ANDRES BONIFACIO COLLEGE

College Park, Dipolog City

https://abcollege.edu.ph/
SCHOOL OF BUSINESS MANAGEMENT EDUCATION

Learning Module
BUS. ECON 111 – ECONOMIC
DEVELOPMENT

First Semester, S.Y. 2020-2021

Name of Student

Course and Year

Kriszia Jean M. Tinguban
1
Instructor
MODULE ON BUS. ECON 111 – ECONOMIC DEVELOPMENT
 Table of Contents
INTRODUCTION..................................................................................................................................3
Part One: DEVELOPMENT CONCEPTS AND PRINCIPLES.........................................................3
1. What goods are to be produced?................................................................................................4
2. How are the goods produced?....................................................................................................4
3. For whom are the goods produced?..........................................................................................4
1. Traditional society.........................................................................................................................7
4. Drive to maturity.............................................................................................................................7
5. Age of high mass consumption..................................................................................................7
Two Different Worlds.........................................................................................................................7
1. Capital............................................................................................................................................19
2. Technology....................................................................................................................................20
3. Market.............................................................................................................................................20
4. Social Structure............................................................................................................................20
5. The Family System......................................................................................................................21
6. Cultural Values.............................................................................................................................21
7. Political Conditions.....................................................................................................................22
8. Corruption in Public Administration.........................................................................................22
9. Religion..........................................................................................................................................22
10. Population...................................................................................................................................23
11. Geography...................................................................................................................................23
1. Subsistence agricultural economy...........................................................................................30
2. Low per capita income................................................................................................................30
3. High Birth Rate.............................................................................................................................31
4. High Illiteracy................................................................................................................................31
5. Poor Health....................................................................................................................................31
6. Negative attitudes, values and institutions.............................................................................31
7. Inefficient public administration...............................................................................................31
8. High rate of unemployment........................................................................................................31
The Problems of Less Developed Countries...............................................................................32
1. Improving values and institutions............................................................................................32
2. Redistributing wealth and income............................................................................................32
3. Adopting western technology....................................................................................................32
4. Preparing for industrial development......................................................................................33
5. Reducing birth rate......................................................................................................................33
6. Eliminating economic exploitation...........................................................................................33
1. Case study.....................................................................................................................................37
2. Grading System............................................................................................................................37

INTRODUCTION
This course focuses on the analysis of development principles, models and
strategies and approaches. It also deals on the core values of
development, the causes of imperfect development, the various theories
and meanings of development and the problems and constraints in the
development goals and objectives of a community or a nation. The course
will also identify and discuss the characteristics and problems of less
developed countries, criteria of growth and development with emphasis on
strategies for development, obstacles to economic growth and policie for
promoting growth.
Course Outcome: At the end of the semester, the students can:
1. Use fundamental economic principles in understanding the
national economy
2. Apply various macroeconomic theories and tools in assessing the
economy of a country; and
3. Develop case studies to be able to relate macroeconomics in
today’s national issues and in their field of study

PRELIM
Part One: DEVELOPMENT CONCEPTS AND PRINCIPLES
1
Lesson 1 Real Concept of Development
3
Basic Economic Problems
1. What goods are to be produced?
1
2. How are the goods produced?
3. For whom are the goods produced?
Mixed Economic System - is a blend of free market economy and
government intervention to give incentives to businessmen, and to protect
the welfare of the consumers.
Ex: Russia and China - socialistic economy
(combination of communism and socialism)
United States, Japan and Philippines - mixed
system (combination of capitalism and socialism, but
more of capitalism)
The Meaning of Economic Development - is a progressive process of
improving human conditions, such as the reduction or elimination of
poverty, unemployment, illiteracy, inequality,disease and exploitations .
Classification of Countries :
Highly developed countries
United States Russia
Japan Sweden
France West Germany
Denmark Canada
Australia Israel

Intermediate countries

Argentina Austria
Cuba Saudi Arabia
Libya Singapore
Spain 4
Poland
South Africa Venezuela

Less developed countries

Kenya Honduras
Somalia Peru
Tanzania India
Uganda Philippines
El Salvador Vietnam

Development and Growth

Development - is a progressive and dynamic process
Growth - is the result of the process
Therefore, growth is the product of development. Ex: Modern methods
of planting tobacco involve a process, and this is development itself. The
result is more and better harvests, and this is growth.

Growth without Development

Not a few less developed countries are apparently progressive. They have
modern buildings and well-developed fruit plantations. Their many
corporations are very profitable. But all of these are owned and and
managed by foreigners. Among the masses, poverty, ignorance, squalor,
and disease have been rampant. Only the foreigners and the few local elite
have become prosperous. Development means more than imposing
buildings, beautiful houses, elegant cars, money or modern machines. It
includes fundamental changes in society, ways of life, values and
institutions. An economic growth which belongs to foreigners or an
economic development that has been imported is meaningless as far as
the masses are concerned, unless, they receive resonable benefits and
compensations for their productive contributions to the economy.
The Objectives of Development
The main focus of development now is towards the social factors. Socially-
oriented programs appear to dominate national development objectives.
Philippine Development 5Objectives:
1. The attainment of economic stability;
2. The equitable distribution of the fruits of economic development; and
 3. The achievement of total human development for every Filipino.
Obstacles to Development
1. Poor nations are deficient in capital. They cannot afford to buy
sufficient modern tools of production. Moreover, management and
manpower skills are not adequate.
2. Population explosion.
3. The greatest obstacle to economic development is man himself.
Before improving his physical environment, he should be the first to be
improved - his attitudes and values. It is the principal key to the progress of
the poor nations.
Stages of Economic Growth
Stage 1 - Agriculture is the principal source of employment and income
in the agricultural countries.
Stage 2 - Manufacturing industry becomes the major economic activity
as a country develops.
Stage 3 - Service industries grow to be the dominant feature of the
economy as a country develops further.

