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7/31/2019 Intro to Economics - Development Econ
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Development Economics
Dr. Katherine Sauer
A Citizens Guide to Economics
ECO 1040
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Most of the people in the world do not have an acceptable
standard of living.
- access to food
- access to clean water- adequate housing
- job opportunities
- access to health care
- education
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Why should you care?
Countries are linked together by trade, finance, theenvironment, migration, disease, etc
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Poverty
The Cycle of Poverty:
Low
Income
Low
Savings
Low
Investment
Low
Consumption
LowProductivity
Where could the cycle be broken?
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Hunger
Hunger is an extreme manifestation of poverty.
There are about 900 million undernourished people in the
world.
The vast majority live in developing nations.3/4 live in rural areas.
The majority are women.
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hunger
low
availability
of food
low access to
food (economic
or physical)low food
production
low
imports of
food
poverty
interrupted
access to
markets
The Relationship Between Poverty and Hunger:
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Globally, there is more than enough food produced tonourish everyone.
There is an unequal distribution of food within and across
countries.
Most food emergencies are caused by natural disasters,
conflicts, or economic crisis.
Poverty makes people more vulnerable to any emergency.
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What can be done?
Short Run:- public food distribution
- food-for-work programs
Long Run:- irrigation projects (prevent consequences of
drought)
- improve rural roads (improve access to markets)
- government policies to decrease unemployment
- government policies to grant land ownership
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There is no formula for making poor countries rich.
We do have an understanding of some key things that
rich countries have in common.
- stages of economic development- human capital
- health issues
- property rights
- effective government institutions
- openness to trade
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Stages of Economic DevelopmentPre-Industrial
leading sector
production process
consumer products
major factor that
influences
economic growth
- agriculture
- human-nature interaction
- labor and natural resource intensive
- food
- handmade clothing
- natures productivity
(fertile soil, rainfall, etc)
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Industrial
leading sector
production process
consumer products
major factor that
influences
economic growth
- industry
- human-machine interaction
- capital intensive
- manufactured goods
- labor productivity
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Three Broad Objectives of Sustainable Development
Social- full
employment
- equity
- security
- education
- health
Economic- economic
growth
- efficiency
- stability
Environmental- healthy
environment to
live in
- rational use of
non-renewable
resources
- conservation ofrenewable
resources
The challenge is to balance all three at once.
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Foreign Aid: (humanitarian or development)
- 2 types of sources
- government
- private
Government- national government bilateral aid programs
(ex: US Agency for International
Development or the OECDs Development
Assistance Committee)
- international institutions
(ex: World Bank or IMF)
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Private
- charitable organizations
- nongovernment organizations (NGOs)
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2 common types of aid:
official development assistance (ODA)grants or loans
provided on concessional financial terms (with a grant
element of at least 25%) by the official sector withpromotion of economic development and welfare as the
objective
tied aidODA that is used by the donating country tobuild infrastructure or buy goods/services
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2007 ODA
(millions ofUS dollars)
Source: OECD
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In 1970, at the UN General Assembly, rich nations pledged to
spend 0.7% of their Gross National Income on ODA.
2007 ODA
as a share of
GNI
Source: OECD
I 2005 h EU l d d d 0 56% f G N i l I
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Source: OECD
In 2005, the EU pledged to spend 0.56% of Gross National Income
on poverty reduction by 2010 and 0.7% by 2015.
Other OECD countries are targeting 0.35% of GNI.
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Source: OECD
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Does aid make a difference in development?
- 4 views on the link between aid and economic growth
1. It has been argued that aid is needed to break poor
countries out of the poverty trap.
- Developing nations often lack a minimum
amount of capital (infrastructure, human capital,public administration) to support modern
economic activity.
Key to breaking the poverty trap is investment inphysical and human capital.
Funds for investment have to come from external
sources.
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2. There is a positive relationship between economic
growth and aid, but the returns to aid are diminishing.
- limits to absorptive capacity and other constraints- type of aid matters
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3. The effect of aid depends on
- quality ofpolicies and institutions
- country characteristics
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4. There is no effect of aid on growth (or negative effect).
- unproductive projects
- graft / corruption- pressure on currency to appreciate
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What did you learn today?
Please explain 2 concepts from todays class.