CHAPTER 3 - DETERMINANTS OF
ECONOMIC DEVELOPMENT
Economic development is not determined
by economic factors alone. There are
non-economic factors that affect economic
development, and they have greater
influence than the economic ones.
ECONOMIC FACTORS
1. Capital
- refers to finished goods which are being
used to produce other goods. These are
machines, buildings, tools, equipment, etc.
which are also called Physical Capital
- In case of money, it is Financial Capital.
- People are classified as Human Capital.
- Rich countries like the USA, Japan and
those in western Europe have been using
modern machines in agriculture, industry
and service organizations.
- The less developed countries do not even
have enough funds for road construction,
electrification, communication, irrigation,
and other vital projects for economic
development.
- Sao Paulo, Brazil is the largest and fastest
growing urban community in the Western
Hemisphere.
2. Technology
- refers to better techniques or methods of
production. However, it can also be applied
in other fields like public administration,
education or social work.
- Social Technology is concerned with the
improvement of attitudes and values of the
people.
- Public Administration Technology deals
with the improvement of social goods in
order to maximize the satisfaction of social
wants.
- According to Schumpeter, the discovery of
a new technique is invention. He pointed out
that the practical application of an invention
to production for the market is innovation.
- However, not all innovations are for the
markets like political or social innovations
are intended for improving conditions in the
government or society.
- Professor Gunnar Myrdal, author of Asian
Drama, noted that the Western Technology
has been adopted in Southeast Asia without
proper consideration of the local climate and
soil condition.
- Industrial countries use machines or
capital-extensive technology because labor
is scarce and therefore expensive. For the
poor countries, they have an oversupply of
unemployed and underemployed
individuals. They should therefore use
labor-extensive technology. This means
less machines, more labor.
- Former Prime Minister Cesar VIrata told
that cadillac technology is expensive and
imported. He suggested a local technology
be developed which is more suitable and
less expensive.
- Schumacher, author of Small is Beautiful,
suggested a type of technology which is
between a primitive technology and modern
technology. It is more efficient than primitive
technology but less expensive than modern
technology.
3. Market
- the growth of markets reflects an
expanding economic development
- For as long as the various sectors of the
economy are equitably benefited, economic
growth is real and enduring.
- Transportation, communication and
electricity greatly help in the growth of
markets.
- A market becomes bigger when more
people buy more goods. This stimulates
investments and production.
NON-ECONOMIC FACTORS
1. Social Structure
- A society which has more equitable
distribution of wealth and income, and
economic freedoms, provides a more fertile
environment for economic development.
- Being an open society, even the humblest
citizen can aspire to be rich or be the leader
of his country. Opportunities for
improvement are open to all member of
society. Hence, a man in the lower class
can move upward.
- A society whose wealth and income
belong to very few families does not
encourage economic development.
- Caste System of India is abolished
- Apartheid Policy of South Africa
2. The Family System
- Family members in Western societies like
the United States are more individualistic
and self-reliant. Unlike in the less developed
countries, especially among Asians, the
children have to take personal care of their
poor old parents.
- An extended family system, which is
common in the Philippines and other
developing countries, is good in the sense
that there is unity, and the welfare of the old
and the young members are protected by
the stronger adult members, usually the
eldest sons.
- However, it has dominant features which
are not favorable to economic development
like the loss of self-reliance of their married
children. They do not work hard and just
depend on their parents.
3. Cultural Values
- Some cultural values have negative effects
on economic development. For example, in
the Philippines, cultural values like bahala
na, manana habit, ningas cogon, and other
similar values are not conducive to
economic development
- According to Professor Myrdal, he
observed that many Asians do not have
efficiency, mobility, discipline and
punctuality. In our country, we have the
familiar Filipino time.
- Many people in the less developed
countries admire the consumption habits of
the Americans and the Europeans. This is a
colonial mentality, pure and simple. They
love the products of their former colonial
masters.
4. Political Conditions
- Political stability and fair economic policies
stimulate economic development. These
attract local as well as foreign investors.
- The major role of the government is to
provide a high standard of living for its
people.
5. Corruption in Public Administration
- According to an economic professor in
Singapore, government corruption is the
number one obstacle to economic
development in Southeast Asia.
- Government corruption is present in any
society. However, based on observations,
such corruptions are rampant in the less
developed countries like those in Asia.
- Bribery has been a common practice.
There has been a need to bribe government
personnel to expedite applications of
approval.
- In the Philippines, the present political
leadership has restructured some
government institutions, and removed the
corrupt ones. However, the task of cleaning
the government is a long and difficult
process, considering our Oriental values
and depressed economic conditions.
6. Religion - There are countries with poor natural
- During the Biblical times, materialism and resources but they were able to achieve
pursuit of wealth were despised and remarkable economic growth. Good
discouraged. For example, it says that the examples of these are Japan and Israel.
poor are blessed for they shall inherit the - Transportation and communication are
kingdom of heaven. likewise affected by geographical structure.
- Such religious concepts and teachings - Geographical disadvantages can be
against materialism are not favorable to eliminated or reduced through the proper
economic development. use of technology and capital. However, to
- When people shy away from the pursuit of the poor countries, such task of conquering
wealth, economic growth tends to be slow natural shortcomings is almost impossible.
and primitive. They are deficient in both capital and
- Max Weber, author of Protestant Ethics technology.
and the Spirit of Capitalism, claimed that the
Protestant countries are more progressive.
- There are several Catholic practices which
are not consistent with the principles of
economic development. For example, barrio
and town fiestas are celebrated to honor
their respective patron saints. Most people,
especially in the rural areas, spend all their
savings. In fact, many people even borrow
money to feed their hundreds of guests from
neighboring barrios and towns.

7. Population
- Population is both an advantage and a
disadvantage in economic development.
- It is an advantage if people are productive
and creative. On the other hand, population
is a great burden if the rate of population
growth is higher than the rate of production
growth.

8. Geography
- refers to climate, soil, natural resources,
topography, and structure of the land.
- Countries which are endowed with
abundant natural resources have greater
potentials for economic development.
- In the case of Africa, it is a giant continent,
but only 7% of its land is arable. And only
50% of the arable land is used for food
production.