The doctrine of Rostow (Professor W.W. E Rostow)

Based on the doctrine of Rostow, the transition of the economy of one
country from underdevelopment to development passes through several
stages such as:
1. Traditional society
6
2. Pre-conditions for take-off
3. Take-off
4. Drive to maturity
 5. Age of high mass consumption

Two Different Worlds

One world belongs to the rich while the other one is for the poor. The
rich world is called North while the poor world South.
What Kind of a World Do We Want?
The gap between the rich and poor countries has become wider. The
poor countries have become poorer and the rich countries have become
richer. All over the world, 800 million individuals live in extreme poverty.
Most of them are found in Africa, Asia and Latin America (Central and
South America). It has been said that God did not create poverty. Poverty
is a product of defective man-made institutions.
Superiority of the Whites
In South Africa, the Race Classification Board determines the places
where the people can reside and work. The Whites are given the best
houses and jobs than the other races. These are legally reserves to the
Whites only. Such inhuman policies and practices have created not a few
agonizing experiences among the violators. For example, Wally Venter, a
white mechanic was sentenced to six months imprisonment for living with
his colored girlfriend. He was willing to give up the privileges of white skin
in order to be able to live with his loved one and have children of their own.
He intends to ask the Race Classification Board to declare him colored,
and let him leave in peace.

Even in the United States, there are racial discriminations. In fact, in

Angeles City in Pampanga where the Clark Airbase was located, there
were separate residential subdivisions for the Whites and the Blacks. Even
in rest and recreation clubs, American white soldiers and the Blacks did not
go to the same pleasure places. There were clubs for American whites
only. The Blacks had their 7own.
Concept of a Just Society
The consumption of the rich
 The members of the affluent society enjoy all the goods and services
that their money can buy. In fact, they have much more than what they
actually need. Evidently, the food of the dogs of the rich people - even in
the Philippines - is much better and more expensive than the meals of the
poor people.

Proposal of the socialists

Babeuf, a French utopian, said: Every man has an equal right in the
enjoyment of all goods based on the laws of nature. Large business
corporations should be owned by the state. Private property should be
rationalized and inheritance should be abolished. Production and
distribution of goods are to be managed by an elected government. No one
could exercise his political rights if he does not perform useful work. Food
and clothing should be exaclty the same for all, except for differences in
sex and age. Children are to be taught about the ways of the new society.

Robert Owen- crusaded for cooperative societies

Karl Marx - stressed the right of the workers. He claimed that the tools
of production should belong to them because these are part of labor.

A Good Economic System

-Abundance
-Stability
-Security
-Economic freedoms
8
-Growth
-Efficiency
 -Justice and Equity
Questions:
What are the 3 basic economic problems? Explain briefly one by one.
Differentiate growth from development ?
Define economic development.
Enumerate the 5 stages of economic growth.
Lesson 2: Ideas and Theories of Economic Development
Ancient Economic Ideas
Ancient economic ideas were based on the Holy Scriptures and codes
of laws. Such ideas centered on the ways of making a living. The Bible and
Holy Men regulated economic practices and relationships. Justice and
mercy were encouraged. Greed and extortion were despised. The pursuit
of excessive wealth met social disapproval.
The famous Greek Philosopher Plato was also against the accumulation
of wealth through lucrative trade or commerce. To him, agriculture is very
important, and he was in favor of specialization of production. He said that
there is a need for diversity of occupations since no person is self-
sufficient, and people have many wants.
Another great Greek philosopher Aristotle likewise stressed the value of
management of agriculture. Like Plato, he was not in favor of too much
wealth. He did not like usury and trade.
On the other hand, Xenophon, classmate of Plato when they had
been students of Socrates, was in favor or Capitalism. He proposed that
the government should promote trade and shipping. He also
encouraged the formation of more silver mining companies to increase
general wealth.

Medieval Economic Thoughts

9
 With the rebirth of trade and commerce in the Mediterranean region,
and its rapid subsequent growth, the merchant class became wealthy and
powerful. The once powerful feudal lords lost their influences.
During the later part of the medieval period, the church became very
powerful. It was an active participant not only in religious affairs but also in
political and economic activities. Most of the scholars and writers were
churchmen. The most admired of them was St. Thomas Aquinas. He
preached distributive justice and compensatory justice. The former refers to
fair distribution of goods among the members of society. The latter means
just wage and price. Aquinas condemned usury and other unfair practices
of capitalism. However, the position of the church regarding capitalism
appeared ridiculous because it also actively participated in profitable
businesses. Despite the opposition of the church, trade and commerce
grew. The security of the church and the fuedal lords were threatened.
Their powers started to fall as capitalism began to rise.

