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Lecture 32

Lecture 1

What is Development Economics?

• Use of economic analysis, methods and tools to understand the problems, constraints and opportunities facing developing countries

– Causes of poverty – Roads to escape poverty – Development and growth over time

• Theoretical and empirical work

• We study the economic, social, political and institutional mechanisms that lead to development and transformation of the economies

CAN YOU GIVE EXAMPLES OF DEVELOPING COUNTRIES?

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What is Development Economics? continued

• How do people achieve material opportunities to live an acceptable life? (and what is acceptable anyway?)

• We discuss broad tendencies and stylized facts, that depend on the context of each country. We have no (or few) universal laws….

• We want to: – Achieve a better understanding of the problems

of poor countries– Achieve a better understanding of how to apply

economics– Answer policy questions

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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 well-being, more broadly

understood

• The Central Role of Women– To make the biggest impact on development, societies

must empower and invest in women

• Amartya Sen’s “Capability” Approach

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Why Study Development Economics?

1. Moral and ethical reasons– Poverty is unfair– Inequality is unfair (at least at current levels) – Development is human right

2. Our own welfare– Global interactions (wars, environment, refugee)– Global coexistence– Trade and investment

3. Private interests– Job prospects– Perspectives on economics, common allround

knowledge4. Intellectuel curiosity

– What causes inequality and poverty and what can be done?

– Why do some countries grow and others don’t?

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Lecture 2

Comparative Economic Development

Common Characteristics of developing countries

• Lower levels of living and productivity• Lower levels of human capital• Higher levels of inequality and absolute poverty• Higher population growth rates• Greater social fractionalization• Larger rural population- rapid migration to cities• Lower levels of industrialization and manufactured exports• Adverse geography• Underdeveloped financial and other markets• Colonial legacies- poor institutions etc.

Some Basic Indicators of Development

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

– HDI also varies for groups within countries– HDI also varies by region in a country – HDI also reflects rural-urban differences

Lecture 3

Characteristics of the Developing World: Diversity within Commonality

10 Characteristics of the Developing World: Diversity within Commonality

• 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

10 Characteristics of the Developing World: Diversity within Commonality

• 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

Low Income Countries Today And Developed Countries Then

• Eight differences – Physical and human resource endowments– Per capita incomes and levels of GDP– Climate– Population size, distribution, and growth– Historic role of international migration– International trade benefits– Scientific/technological research – Efficacy of domestic institutions

Lecture 4

Measuring Economic Growth and Development

The Process of Economic Development

Is Development synonymous simply with Economic Growth?

Different Development Goals of Society • Equality of opportunity• Rising income and standard of living• Equity in the distribution of income and wealth• Political democracy and wide-spread participation• Expanded role for women, minorities and all social classes

in public life• Increased opportunities for education and self-

improvement• Expanded availability of and improvements in health care• Public and private safety nets to protect the vulnerable• A clean and healthy environment• Efficient, competent and fairly administered public sector• A reasonable degree of competition in the private sector

Measuring Economic Growth and Development

What is the criterion for development?1. The economic growth / income criterion:

GNP, GDP, rate of growth• Simple and easy to use• Yet does it really capture development?

2. The indicators criterion: e.g. Human Development Index (HDI), PI, GDI, GPI

• More comprehensive and realisitc• Yet difficult to measure and use for international

comparisons

Lecture 5

Human Development Approach and Capability Approach: Concepts and Evolution

HD Approach• HD approach differ from other approaches in three

important ways-- definition of ends and means--concern with human freedoms and dignity--concern with human agency i.e. the role of people in

development There are several implications in adopting HD approach and

framework as compared to other approaches-- The focus of policy can not be based merely on the

generation of more and more income. How additional income is used, and the degree to which it improves the quality of people’s lives must be given equal weight.

Measuring Economic Growth and Development - Human Rights

ApproachLecture 6

Human Rights Approach• standard of living, education, protection of the family,

democracy, participation, rule of law, and protection against enslavement, torture, cruel or inhuman or degrading treatment or punishment.

• Subsequent human rights conventions have translated these human rights into legally binding form (under human rights international law).

• First generation rights (civil, political), second generation: economic, social, cultural

• Legally binding international treaties provide more specific protection to particular groups (e.g. women and children) and in relation to particular violations (e.g. slavery and racial discrimination)

Human Rights Approach• The primary burden for upholding human rights is assigned

to nationa-states or governments. • Coordination with others:NGOs,national institutions, other

countries, international organizations• What are the obligations of nation states? More than 150

countries have promised to defend the core civil, political rights and social, cultural, economic rights recognized in international human rights law.

