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Assignment 1:

Review the theoretical / empirical literature on (economic) development and list out the 25 most
important citations from both books and articles. Write one small paragraph for each citation. This
should cover both historic and present context.

This assignment is structured into three sections in the following manner;

The important citations on,
1) the evolution of the concept of development is discussed first.
2) the theories of development are discussed next where the question of how
development occurs is addressed.
3) the empirics which mainly concentrate on other contributing factors to development

are presented in the last section.

The concept of (economic) development has evolved with the progression of the society. This
is clearly visible from the changes in the concept development along the course of time. The
important citations are briefly discussed below.
Concept of Development

Adam Smith
An Inquiry into the Nature and Causes of Wealth of Nations (1776)
Although the word development does not appear in it, in a way, this entire book is
about economic development or economic progression. Particularly the Book III (Of
the different progress in opulence in different nations) is devoted to investigate why
some countries are more developed - as per the meaning of the word in those days than the others. It was a time of transition from feudalism to capitalism and the
development was purely a matter of material wealth accumulated by a nation.
Therefore, though it is not often cited as a source in contemporary development
literature it would be a great injustice to ignore and abandon this masterpiece.


David Ricardo
The Principles of Political Economy and Taxation (1817)
Ricardo (and the classical school economists) believed that development can only be
achieved, if at all, through increasing the capital. The accepted notion then, was that

when the population increases with limited number of acres of arable land, the law
of diminishing marginal returns gets into the picture and result in economic
stagnation if not economic decline. The effects of technological advancements were
Therefore one can safely argue that Ricardo did not perceive any development other
than economic growth and his idea of possible economic growth was also bleak.
His impression was economic stagnation and decline rather than any possible kind
of development.

Karl Marx
The Capital (Das Kapital)
The views of Karl Marx are important as they offer an entirely different perspective
on development from the mainstream economics. Marx rejected the views of
political economy. The Marxist views cannot be identified as direct opposites (180
degrees opposed) to the classical economic thinking but they are indeed different
plane of thinking. Marx presented stages of (economic) development that a country
would undergo. These stages are based on the modes of production, i.e. the
relationships among the factors of production and how the production is carried out.
1. Primitive communism

2. Capitalism

3. Slavery

4. Socialism

5. Feudalism

6. Communism

According to Marx the ultimate development was perceived as the communist state
and his ideas of development was based on both economic as well as social
development. As far as the capitalist economic development through capital
accumulation and reinvestment is concerned Marx viewed the accrued capital as the
surplus produced by the labour and exploited by the capitalist class. He did not
believe in such a development and said that it would crash down sooner than later.
His view was that when the capitalism crashes down as a result of the revolution
against it by the working class the socialism would emerge and that would pave the
way for communism which is the ultimate form of development that can be
achieved. According to him the communism is characterized by features such as,
statelessness, propertylessness and classlessness.


W. W. Rostow
The Stages of Economic Growth A Non-Communist Manifesto (1960)
The basic intention of Rostow was to present a thesis on how development takes
place as a step by step gradual process and in doing so he has provided some
valuable insights to what he would have referred to as development. According to
him the final stage in the development process is the Age of high mass
consumption, which can be thought of as the state of development in his view. It
is characterized by,

Increase in real income and a large number of people getting a command

over their consumption beyond the basic needs

Increase in urban population and also increase in the proportion working in

offices and factories and in more skilled-jobs.

Shift of focus of the society from technological advancement to social

welfare and security.

Therefore it is evident that Rostow had perceived development as economic growth

coupled with improved working conditions and better distribution of wealth.

David McClelland
The Achieving Society (1961)
According to his view development is a kind of overall modernization and is not
confined to an economic phenomenon; it encompasses institutional factors and
social change as well. These include social practices, beliefs, values, psychological
issues, political issues and customs. Development requires removal of certain
cultural and social barriers and these backward internal structures are bigger
obstacles in the course of development than the external factors. Also diffusion and
speed of change are important in the development process. Modernization
incorporates inculcating wealth oriented behavior and values in individuals and
investment in education and skills training.
These views have been further expanded by authors like Lipset, Inglehart and
Welzel with concepts such as democracy and modernization.
It has been criticized for being Eurocentric.