The Economic Doctrines of Mercantilism

The great thinkers of Europe, like Machiavelli, Bodin and Serra,
influenced much the growth of capitalism. They asserted the supremacy of
the state over all other sources of powers, including the church. Economic
ideas then were focused on the vital role of the state in economic
development. They claimed that it is the duty of the state to create and
accumulate wealth.
Wealth came from gold and silver. And a wealthy nation was considered
powerful and prestigious. Countries without gold and silver mines acquire
such precious metals through favorable international trade, and colonies
with gold and silver mines. As a result, the big European nations fought one
another in getting more colonies.
To achieve the objectives of mercantilism, manufacturing was given top
priority. Agriculture was no longer appreciated because of its natural
shortcomings. Serra claimed
10 that manufactured products could be sold
readily abroad than agricultural products. He further stated that agricultural
goods are perishable and bulky, and he mentioned other limitations, like
limited areas of land and the great dependence of agriculture on the
weather conditions.
It was Thomas Mun who provided the ways of achieving favorable
foreign trade. Being an experienced foreign trader himself, he was a real
expert. In fact, he contributed the idea of the balance of payments. He
explained about the exports and imports of goods and services. Foreign
trade is favorable if exports are greater than imports. The writings of Mun,
an Englishman, dominated the whole concept of mercantilism in Europe.
Physiocracy - Rule of Nature
The expansion of science and the increasing number of various
inventions opened up some realities of life and the world. People started to
rationalize human behaviour and the existence of institutions. They
concluded that its was not the will of God that created the conditions in the
world. Rather, it was the product of causes and effects which conformed to
the laws of nature. However, those who still believed in God stated that the
will of God was expressed in the natural law.
Philosophers claimed that people are poor because they violated the
laws of nature. An example of this is when one is lazy, extravagant or a
drunkard. He is likely to make his life miserable. A man who neglects his
health has a greater chance of getting sick. On the other hand, those who
obey and follow the laws of nature were believed to promote their own
good. In the same manner, an economy or society that conforms to such
laws would be successful, according to the thinkers.

Wealth came from the land

In France not long before the Revolution, the first modern school of
thinkers to call themselves economists emerged. They subscribed to the
concept of natural law as both basic and benevolent. Later on this school
was named Physiocracy which means the rule of nature. They stressed the
importance of agriculture because they claimed all wealth came from the
land. In support of their theory,
11
they explained that people could not exist
without food and natural resources. The farmers therefore are the real
producers. Industrialists, traders, and craftsmen are not in the real sense
productive. It is only agriculture which can double or create more goods.
For example, one seed can produce more fruits. One animal can breed
more animals. In fact, it is the farmers who feed and provide jobs to the
manufacturers, traders and industrialists. Such aforementioned views of the
Physiocrats are still valid in agricultural countries. The farmers are the
backbone of the whole national economy. Without them it is really difficult
for the people to survive and the economy to operate.
The ideas of the Physiocrats were against those of the Mercantilists
who considered money as the real wealth. They criticized the theory of the
favorable foreign trade of the Mercantilists. To the Physiocrats, favorable
trade only drained the resources of the country, because it give more
goods than it received. They believed the real wealth of any nation are the
products of agriculture and not money in the form of gold and silver. The
economic ideas of the Physiocrats came from the ancient doctrines. The
Greek philosophers and Roman writers also considered agriculture as the
real wealth. Since mercantilism was a failure in Europe, except, for
England, and that it had many shortcomings, the Physiocrats argued that
their country should return to agriculture.

Laissez Faire Theory

Laissez faire is a french term, and it was introduced by the Physiocrats.
It connotes non-interference, liberty or freedom. In economics, it means the
government should not intervene in economic affairs. Just let the forces of
the market interact with one another. This is in accordance with the natural
law, and the results would be good for the individuals and society,
according to the Physiocrats.
Individuals should be free to pursue their own particular economic
interests. They should be free to choose their own economic enterprise or
occupation. The government should not help or hinder them. All these are
in conformity with the laws of nature, according to the Physiocrats. If such
economic freedoms are allowed to take their own course, they believed
businessmen, consumers, and the whole society would be better-off. Such
12
theory was developed further by the classical economists under the
leadership of Adam Smith, a Scotsman.
The Classical Theories
The real founder of the classical school of economics was Adam Smith.
He was well-educated in the classics, mathematics, and philosophy, and he
became a professor of moral philosophy at Glasgow University. He lived at
the beginning of the Industrial Revolution. Smith being greatly influenced by
the ideas of the Physiocrats believed in the merits of the free competition
concept. He said that a free market mechanism could provide more
benefits to individuals and society than an economy run by the government
like in the case of mercantilism which even established trade monopolies.

The theory of comparative advantage

David Ricardo, one of the famous classical economists,developed the

theory or law of comparative advantage. Based on this theory, nations
should export the goods which they enjoy the greatest advantage, and
should import the goods which they have the greatest disadvantage. This
simply means - do not produce the product if it is cheaper to buy it. Ricardo
explained this theory by giving two countries and two products as
examples. The comparative advantage refers to the lesser number of hours
or days of producing the product. To illustrate -

Countries Rice Calculator

Japan 120 days 10 days
Philippines 90 days 15 days
The above illustration shows that Japan has a comparative advantage in
calculator while the Philippines in rice. Following the theory it would be
better for Japan to produce calculator and just buy rice from the
Philippines. In the case of our country, it would be more economical not to
produce anymore calculator.13
Just import from Japan, and concentrate in
rice productions.
Theory of Karl Marx

The economic ideas of Karl Marx were basically derived from the
classical economists. He only qualified his theory of value by emphasizing
that labor must be socially necessary. Marx maintained that the workers
are the real producers of goods. And yet, he claimed the benefits of
production go to the capitalists and not to the workers.
Karl Marx developed his theory of scientific social evolution by saying
that in the beginning - when it was still a primitive society - there was social
equilibrium . However, when new ideas and new tools of doing things were
introduced, the old system was disturbed. Man became greedy for power
and wealth. Man was greatly concerned with material things. This led to a
class struggle between the workers and the capitalists. The latter have
wanted to accumulate wealth at the expense of the workers.

