sanitation for all
7. Ensure access to affordable, reliable, sustainable
and modern energy for all
8. Promote inclusive and sustainable economic
growth, employment and decent work for all

9. Build resilient infrastructure, promote sustainable
industrialization and foster innovation all
10. Reduce inequality within and among countries
11. Make cities 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 the oceans, seas and
marine resources
15. Sustainably manage forests, combat desertification, halt
and reverse land degradation, halt biodiversity loss
16. Promote just, peaceful and inclusive societies
17. Revitalize the global partnership for sustainable
development

Question for discussion
 Q1. Evaluate the SDGs in accordance with
the meaning of Development we discussed.
Do they fit with meanings and definition of
Development discussed above?
 Q2. Evaluate the SDGs in accordance with
GTP of Ethiopia? Are the goals in line with
the SDGs (You can discuss goals by
contextualizing them to the country
situation)?

Characteristics of Developing World
 Defining the Developing World
 Common Characteristics of LDCs
 Duality and the Nature of Markets in LDCs
 Agrarian economy and the need for its
transformation

Defining the developing world and
characteristics of Developing countries
 Per capita income
Several international agencies, including
the World Bank offer classifications of
countries by their economic status.
The most common way to define the
developing world is by per capita income.

In the World Bank’s classification system,
213 economies are ranked by their levels of
gross national income (GNI) per capita.
The cutoff points are:
 Low-income countries- per capita gross
national income in 2011 of $1,025 or less;
 Lower-middle-income countries with
$1,026- $4,035;
 Upper-middle-income countries have
incomes between $4,036 - $12,475; and
High-income countries have incomes of
$12,476 or more

Common Characteristics of Developing
Countries
 Despite the great diversity of developing nations,
most share common problems that define their
underdevelopment.
1. Low levels of living
- Low total and per capita incomes relative to DCs
- Widespread poverty given low incomes and poor
distribution of income.
- Poor health and education; high infant mortality,
low levels of literacy, significant school dropouts,
inadequate and often irrelevant educational
curricula and facilities.
32

Common Characteristics ----continued
2. Low levels of labor productivity : The
explanations:
1. In some LDCs, poor attitudes towards to
work and self-improvement, manual labor,
discipline, low levels of adaptability, work
ethic, and general drive to innovate and
experiment.
2.Poor health and nutrition levels
33

 High levels of population growth and
dependency burdens
 Substantial dependence on agricultural
production and primary-product exports
 Most LDCs oriented to production and
export of primary products rather than
manufactured goods or services.
 Why? What is the implication of this to
economic development?
34

3. Prevalence of imperfect markets and
incomplete information
- Markets do not efficiently function to
equilibrate supply and demand and
determine prices.
- Limited access to necessary information to
make informed economic decisions -
production, consumption, marketing, etc.
35

4. Dependence and vulnerability in international
relations
- Many are small countries with little global economic or
political power which are price-takers in world
markets.
- Subject to “Westernization” pressures (education,
cultural and moral values, food diets and habits). Why
might this be a problem?
- Dependent on imports of food, fuel, and other critical
materials making LDCs vulnerable and being held
economic hostage by developed countries as well as
rich dominating groups within LDCs
36

Lower Levels of Human Capital
 Human capital—health, education, and
skills—is vital to economic growth and
human development.
 We have already noted the great disparities
in human capital around the world while
discussing the Human Development Index.

Higher Levels of Inequality and
Absolute Poverty
 Absolute poverty, which is the situation of
being unable or only barely able to meet the
subsistence essentials of food, clothing,
shelter, and basic health care is common to
all developing countries.

Greater Social Fractionalization
 Low-income countries often have ethnic,
linguistic, and other forms of social
divisions, sometimes known as
fractionalization.
 This is sometimes associated with civil
fighting and even violent conflicts, which
can lead developing societies to divert
considerable energies to working for
political accommodations if not national
consolidation.

Larger Rural Populations but Rapid
Rural-to-Urban Migration
 One of the hallmarks of economic
development is a shift from agriculture to
manufacturing and services.
 In developing countries, a much higher
share of the population lives in rural areas
and massive migration from rural to
urban migration.

Lower Levels of Industrialization and
Manufactured Exports
 Industrialization is associated with high
productivity and incomes and has been a
hallmark of modernization and national
economic power.
 It is not accident that most developing-
country governments have made
industrialization a high national priority,
with a number of prominent success stories
in Asia.

Underdeveloped Markets
 Imperfect markets and incomplete
information are far more prevalent in
developing countries, with the result that
domestic markets, notably but not only
financial markets, have worked less
efficiently.
 In many developing countries, legal and
institutional foundations for markets are
extremely weak.

 Underdevelopment of markets is due to lack of:
legal system that enforces contracts and validates
property rights;
 a stable and trustworthy currency;
 an infrastructure of roads and utilities that results
in low transport and communication costs;
 a well-developed and efficiently regulated system of
banking and insurance;
 substantial market information for consumers and
producers about prices, quantities etc.
 social norms that facilitate successful long-term
business relationships.

As conclusion:
 Economic and social development will often be
impossible without corresponding changes in the
social, political, legal, and economic institutions of a
nation such as;
land tenure systems,
forms of governance,
educational structures,
labor market relationships,
property rights and contract law,
civic freedoms, the distribution and control of
physical and financial assets,
laws of taxation and inheritance, and provision of
credit.

 But fundamentally, every developing country
confronts its own constraints on feasible
policy options and other special
circumstances, and each will have to find its
own path to effective economic and social
institutions.
 Besides to all those factors, Physical size and
population, Historical background of
countries, Physical and human resource
endowment, Ethnic and religious
composition and the relative importance of
the public and private sectors also matters a
lot for economic development.

Individual Assignment
 Instructions
 Write on all of the following questions (Next
slide)
 Try to be very specific(write to the point)
 Use maximum of 8 pages ; more than 8 pages is
not totally acceptable, less is possible.
 Date of Submission on 01/08/2019 or
 It will carry a total mark of 20%

 Q2. Why is a strict economic definition of development
inadequate? What do you understand economic development to
mean? Can you give hypothetical or real examples of situations in
which a country may be developing economically but may still be
underdeveloped?
 Q2. How does the capability approach to development help us
gain insight into development goals and achievements? Is money
enough? Why or why not?
 Q3. Discuss the Human Development Index as an indicator of
development What are strengths and weaknesses of the Human
Development Index as a comparative measure of human welfare?
 Q4. For all of their diversity, many less developed countries are
linked by a range of common problems. What are these
problems? Which do you think are the most important? Why?

Chapter 1 Economics Development.pptx

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Chapter 1 Economics Development.pptx