Dudley Seers
The Meaning of Development (1969)
Seers was the first to present a definition for development going beyond the
traditional per capita income approach formally. There have been discussions among
the academic community about the inadequacy of the traditional measures to paint a
completed picture of the level of development of a particular country even before
Seers but it was him who for the first time conceptually defined development going
beyond mere economic growth. To him, development entails the improvements in
the level of poverty, unemployment and inequality apart from national income.


Denis Goulet
The Cruel Choice: A New Theory in the Concept of Development (1971)
Goulet stated that development is not only a matter of economics. According to him
the state of underdevelopment is a sense of personal and societal impotence in the
face of calamity. Therefore development is a multidimensional process that requires
changes in social structures, attitudes and institutions as well as in economic growth.
Adding another dimension to the quest of development Denis Goulet brought-in the
concepts of ethics and values to the development literature. Therefore the primary
question of development must be ethics. This was also an addition of a sub field into
development economics.


Hollis B. Chenery
Patterns of Development 1950-1970 (1975)
Chenery and his colleagues studied the patterns of development for a number of
developing countries during the postwar period and found the development to be
owing to structural changes in the realms of both economic functions and
socioeconomic factors. In that sense this view of development differs from that of
Arthur Lewis where only the structural changes in relation to the economic factors
are considered. Therefore Chenery perceived development as progression through
transformation in production processes, composition in consumer demand,
international trade, resource usage as well as urbanization and growth and
distribution of the population. That means his perception of development includes,
in addition to economic growth, changes in the social structures and demography.


Robert Chambers
Rural Development - Putting the Last First (1983)
Chambers has suggested that the development policy should be centered on the poor
and marginalized segments of the society. According to him, development stems
from the reduction of poverty and uplifting of living standards of the rural
With G. R. Convey, in 1991, he presented the first elaborate definition of sustainable
livelihoods, which reads as,
. A livelihood comprises the capabilities, assets (stores, resources, claims and
access) and activities required for a means of living: a livelihood is sustainable
which can cope with and recover from stress and shocks, maintain or enhance its
capabilities and assets, and provide sustainable livelihood opportunities for the next
generation; and which contributes net benefits to other livelihoods at the local and
global levels and in the short and long term.
This is a new way of thinking of the eradication of poverty; going beyond the
traditional manifestations and provide valuable guidelines for digging deeper into
the problem of underdevelopment and how to counter it.


World Commission on Environment and Development

Brundtland Report (1987)
The concept of Sustainable Development was popularized in the development
doctrine after this report. The term sustainable development says that the present day
needs of the man-kind should be satisfied without compromising the ability of the
future generations to satisfy their own needs. It has added the concerns about the
ecological system into the development thinking but not limited to it. It requires
changes to be brought in various aspects of life covering the physical needs of the
population, social and cultural values that determine the consumption, the direction
of technological development and demographic issues. For example, it requires
economic growth where the essential needs are not yet fully satisfied. High levels of
production can coexist with widespread poverty if the distribution is not equitable.
Such problems can harm the environment and should be eliminated. Similar pattern
of thinking is needs to be applied in other areas as well. It concerns more with the
quality of growth.


Amartya Sen
Development as Freedom (1999)
Sen is perhaps the leading thinker on the meaning of development. According to
him the development means the capability to function as per the wishes of a
person (in a society) and that capability distinguishes between the poor and the nonpoor. Here functioning means either doing something or being someone; for
example, being healthy, well- nourished, having self-esteem, participating in the
community are all included in functioning. Capabilities refers to the freedom that
a person has in terms of functioning, given his personal features / characteristics. In
a nut shell, according to Sen, development means the notion of people being able to
be what they want to be, and being content with that. This covers a whole lot of
human needs ranging from physical needs to emotional needs.


United Nations Development Programme (of UNO)

Human Development Reports (annual series)
The UNDP measures the development of according to the New Human
Development Index (New HDI) formulated by them. This is a composite measure of
development that takes into account the progression of various aspects of human
life. According to this the development is viewed as a combination of material
wealth, health and education. A number of proxies have been taken in order to
reflect these aspects and different weights have been assigned to them when
calculating the final value for the index. However, when developing an index data
limitations and simplicity of calculation also play certain roles and this has been the
case with NHDI too. Therefore it may not portray the picture of development that
goes with the newest or the most current progresses in development thinking. What
is important to note here is that the global perspective on development has been
changing and expanding continuously.