Promotion of Human Values

Jean Sismondi , a noted Italian writer, disagreed in many ways with
Adam Smith. He stated that wealth should not be measured in terms of
material things but in terms of human welfare. He pointed out that no nation
can be considered prosperous if the conditions of the poor have not been
improved.
The main contention of Sismondi is focused on the welfare of the poor.
He was more interested in social justice rather than in the accumulation of
wealth by the industrial system manipulated by the powerful capitalists for
their own materialistic inclinations.

Factors of Economic Development

Friedrich List was a 14German professor of economics and political

science. He also did not agree with the ideas of the classical economists
about production, free trade and free competition. According to List, the
progress of a nation is great not in proportion to the accumulation of wealth,
but in proportion to the development of the productive forces. Such forces
refer to natural resources, science, arts, government laws, education,
peace and order, morality and the harmonious relationships of the various
industries and occupations. As an example, he mentioned some of the
great productive forces, such as the Christian religion, monogamy, postal
system, transportation, invention of the alphabet and printing, freedom of
conscience, parliamentary legislation, etc.

Theory on Progress and Poverty

The book Progress and Poverty made its American author Henry
George famous. He saw the rapid economic growth in California during the
1870’s amidst widespread poverty. Such conditions stimulated him to
analyze the different theories of distribution among the factors of
production, like labor, capital, and land. He was not satisfied with the
doctrines of the classical economists regarding wages, profits and rents.
In his analysis, he concluded that rent is the root cause of poverty.
George argued that increase in the value of land is not due to its fertility,
but due to the growth of the population in the community and the progress
of society. He said that one can become rich by purchasing not the best
farm but a piece of land near the center of a fast growing city. It does not
matter, he said, whether this is the most fertile land or solid granite.
To Henry George, rent is an unearned income. The reason for such
view is simple. During the early days, land could be acquired free through
proper application from the government. Others got their lands through
inheritance or by historical accident. Because of the sudden growth of
population and business, land rents have increased. Thus, the landowners
are the beneficiaries of unearned incomes. Businessmen pay the rents.
This means the cost of production or business gets higher. But such cost is
paid ultimately by the consumers when they buy the goods of the
businessmen. The latter let the buyers pay the rents in the form of higher
prices. This makes the economic conditions of the poor more depressed.
15
Key to Progress

Henry George proposed that increase in rent and value of land should
be taken by the government in the form of tax. All taxes should be
abolished, except tax on land. However, improvements introduced by the
landowners are not covered by the single tax theory of George. Only the
unearned incomes from the land should be taxed. George believed that
such revenues could finance all government expenses, and there would be
no need for other taxes. Consequently, this new tax program stimulates
trade and commerce. Likewise, workers would no longer bear the heavy
burden of paying taxes on production and consumption. Moreover, George
claimed that landowners would be encouraged to improve their
landholdings to gain profits rather than giver their unearned incomes to the
government. These would generate more production and competition.
Articulating the good points of his single-tax theory, George predicted a
paradise for the whole society. He said, if adopted it would mean full
employment, eradication of slums, and the steady rise of wages due to
rapid increase in labor demand.

Modern Theory of Employment

Employment - is determined by supply and demand for labor. A decline

in employment means that wages are high in relation to the prices of
goods. Producers are not willing to manufacture goods if they know they
are going to lose. So they get more workers if they are willing to accept
lower wages. This means they make more profits. Such ideas constitute
the classical theory of employment. This was accpeted for many years.

16
Keynesian Theory of Employment

Based on the Keynesian theory of employment, which is a modern

theory, employment determines the necessity of equating the aggregate
supply of goods with the aggregate demand for goods.

When people buy more goods, it means there is more expenditure or

consumption. This condition stimulates more investments which also
increases employment and production. Businessmen put up more factories
because they expect greater demand for their products. There are other
factors which determine investment, such as price, cost of production,
interest rate, competition,etc. However, the most important factor is the
expectation of profit or returns of investment. According to Keynes, as long
as returns of investment are higher than interest rates, there is investment.
Even if the interest rate is very low, it does not follow that investment
increases.

Innovation Theory

Joseph Schumpeter is the author of the innovation theory. He placed

emphasis on the role of the innovator in economic development. The
innovator is the economic leader or the entrepreneur who has the courage
and imagination to handle old systems, and be able to transform theory into
practice.

An innovation can be any change initiated by the entrepreneur which

leads to a faster and better development of an industry. Such change may
be in the form of an invention, method of production or marketing strategy.
17

Evidently, in the theory of Schumpeter, the key factor in economic

development is the innovator or the entrepreneur. He is the planner,
organizer, coordinator and implementor of economic activities. It has been
observed, however, that the role of the innovator in the less developed
countries is hardly felt. In general ,people are conservative in their
investments. Many business enterprises are owned by families, and these
are managed by their own members. Their financial resources are usually
invested in safe business like real estates.

Some Growth Models

 The Ricardian growth model

This was derived from the law of diminishing returns of David
Ricardo. He stressed the limits of economic growth brought about by
the scarcity of land, its being a fixed input, and its diminishing
productivity. To reduce the constraints of economic growth, Ricardo
proposed the discovery of more land for cultivation or more food at
lower prices should be imported.