• Three types of obligations: (a) to respect human rights; (b) to protect human rights; (c) to promote human rights

• International recognition of individual and collective obligations was underlined by the adoption of the Declaration on the Right to Development by the UN General Assembly in 1986

2. Economic Development – Basic Need Approach or Physical

Quality of Life Approach

Lecture 7

The following aspects are analyzed under basic needs approach,:

• (i) How much goods and services are produced?

• (ii) What goods and services are being produced?

• (iii) How goods and services are being produced?

• (iv) What will be the effects of production and distribution on the society?

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Measurement of Economic Development with Good Governance and Humane

Governance Index

Lecture 8

Types of Good Governance:

The good governance has three types:

(1)Good political governance

(2)Good civic governance and

(3)Good economic governance

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1. Re-Distribution with Growth (RWG)

Lecture 9

Theories or Methods of Income Distribution:(1) To enhance the growth of GNP by raising the savings, and

allocate the resources in a better way so that all the sections of the economy could be equally benefited.

(2) To take steps to get education, loans and other public

services for the poorest sections of the society.

(3) The fiscal systems of the countries be devised in such a way that the distribution of income could move in favor of the poor class.

(4) The existing assets of the countries be mobilized in favor of the poorest class as the case of taking up Land Reforms.28

MILLENIUM DEVELOPMENT GOALS (MDGs)

A global agenda for developmentLecture 10

MDG FRAMEWORK

― COMMITS INTERNATIONAL COMMUNITY TO AN EXPANDED VISION OF DEVELOPMENT

― PROMOTES HUMAN DEVELOPMENT AS KEY TO SOCIAL AND ECONOMIC PROGRESS

― CREATES GLOBAL PARTNERSHIP FOR DEVELOPMENT

― CONSOLIDATES TARGETS ESTABLISHED BY INTERNATIONAL CONFERENCES INTO EIGTH ESSENTIAL GOALS

― FIRST SEVEN MUTUALLY REINFORCING, AIMED AT REDUCING POVERTY IN ALL FORMS

― EIGTH GOAL – GLOBAL PARTNERSHIP FOR DEVELOPMENT – IS ABOUT MEANS TO ACHIEVE FIRST SEVEN – “A GRAND BARGAIN”

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Theories of Economic Development - 1

Lecture 11

Nurkse's Model of Vicious Circle of Poverty (VCP) and Economic

Development

Theories of Economic Development - 2

Lecture 12

Big Push Theory By Rosenstein Rodan

Definition and Explanation:

The Big Push Theory has been presented by Rosenstein Rodan. The idea behind this theory is this that a big push or a big and comprehensive investment package can be helpful to bring economic development. In other words, a certain minimum amount of resources must be devoted for developmental programs, if the success of programs is required.

Theories of Economic Development - 3

Lecture 13

W.W. Rostow's Stages of Economic Growth:W.W. Rostow was an American economist who presented

'Stages of Growth' model of development. According to Rostow,

the process whereby all the developed industrial nations of the world transformed themselves from backwardness to prosperity can be described in terms of a series of stages.

These stages of economic growth are:(1)Traditional society, (2) Pre-conditions to take-off, (3) Take-off, (4) Drive to maturity, (5) High mass consumption. They are discussed below:

Theories of Economic Development - 4

Lecture 14

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Leibenstein's Critical Minimum Effort

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Harvey Leibenstein is of the view that UDCs are characterized by vicious circle of poverty (VCP) which keeps them around a low income per capita equilibrium state. The way out of this impasse is a certain 'Critical minimum effort' which would raise the per capita to a level at which sustained development could be maintained.

In other words, a UDC will have to introduce 'Stimulus' in an amount which should be more than a critical level for the sake of change.

Leibenstein says that every economy is subject to 'Shocks and Stimulants'. A shock has the impact of reducing the per capita income initially; while a stimulant tends to increase it.

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Dualism and the Concept of Dual Societies

Lecture 15

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Definition of Dualism

Dualism is a concept which represents the existence and persistence of increasing divergences between rich and poor both at world level and at country levels.

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Dualistic Theories

Lecture 16

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There are different theories which are of the view that the poverty and underdevelopment of poor countries is attributed to their dualistic character.

(1)Social Dualism, (2) Technological Dualism and

(3) Financial Dualism.

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Technological Dualism

Lecture 17

Definition and Explanation:Professor Higgins has developed the theory of

Technological Dualism.

"The use of different production functions in the advance sector and in the traditional sectors of UDCs".