Michael P. Todaro
Development Economics (2012)
According to Todaro, development is a multidimensional process of reorganization
and reorientation of both economic and social structures. It improves the quality of
all human lives by raising the living standards of people by increasing the income,

health facilities and education (sustenance), by creating social, political and

institutional changes that improve the self-esteem of individuals with the
improvement of human dignity and respect (self-esteem), and by increasing the
peoples range of selection not only by providing economic choice to them but also
by providing social choice (freedom from servitude).

From the above account it is clear how the concept of development has evolved over the
course of time along with the developments in the social sphere. First it was entirely an
economic growth phenomenon concerned with increasing the per capita income. But later
other components like poverty, unemployment and inequality in the distribution of national
income have come into the picture. The concerns about the environment and sustainability of
economic growth have taken the stage next.
Thereafter, gradually, other aspects of human life such as health and education have been
added. These factors are dependent on the level of income and also in turn contribute to the
increase of level of income.
However, even in the most recent thinking on development, the economic growth plays a
central role. Therefore we see that the theories of development and their models are almost
always presented in such a manner that they attempt to explain the economic growth (changes
in the per capita GDP). That is in other words, the development is proxied by the per capita
GDP figures. This is understandable as there is no widely accepted composite index for this
purpose other than the Human Development Indices (HDIs) and even in the HDI economic
growth appears as a major component.

The following table presents various theories of economic growth / development and some of
the important models under each theory developed by prominent economists. The important
citations are numbered whereas others are presented for the purpose of presenting the flow.
Theories of Economic Growth / Development
Classical growth theory
The classical growth theory says that in the long run the economies will return to
and equilibrium called the subsistence level from the temporary deviations upwards

or downwards from it. It did not give much regard to the technological advancement
and was highly influenced by the idea of scarcity of land that limited the (food)
The main discourse in this tradition by David Ricardo was briefly described in the
preceding sections of this assignment.

Neo-Marxist theory
Neo-Marxism refers to the twentieth century refinements, both amendments and
extensions, to the Marxism based on other intellectual doctrines such as critical
theory or psychoanalysis. This is heterogeneous in nature as many scholars have
contributed to the doctrine in their own way. One of the main traditions of NeoMarxism social theory has been the Frankfurt school.
Neo-Marxism connects to development economics through dependency theory and
world system theory. Prominent figures in Neo-Marxian economics are Michal
Kalecki, Paul Baran and Paul Sweezy.

14.1 Dependency Theory

Dependency theory says that the resources flow from the developing nations to
developed nations in such a manner, the developed nations are made wealthier and
the developing nations are made poorer. Therefore when the poor states are
integrated into the world system they are made worse off.

Hans Singer and Raul Prebisch

Prebisch Singer Thesis (1949)
This thesis observes that the terms of trade are getting more and more unfavorable
for the developing countries when they engage in trade with developed countries.
That is the terms of trade are continually getting deteriorated for the developing
countries when they engage in international trade with developed countries.
Therefore some form of import substitution industrialization is advisable for the
developing countries over a trade and export orientation strategy for development.

Paul Baran
The Political Economy of Growth (1957)
Baran was a Neo-Marxian economist and he introduced the concept of economic
surplus which extended the concept of surplus value of Karl Marx and used this
concept to analyze the developing economies. In his view development depends on
producing a surplus, more than what is to be consumed, and using part of that
surplus for capital accumulations. However according to Baran, in developing
countries, most of the surplus is either spent on luxury goods by the land owners or
transferred to developed countries as profits by the foreign investor thereby bringing
down the amount available for investment to a minimal.

14.2 World Systems Theory

Immanuel Wallerstein (1970s)
The world systems theory, which has the influence of Marxism, Annales school and
the dependency theory which in turn a product of Neo-Marxism, says that the
interregional and transnational division of labor which divides the countries in the
world into core countries and peripheral countries reinforce the dominance of the
rich, core countries thereby making the development efforts of the peripheral
countries less-effective and development hard to achieve.

Neoclassical growth theory

Neoclassical growth theories consider the technological progress to be the driving
force behind long term economic growth.