 The Harrod-Domar model

This model was developed by Sir Harrod of England and Professor
Domar of America. They key factor is physical capital like machinery,
buildings, equipment,etc.
The model shows the relationship between the input and the output.
The input is capital, and its efficiency is reflected in its output. For
example, a certain amount of capital stock or physical capital has been
invested. If the results or outputs have been substantial in terms of
employment, production and income, then the capital has been used
efficiently. The rate of growth in the economy can be measured through
the GNP or real per capita income.

18
 The Kaldor model
The author of this economic growth model is Nicholas Kaldor. The
key factor is technology. He pointed out that technology is embodied in
physical capital. He further stated that technical progress comes from
investment. Examples are modern machineries, tools, and equipment.
These are symbols of technical progress, and they are the products of
investments. Moreover, Kaldor claimed that if technical progress grows
faster than capital stock, the additional productivity of capital increases.
And this leads to more investment.
Questions:
Explain the rule of nature. Use your own words. Give credits to the
rightful owner.
Explain the theory of comparative advantage.
Cite your own example of comparative advantage.
Give examples of growth models. Explain each example.
Give atleast 3 theories of economic development. Explain each
theory.
Lesson 3: Determinants of Economic Development
1. Capital

In economics, capital refers to finished goods which are being used to

produce other goods. These are the machines, buildings, tools, equipment,
etc. These are also specifically called physical capital. In the case of
money, it is financial capital. People are classified as human capital.

2. Technology

19
Technology generally refers to better techniques or methods of
production. However, it can also be applied in other fields like public
administration, education or social work. For instance, 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.
Research has contributed much to the development of technology. The
discovery of a new technique is invention, according to Schumpeter. 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.
For example, political or social innovations are intended for improving
conditions in the government or society.

3. Market

Transportation, communication, and electricity greatly help the growth of

markets. Such external economies of scale reduce cost for both producers
and traders. In addition, contact between sellers and buyers is easier and
more convenient. In this connection, capital and technology are directly
involved. Machines and other physical facilities are needed to accelerate
production, processing and distribution .
A market becomes bigger when more people buy more goods. This
stimulates investments and production. It is only expected that
businessmen are willing to produce more if there is a good demand for their
products. The same situation applies to farmers. They are encouraged to
raise crops that have favorable markets.

4. Social Structure

A society which has a more equitable distribution of wealth and income,

and economic freedoms, provides a more fertile environment for economic
development. Members 20 of society are induced to pursue their own
individual interests, be it economic, social cultural or political. And this is
good 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 members of the society. Hence, a man in
the lower class can move upward.

5. The Family System

Family members in Western societies like the United States are more
individualistic and self-reliant. Adult children are financially independent
from their parents, their family obligations are minimized. 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 strongest
adult members, usually the eldest sons. However, it has dominant features
which are not favorable to economic development.
In the highly developed countries, the governments take care of the
aged and the jobless. So children of poor families are relieved of the
burden of supporting their close relatives. They have more opportunities to
work for their own future. And this augurs well for economic development.

6. Cultural Values

Some cultural values have negative effects on economic

development. They retard the growth of the economy. For example, in
the Philippines, cultural values such as bahala na, mañana habit,
ningas cogon, and other similar values are not conducive to economic
development.
It is really different in Western Culture. They are efficient, punctual
and responsible. These 21 can be observed in the Philippines among the

American offices. For instance, at the United States Embassy the

American officers work hard, and they are extremely punctual. The
Filipino employees at the embassy have to work hard also. However,
 many of them cannot yet equal the consistent punctuality of the
Americans.

7. Political Conditions

The major role of the government is to provide a high standard of

living for its people. This can be attained through higher levels of
investments which generate employment and production, and through
the equitable distribution of wealth and income. Plans, policies and
programs are tools of economic development. These can only operate
efficiently under a regime of good and honest public administration .
But if governments keep on changing very often, economic
programs and projects are likely to suffer. This is a waste of scarce
resources.

8. Corruption in Public Administration

According to an economics professor in Singapore, government

corruption is the number one obstacle to economic development in
Southeast Asia. He pointed out that very precious scarce resources, like
money, are not properly utilized for development due to graft and
corruption.

9. Religion

Such religious concepts and teachings against materialism are not

favorable to economic development. When people shy away from the
pursuit of wealth, economic
22 growth tends to be slow and primitive.
There is no need for them to work harder and to search for innovations.
They are just contented with their simple living. Of course, it depends on
the values of people. Many hate economic progress because of its bad
 effects, such as pollution, traffic congestion, and the destruction of the
natural beauty of the environment.

10. Population

Population is both an advantage and a disadvantage in economic

development. It is an advantage if people are productive and creative.
They can support themselves by harnessing the resources of their
environment and by manufacturing their raw materials for commerce.
Some developmental economist are not in favor of birth control. To
them, people are the most important resources in economic
development. Instead, they have suggested the improvement of the
methods of production, especially food production. Developed countries
that have insufficient number of people encourage immigration of aliens.
These are needed to help them accelerate their economic development.
Other countries recruit specialists, technicians, and skilled workers from
other countries.