Rural-Urban Migration Model

Lecture 18

1. Lewis Model of Unlimited Supply of Labor

Arthur Lewis in the mid 1950s presented his model of unlimited supply of labor or of surplus labor economy.

By surplus labor it means that part of manpower which even if is withdrawn from the process of production there will be no fall in the amount of output.

Fei-Ranis (FR) Model of Dual Economy

Lecture 19

The two economists John Fei and Gustav Ranis presented their dual economy model.

There was a flaw in Lewis model that it did not pay enough attention to the importance of agriculture sector in promoting industrial growth.

But Fei-Ranis (FR) model of dual economy explains how the increased productivity in agri. sector would become helpful in promoting industrial sector.

In this respect, it presents three stages whereby a UDC moves from stagnation to self-sustained economic growth.

Thus, this model is treated as an improvement over Lewis model of unlimited supply of labor.

Michael P. Todaro's Model of Rural-Urban Migration

Lecture 20

In case of UDCs it is being observed that inspite of heavy unemployment and under employment in urban areas a big migration is taking place from rural areas to urban areas.

This situation contradicts Lewis model. As during 1960s to 1970s the urban population increased by 60%, 52% and 51% in Africa, Latin America and South Asia respectively.

While in these regions the rural population increased by 16%.

This shows that the massive unemployment exists in the urban areas of these regions.

This, according to Todaro, is due to that mobility and migration which is taking place from rural areas to urban areas. Thus, the Todaro model of rural-urban migration states:

"Despite mass unemployment in cities people are migrating from villages to towns and cities".

Agriculture and Economic Development

Lecture 21

Economics of Agricultural Development/Stages of Agricultural

Development

Lecture 22

Transformation from Peasant Subsistence Farming to Specialized Farming:

In respect of agri. production and agri. development the economists present three stage, which are as:

(1) The subsistence farming: It is most primitive type of farming which is characterized with low productivity and the produced output is just for the sake of subsistence.

(2) The mixed farming: Where the farmers not only produce for their personal consumption but also for the sale in the market.

(3) The commercialized farming: In such stage of farming the agri. productivity is higher and whole of the produced output is sold in the market. Now we discuss them in a turn.

Strategy for Agricultural and Rural Development

Lecture 23

Most of the developing countries of Asia, Africa and Latin America are passing through stage I to stage II.

They have to face a lot of problems in their agri. sector whereby agri. sector fails to contribute to their development.

The economists present a lot of proposals whereby the agri. sector would be able to play its dynamic role in the development of poor countries.

They are as:

(1) Improving Small Scale Agriculture - Technology and Innovation

(2) Institutional and Pricing Policies - Providing the Necessary Economic Incentives

Role of Agriculture in Economic Growth

Lecture 24

Land Reforms or Agrarian Reforms

Lecture 25

Meaning and Definition:

The land reforms or agrarian reforms means all those measures which are aimed at removing those obstacles which are responsible for keeping the agriculture sector backward socially and economically.

Through these measures not only changes will be brought in the use and the distribution of the land, but the relationships between land lords and tenants will also be improved.

Thus due to land .reforms govt. gets legal right over the possession of the lands of people (big landlords).

However, in this connection govt. pays the compensation, in certain cases.

Green Revolution (GR)

Lecture 26

When better and superior seeds are used; the fertilizers, pesticides, herbicides and sprays are used; and the farm machinery like tractors, harvesters, tube wells and threshers etc., are used to enhance the agriculture output and agri. productivity - such all is given the name of Green Revolution (GR).

Thus because of GR, the high yielding seeds, fertilizers, agri. machinery water and better technology will become available.

Consequently, the production function for any crop or crops will shift upward in agriculture sector leading to increase the agri. output.

Problems/Demerits of Green Revolution (GR)

Lecture 27

Apparently this scheme of GR looks very attractive that it will lead to bring a revolution in agri. But Prof. Hala Mynit has presented a lot of problems regarding GR.

(1) Technical Problems:

(2) Organizational Problems:

(3) Central Economic Issues:

(4) Side Effects of Green Revolution:

Human Capital: Education and Health in Economic

Development

Lecture 28

Poverty, Inequality, and Development

Lecture 29

Trade Policy in Developing CountriesTrade Policy in Developing Countries

Lecture 30Lecture 30

Policies

• Import-Substituting Industrialization• Problems of the Dual Economy• Export-Oriented Industrialization: The East Asi

an Miracle

Foreign Aid for Development Assistance

Lecture 31

Revision

Lecture 32