15.1 Harrod Domar Growth Model (1946)

Roy F. Harrod An Essay in Dynamic Theory (1939)
Evsey Domar Capital Expansion, Rate of Growth, and Employment (1946)
This is an early post-Keynesian growth model developed by these two economists
independently and is often called the AK model. it gives a linear functional
relationship between the output and capital. Here the growth depends on national net

savings rate and inversely on the national capital-output ratio.

This model has been used for developing countries and it is effective in explaining
the mobilization of savings to generate investments needed for accelerating the
economic growth at the take-off stage presented in Rostows stages of linear
stages of economic development.

15.2 Lewis Two Sector Model

Arthur Lewis
Economic Development with Unlimited Supply of Labour (1954)
Well-known for this Nobel prize winning seminal work Arthur Lewis revolutionized
the contemporary thinking on development in his era. This is also called the two
sector model in which one sector more advanced than the other. His idea of
development was the positive changes in operation of the economic system made
possible by the advancements in technology, though it was not explicitly mentioned.
This is a structural change model. His focus was mainly on the increase of per capita
income as development. Actually that was the reason for the shift of labour from
less productive traditional sector to the more productive modern sector in his model.
This model is still applicable to the less developed countries where a surplus of
labour exists in less productive traditional sectors.

15.3 Solow Swan Growth Model

Robert M. Solow A contribution to the theory of economic growth (1956)
Trevor W. Swan Economic growth and capital accumulation (1956)
This is one of the best known models of economic development and describes a
developed economy better than a developing one in some respects. It differs from
the HD model by the addition of labour and technology into the output equation.
This model exhibits constant returns for labour and capital jointly and the long term
economic growth determined by the technological progress. The technology is
considered to be exogenous to the model and developed elsewhere. It suggests
higher growth trajectories for open economies than for closed economies.


New growth theory (endogenous growth theory)

This is an extension to the traditional neoclassical growth theory wherein the
advancement of technology factor is explained within the model itself. It focuses on
the importance of research and development as a long term investments and the
contribution of human capital and innovation for sustained economic growth with
positive externalities and spillover effects.

16.1 Romer Model

Paul Romer
Increasing Returns and Long-Run Growth (1986)
Romer model on endogenous growth departs from the Solow model by assuming an
economy-wide capital stock that positively affect the output at the industry level in
such a manner that there may be increasing returns to scale at an economy-wide
level. Each firms capital stock includes its knowledge, which is a public good and
has spillover effects. Even with no technological advancement, when positive
capital externality is present, this model generates growth in per capita GDP, which
is endogenously determined.
Shortcomings of this model include its dependency on a number of traditional
neoclassical assumptions which are most of the time inappropriate for developing
country scenarios.

16.2 Lucas Model

Robert Lucas Jr.
On the Mechanics of Economic Development (1988)
Deviating from the Romer model and building upon the concept of learning-bydoing, this model explains how endogenous growth is achieved in industries where
the technological advancement is relatively slow, by tapping the human capital
factor. This refers to the knowledge acquired through experience by actually
performing the functions outside the schools and research facilities.



Big Push theory

Paul N. Rosenstein-Rodan
Problems of Industrialization of Eastern and South-Eastern Europe (1943)
Coordination failure occurs when the individual actions of economic agents result in
equilibriums that are not optimal and there is no proper coordination. For optimal
results the production decisions of economic agents need to be mutually reinforcing.
Big push theory presents one way of attacking this problem. It explains how the
presence of market failures adversely affect the development and give rise to the
need for an economy-wide concerted effort, in order to start the development
process or to accelerate it. This might require a public-policy lead initiative.
Big Push theory was further boosted and popularized through the article,
Industrialization and the Big Push (1989) by Murphy, Shleifer, and Vishny, and
pamphlet Development, Geography, and Economic Theory (1995) by Krugman.


O-Ring Theory
Michael Kremer
The O-Ring Theory of Economic Development (1993)
In this theory Kremer argues that production consists of many processes / functions all of which should be successfully completed in order to obtain a product with full
value - and thus presents a new production function where quantity cannot be
substituted for quality. This requires the workers of same skill level to be matched
rather than mixing the workers with different skill levels together. Accordingly, less
advanced countries will have more of primary production and advanced countries
will have more of higher levels of production, respectively in their GNPs. Perhaps
this theory would reinforce the argument of international division of labour thereby
strengthening the basis of higher productivities and complex manufactured items
originating from developed countries versus the lower productivities and simpler
products from less developed countries.