11. Geography

Geography refers to climate, soil, natural resources, topography and

structure of the land. These have considerable influence on economic
development. Countries which are endowed with abundant natural
resources have greater potentials for economic development.
Nevertheless, there are some countries with barren land but they are
rich in oil resources such as the Middle East countries. Such resources
are good sources of income for funding various programs of the
government. For example, the massive construction projects in that
region are financed by petro dollars. These are the export earnings from
oil. 23
Question: Give at least 5 determinants of economic development.
Explain each determinant.
1.Capital- These are the touchable or tangible assets that can carry out processes
which result in production of other goods like machines and other equipment.
There are three types of Capital ; Physical Capital which are the tangible
equipment, Financial Capital in terms of money. And human Capital for the
people or the laborer.
2. Corruption in Public Administration
Government corruption in South East Asia is very rampant because of
not properly utilized the scarce resources.
3.Political Conditions
If the government is not corrupt and if they follow the laws regarding
of the equitable or fair distribution of wealth and income, therefore we can
achieve economic growth.
4.Population
The more population in specific place either has appositive or
negative effect for the development of the economy. If the majority of the
population is very productive and creative, their works and ideas may help
the economy enhance but if the population is mostly poor and do not have
a stable lifestyle, then it may burden the economy by their lack of
productivity, efficiency and effort of the latter.

5.Geography
When the specific place has a large amount of raw materials and
minerals, then this can greatly enhance the development of the economy
because those are the basic for creating structures and industries for
enhancement but if the place lacks raw materials, the result may be
different.

24

Lesson 4: Measurements of Economic Growth

Some Shortcomings of GNP/CI

National income accounting in less developed countries is understated.

For instance, the value of the services of the housewives is not computed.
Likewise, many products which have been produced and consumed,
especially in the rural areas, are excluded. For example, backyard
gardening, poultry, piggery and other small-scale projects whose products
are only used for family consumption. Furthermore, there are various trade
transactions which are not placed in the markets. There is no way of having
these reflected in the national income accounting. Considering that many
rural communities in the underdeveloped countries are self-supporting- that
is, they produce most of their consumption needs - it is evident that a
substantial portion of their gross national product is undervalued.
Another limitation is the inadequacy and inaccuracy of statistics. The
gathering and analysis of data encounter several problems, such as
obtaining the real count of the products, the real value of the products, the
biases of the researchers, and other statistical errors.

Measuring Economic Growth

Gross National Product - this is the total market value of all final goods and
services produced by citizens of a country in one year.
- does not only indicate the growth of the economy
but also it serves a data for planning and policy
formulation for both government and business sectors.

Socio-Economic Profile
25

 Top Wage Earners:

1) Switzerland ($33,510/yr)
2) Luxembourg
3) Japan
4) Sweden
5) Finland
6) Norway
7) Denmark
8) West Germany
9) Iceland
10)United States

 Japanese babies have the longest life expectancy. Babies born in

Japan in 1991 could expect to live to age 79 compared with age 76 for
babies born in the United States.

 Lowest Average Yearly Income:

1) Mozambique ($70)
2) Tanzania ($100)
3) Ethiopia ($120)

 Illiteracy is high in Africa.

Top Per Capita Savers:

Japan 26
$45,118
Switzerland $19,971
Denmark $19,405
 France $17,650
West Germany $17,042
Austria $16,369
Norway $15,196
Belgium $15,111
Singapore $14,492
Netherlands $14,282

The Case of São Paulo

Sao Paulo is Brazil’s largest city. Like many other cities, it suffers from
congestion and pollution. It is not famous like the great cities of the world.
But Sao Paulo is the largest and fastest growing sprawl in the Western
Hemisphere. It is Brazil’s industrial powerhouse.

The opulence of the city

Its residents take pride in their city as a place where the largest
shopping malls in South America, the trendiest boutiques in Brazil, and the
best eateries in the Southern Hemisphere are located. An American bank
economist observed that Sao Paulo provides all the neighbourly amenities
of a developing country, and all the conveniences of modern living.

The Darkest Side of the City

The tremendous economic growth of Sao Paulo has not improved the
social and economic conditions of the masses. The rich become richer, and
the poor barely exist. Only 30 percent of the residents of Sao Paulo have
27
access to sewage system. Infant mortality is high. Thousands of hungry
children roam in the streets. The slum community is infested with rats and
mosquitoes. The city is overpopulated with 9 million people, and another 8
million in the suburbs. Such population pressure is further aggravated by
the arrivals of 1,000 new migrants every day. The problem of the city is not
only population explosion but also pollution, unemployment, disease and
squalor. In addition, Sao Paulo has more abortion clinics than anywhere
else in Catholic Brazil.

Poverty in the countryside

It is very evident that the affluence of Sao Paulo has not touched in
a positive way the lives of the poor. Instead, it has only ruined their
values and dignities. City life has transformed many of the poor into
criminals and prostitutes as a last option for physical survival. Such
miserable situation is not only found in Sao Paulo but also in many
other big cities of the less developed countries. The profits of commerce
and industry belong to the very few capitalists - and many of them are
foreigners. The high-rise buildings, plush hotels, and the prestigious
universities are only for the very few rich.

The Real Indicators of Economic Growth

 Reduction or elimination of poverty
A better approach in determining the economic growth of a country
is to measure the conditions of poverty. Is there a reduction of poverty?
There are several indicators like food, clothing, shelter, health and
education. If the great masses have more of these basic goods and
services than the previous years, then it can be said that the social and
economic well-being of the poor has been improved. These means the
growth in the GNP has benefited the poor.
 Eradication of Inequality
28

To remove inequalities, there should be institutional reforms in

economic, social, and political areas. Every member of society should
 have equal opportunities in jobs, education, public health, government
service, and other fields of human endeavors. There are government
programs which are social equalizers like the agrarian reform,
cooperatives and taxation. However, agrarian reform is useless if the
small farmers have no access to credit and marketing facilities. It is still
the middlemen or capitalists who get most of the profits. In the case of
taxation, it is a good instrument of development if it improves the social
and economic conditions of the poor.