Unified growth theory

Oded Galor
Unified Growth Theory (2011)

The failure of endogenous growth theories to explain the development process of

both developed and less developed countries, and the entire growth process from the
transition from the Malthusian stagnation necessitated and triggered the
development of unified growth theory by Oded Galor and others. According to this
theory the modern technological progress is faster than that in the time of Malthus
and the population growth is also discouraged; instead the human capital
accumulation is increased and that again gives rise to further technological

Schumpeterian growth theory

Philippe Aghion and Peter Howitt
A Model of Growth Through Creative Destruction (1992)
Schumpeterian growth theory couples the endogenous growth with creative
destruction and in this theory one of the main contributions is the Aghion Howitt
model. Here the technologies are developed in the hope of capturing temporary
monopoly profits and in doing so the old technologies become obsolete and become
incapable of generating rents; thus the creative destruction. Therefore the
development renews itself again and again through this process which is endogenous
to the (economic) system and explained therein.


Institutions and Growth

Daron Acemoglu, Simon Johnson, James A. Robinson
The Colonial Origins of Comparative Development: An Empirical Investigation
These economists have found that the institutions play a major role in deciding the
level of economic growth attained by a country. In this study the institutions have
been established by the colonialists and thereafter continued by the locals. This
holds true even for those countries where there was no colonization; what matters is
the institutions that are deep rooted not the origins of them. The study finds that
where the extractive institutions were set-up the economic growth was hindered by
the problems like corrupt governments and internal conflicts. Inclusive institutions
create conducive environments for economic growth and development.


Apart from these theories of economic development there are many other empirical studies
carried out by various economists on relationships between development (economic growth)
and other economic and social phenomena. Some of these empirical studies have been
developed into theories already and the others position themselves in the economic literature
as extensions to the existing theories or theories in making. The important citations in this
regard are briefly discussed below.
Empirical Literature on Economic Growth / Development

Ann Harrison
Openness and Growth: A Time Series, Cross-Country Analysis for Developing
Countries (1994)
New growth theories suggest that openness results in economic growth through
technological advancements of the imported inputs and the increase of market size
which in turn increase the returns on innovation. Considering measures of both trade
volumes as well as trade policies this paper finds that there is a strong tie between
the openness and economic growth. Further research is needed to examine causality
and to distinguish between short and long terms effects of policies on growth


Financial Development
Ross Levine
Financial Development and Economic Growth: Views and Agenda (1997)
Although historically economists have held different opinions on this, now it is
established that the financial development causes economic growth. Financial
markets and financial intermediaries reduce the financial frictions (namely, the
information costs and transaction costs) by performing the financial functions
(savings mobilization, resource allocation, exerting corporate control, facilitating
risk management and facilitating the exchange of goods and services) which in turn
promote the channels to growth (capital accumulation and technological innovation)
thereby causing an economy to grow. At lower levels of financial development the
economic growth gets retarded as the Mckinnon Shaw hypothesis (also) shows.



Human Capital
Jess Benhabib and Mark M. Spiegel
The role of human capital in economic development: Evidence from aggregate
cross-country data (1994)
When traditional Cobb-Douglas production function is used with Human Capital it
does not show a significant effect on economic growth but when an alternative
model is used it shows a positive effect. This suggests that the human capital enters
the growth equation in a different manner than what is specified by the standard
Cobb-Douglas relationship. Therefore it appears that the human capital does not
constitute a direct factor of production such as physical capital but it enhances
growth by contributing as an engine for attracting physical capital and as a
determinant of a countrys Solow residual.


Social Capital
Michael Woolcock and Deepa Narayan
Social Capital: Implications for Development Theory, Research and Policy (2000)
Social capital refers to the norms and networks that enable people to act collectively.
Research on social capital and economic development can be of view of either
communitarian, networks, institutional or synergy. It can affect the economic
activity by facilitating exchanges, lowering transaction costs, reducing the cost of
information, permitting trade in the absence of contracts, and encouraging
responsible citizenship and the collective management of resources. Therefore, there
is an emerging and growing literature on nexus between social capital and growth.