 Minimizing Unemployment
Employment is a major source of income among the poor. Without it,
it creates many serious implications. It does not only mean hunger, but
also a denial of other basic needs like shelter, clothes, health and
education. Moreover, jobless people are likely to be involved in social
crimes. The proliferation of illegal economic activities is a reflection of
the lack of decent and legitimate employment opportunities.

The Real Products of Development

 The freedom of choice
It is inherent among people to yearn for freedom of choice. They like
to be free in choosing their foods, clothes, houses, and other personal
needs and aspirations. Man should be free to choose his job, to put up
his business or to travel. Of course, such freedoms are conditioned by
cultural traditions and customs. The interests of society, and the many
members are protected. People who live in an environment of
abundance but have no freedoms are not happy because this is
contrary to human nature. They like to live as human beings and not
simply exist. Any society which limits the freedoms of its members is an
unjust society. It therefore
29 discourages development - especially
development of people.
 Freedom and poverty
Freedom of choice can exist in a democracy. But in a democratic
society where there is absolute poverty, freedom of choice is useless. It
is true the poor have economic freedoms, but they have no
opportunities to use such freedoms. For instance, they are free to
choose the goods and services which they need most. But since they
are very poor they cannot buy such essential goods and services. They
are dreaming of putting up a small business to improve their miserable
economic situations. But this cannot be realized because they have no
funds of their own, and they are not even qualified to borrow money
from lending institutions. It is a very sad fact that the poor cannot even
choose the doctors or hospitals whenever they get sick. They just die
because they cannot afford to consult a doctor or buy the medicines.

 The existence of human dignity

Human dignity is inherent in man. It is a priceless gift of God to man.
Without it man is useless human being. He simply exists without much
difference from the lower animals. Religious leaders and philosophers
of ancient times stressed the dignity of man, and the respect for it. A
man whether he is rich or poor, has an alienable right to human dignity.
His worth depends on it.
Slaves, and even many tenants, servants, and laborers, are not
treated properly. That is, they are not treated like human beings. Their
lords and masters do not respect them. In fact, in not a few instances,
they are exploited, and even maltreated. Where is their human dignity?
Poor people lose their human dignity; they become meek and
submissive. Physical survival has become their main concern .
Questions:
What are the real indicators of economic growth. Explain each
indicator.
30
1.Reduction or elimination of poverty
Improving the quality of life of the poor people means there is a growth of the
economy. Improving the quality of life like for an instance if the street children
will have a better shelter, a good food to eat, or even if they can able to eat three
times a day and only if they will have a stable health and can have a education.
2.Eradication of Inequality
If we have equal institution in terms of economic, social and political areas,
therefore we can promote or we can have an economic growth. Human equalities
in all aspect is very important because people who are treated fairly and have
equal opportunity are better able contribute socially and economically to the
community, they become more productive that can really help to the progress of
the economy.
3.Minimizing Unemployment
Unemployment can cause serious effect to everyone’s living. It can ruin
everyone’s future; they cannot express their skills and talent that can probably
contribute to the society to have a better economy. Therefore, minimizing
unemployment is really needed.
What are the real products of development. Explain each product.
1.Freedom of Choice
The real product of development is when everyone in the society has the
freedom of choice. Freedom to do what they want to do to contribute in the
society. Freedom to showcase their hidden talent and skills. Freedom to choose
their desire jobs and freedom to choose their life to live happily.
2.Freedom of Poverty
If the government able to improve living conditions for those people who
suffer poverty like for instance if they allow poor people to have loan to put some
small business to improve their miserable living situation, therefore in that way it
can help the economic to grow. It can improve poverty situation.
3.The existence of human dignity
Human dignity is very precious, without it, you being human are useless.
Dignity is very needed, through this, people valued and respected for what or
who you are. People’s worth depends on dignity and on how you respect on it.

31

Part Two: PROBLEMS AND DEVELOPMENT STRATEGIES

Lesson 5: Problems of the Third World Countries

Third World countries - refer to the less developed or developing

countries. These are the nations that emerged from their colonial
periods - at least politically. The poorest of these countries are
located in Africa, Asia, and Latin America.
Characteristics of Third World Countries
1.Subsistence agricultural economy
The main economy of a less developed country depends on
agriculture. Most of its people work in agriculture. Its major source of
income is from export of raw materials and few kinds of crops to the
industrial countries. Natural calamities can easily shake the stability of
such economy. In addition, the prices and demand for agricultural
products are subject to the decisions of the industrial companies. More
often than not, the agricultural countries are being exploited by the
industrial countries. Prices of raw materials and crops are very low in
the world market. The industrial countries put up reasonable trade
barriers to the detriment of agricultural products. And yet the prices of
their industrial products are high, and the markets of the less developed
countries are often for industrial goods.
Another weakness of agriculture in a less developed country is its
low productivity. In many cases, it cannot even adequately supply the
food requirements of the people.

2.Low per capita income

Per capita income - is obtained by dividing the national income of a
country by the number of its people
32

3.High Birth Rate

 The Philippines has a population rate of 2.5 to 2.8 percent which is
considered the highest in the region.
4.High Illiteracy
Literacy - refers to the ability of the individuals to read and write in
their own dialects

5.Poor Health
- either undernourished or malnourished

6.Negative attitudes, values and institutions

Attitudes such as tardiness, individualism, resistance to change, lack
of self-reliance and the like are not suitable to economic development.
Likewise, political, social and economic institutions in the less
developed countries are defective.

7.Inefficient public administration

An inefficient and corrupt public administration is never expected to
execute and manage properly government programs and projects.
8.High rate of unemployment
In the Philippines, it is estimated by non-government survey that
both unemployment and underemployment constitute about 25%
percent of the labor force.
The Problems of Less Developed Countries

The Vicious Cycle of Poverty

33
Low employment = Low production = Low income = Low savings =
Low investments
The Barriers to Development
1. Improving values and institutions
Changing values and institutions in order to make more suitable to
the requirements of development is extremely difficult. If people love
their own products, people and country, if they are honest, thrifty, and
hardworking, or if they are self-reliant and dependable, it is part of their
culture. From childhood they have observed the same values from their
parents, neighbors, teachers, government officials, and religious
leaders. Since all institutions like family,school, church and government
practice the same values, it would be abnormal for individuals to deviate
from such values. Otherwise they would be ostracized by society.

2. Redistributing wealth and income

The present institution of ownership of private properties favor the
few elite. A very big portion of the wealth and income of society belongs
to them, and only about 10 percent of such resources are owned by 90
percent of the population.
3. Adopting western technology
Western technology is the technology of the United States and
Western Europe. It is modern and very efficient. Such technology has
been greatly responsible for the fast economic development of the
industrial countries. Because of this, the less developed countries have
been inclined to use the same technology in their economies.
However, in most cases the technology of the rich countries is not
appropriate for the developing countries. Among other things, the latter
have abundant labor, scarce capital, and shortage of skilled labor and
competent management. Naturally, they need a kind of technology
which is suitable to their local conditions and resources.
34
4. Preparing for industrial development
To industrialize the economy of a less developed country, social and
economic infrastructures have to be set up, such as roads, bridges,
 electricity, schools, hospitals, transportation and communication
facilities, and other social services and facilities. Likewise, agricultural
and commercial sectors have to be developed. And most important of
all, values and institutions have to be changed. All these requirements
entail huge budget, modern technology, and efficient public
administration and business management. Unfortunately, most less
developed countries are not really prepared for all of these.
5. Reducing birth rate
Many poor families have not been receptive to family planning due
to economic, social, cultural and religious reasons.
6. Eliminating economic exploitation
Even in the area of international trade, the rich countries exploit the
poor countries. The price of the raw materials and farm products of the
less developed countries are very low while the finished goods of the
industrial countries have high prices.

The Big Push

To be able to free themselves from the clutches of poverty, the less
developed countries could adopt economic measures such as:
1. The few very rich individuals have to invest their money in productive
labor intensive industries.
2. Those who are not extremely poor have to save more.
3. Scare resources have to be properly used and equitably allocated.
4. The nature of taxation should encourage employment.
5. Foreign investments should be stimulated on a selective basis so as
not to compete with the domestic efforts.
Implementing the Big Push
35
For the successful implementation of said economic measures, the
following are required :
 1. The government should vigorously initiate, encourage and assist
development.
2. Human resources development should be given the highest priority.
3. Family planning programs should be improved.
4. The agricultural sector should be developed first.
5. Appropriate technology should be used to fit the local conditions like
labor, capital, culture, land and other geographical considerations.
Questions:
What are the characteristics of third world countries ?
1.Subsistence agricultural economy
2.Low per capita income
3.High Birth Rate
4. High Illiteracy
5.Poor Health
6. Negative attitudes, values and institutions
7.Inefficient Public Administration
8.High rate of unemployment

What are the barriers to development? Explain each barrier.

Explain the vicious cycle of poverty.

Lesson 6: Agricultural Development

36
Agriculture - was derived from Latin words agercultura which means field
cultivation.
Problems of Agriculture :
  It is risky business, because natural calamities can easily destroy
agricultural investments.
 Financing, production, processing and marketing.
 Prices of farm products are not stable.
Agricultural Development in Poor Countries
In the less developed countries, agricultural resources are not only
underutilized but also inefficiently developed due to deficiency in capital,
technology and management.

Agricultural Development in Rich Countries

The highly developed countries have been successful in their
agricultural development programs because they have been equipped with
proper institutions.
Specific Contributions of Agriculture:
 Modern agriculture supplies raw materials to the industrial sector and
foodstuffs to the urban population.
 With higher agricultural productivity, people in the agricultural sector get
higher incomes.
 When agriculture applies efficiently modern machines and technology, it
is capable of releasing a portion of its labor force for employment in the
industrial sector, and in commercial enterprises.
 An agricultural economy earns more foreign exchange like dollars by
exporting more agricultural products.
 In improving the economic performance of agriculture, more jobs are
created.
 A sustained agricultural development provides a more balanced
economic development once a country has attained full industrialization.
37
Possibilities for Agricultural Development
 Irrigation
 Pests
 Fertilizer
 Inter cropping and multi-cropping
 Weeding
 Multi-use
 Harvesting and storage
 Distribution and marketing

Assessment:

Course Requirements:
1. Case study
2. Grading System
 Prelim/Midterm/Final Exam 33.3%
 Quizzes 33.3%
 Case study 33.4%

References:
Fajardo, Feliciano R.38Agricultural Economics. Manila: Rex Book Store

Fajardo, Feliciano R. and Abella, Fabian P. Cooperatives. Manila:

Rex Book Store
Fajardo, Feliciano R. and Manansala, Manuel M. Money, Credit and
Banking. Manila: National Bookstore

39