I N S T R U C T I O N A L M AT E R I A L F O R E C O N O M I C D E V E LO P M E N T D E V E L O P E D B Y : P U P C S S D D E PA R T M E N T O F E C O N O M I C S

A related measure of the economy’s total output true market value of GDP.
product is gross national product (GNP), which is
the market value of all final goods and services Total expenditure on final goods and services is
produced by a nation in a single year. broken down into four large expenditure categories,
according to the type of good or service purchased.
GDP or GNI The sum total of these four expenditure categories
GDP includes only goods and services produced equals GDP. These four expenditure categories are:
by a nation’s own citizens and firms. Goods and
services produced outside a nation’s boundaries by a. Personal Consumption expenditures: This is
the nation’s own citizens and firms are included in spending by households on goods and services
GNP but are excluded from GDP. which comprise the largest share of total
CHAPTER 1 Goods and services produced within a nation’s
expenditure. Goods include household spending
on durable goods appliances and automobiles,
BASIC CONCEPTS boundaries by foreign citizens and firms are and nondurable goods, such as food and clothing.
Services include intangible items such as
excluded from GNP but are included in GDP.
NATIONAL INCOME AND OUTPUT manicure, haircuts and legal advise.
GNP = GDP + Net Factor Income from
Much of the discussions on development economics revolve around measures b. Government expenditures: Government
Abroad expenditures on consumption and investment
of economic growth, which then translates to development. The direct link goods and services are treated as a separate
between growth and development is debatable among scholars, development Net Factor Income from Abroad or Net Primary category in the expenditure approach to GDP.
workers, and policymakers. Suffice to say, that when someone asks about the Income measures the difference between the Examples of government expenditures include
earnings of the Philippines residents in other the hiring of civil servants and military personnel
level of development of a certain country, we immediately look into its gross countries and foreign residents in the Philippines.
domestic product (GDP). As such, the initial discussions delve into national and the construction of roads and public
It represents the earnings from labor services and buildings. Social security, welfare, and other
income accounting (NIA) – how do we measure the levels of human productivity, ownership of asset. transfer payments are not included in government
growth of our economies, and how governments create policies that seek to aid expenditures. Recipients of transfer payments
growth. In particular, we look at the case of the Philippines. For example, Ms. Kris Aquino has business do not provide any current goods or services in
in Singapore and since she is residing in the exchanges for these payments. Hence, government
Learning Objectives Philippines, any profits from her business in expenditures on transfer payments do not involve
• To know the meaning of development Singapore will be remitted in the Philippines. The the purchase of any new goods or services and are
• To identify the different characteristics of developing countries-classification, diversity and remittances from Singapore is not part of the GDP therefore excluded from the GDP
common characteristics of the Philippines but Philippine’s GNP.
• To learn the various measurements of development c. Net exports: Exports are goods and services
• To determine the links between growth and human development These remittances from the rest of the world are produced domestically but sold to foreigners,
part of inflows while when the foreign investors while imports are goods and services produced by
In national income accounting, it is important GDP only measures current production and does in the Philippines also remit their profits to their foreigners but sold domestically. In the expenditure
to understand the transactions between the not include production in the other periods. mother country, then this is part of Philippine’s approach to GDP, expenditures on exports are
different economic agents. This focuses on the Transfer payments are excluded because no outflows or payment. The difference between added to total expenditures, while expenditures on
measurement of indicators of aggregate output or current production takes place in return for the outflows and inflows is the NFIA. imports are subtracted from total expenditures.
income. payment. Alternatively, one can calculate net exports, which
Three Approaches in Estimating GDP are defined as expenditures on exports minus
Gross Domestic Product Final Goods and Services versus expenditures on imports, and add the value of net
GDP is defined as the market value of all final Intermediate Goods and Services Expenditure Approach exports to the nation’s total expenditures.
goods and services produced domestically in Final goods and services are goods and services The expenditure approach is to add up the market
a single year and the single most important that have been purchased for final use or goods value of all domestic expenditures made on final Income Approach
measure of macroeconomic performance. The and services that will not be resold or used in goods and services in a single year. Final goods The income approach to measuring GDP is to add
word domestic means within the country, hence, production within the year. and services are goods and services that have up all the income earned by households and firms
productions within the Philippine jurisdiction are been purchased for final use or goods and services in a single year. The rationale behind the income
included in estimating GDP. Intermediate goods and services, which are used in that will not be resold or used in production approach is that total expenditures on final goods
the production of final goods and services, are not within the year. Intermediate goods and services, and services are eventually received by households
The market value (MV) is derived by taking the included in estimating GDP because expenditures which are used in the production of final goods and firms in the form of wage, profit, rent, and
product of its per unit price and the quantities that on intermediate goods and services are included and services, are not included in the expenditure interest income. Therefore, by adding together
were produced. in the market value of expenditures made on final approach to GDP because expenditures on wage, profit, rent, and interest income, one should
goods and services. Including expenditures on both intermediate goods and services are included in obtain the same value of GDP as is obtained using
In order to calculate GDP, we simply take the sum intermediate and final goods and services would the market value of expenditures made on final the expenditure approach.
of the market values of all final goods and services lead to double counting and an exaggeration of the goods and services. Including expenditures on both
that were produced during the period. true market value of GDP. intermediate and final goods and services would Industrial-Origin/Value Added Approach
lead to double counting and an exaggeration of the The difference between the sale price and the
4 5
 I N S T R U C T I O N A L M AT E R I A L F O R E C O N O M I C D E V E LO P M E N T
production cost of a product is the value added per
unit. Summing value added per unit over all units
sold is total value added.
GDP is broken down into Agriculture, Fishery
and Forestry, Industry and Service Sectors. The
Agriculture, Fishery and Forestry sector represents
value added of three sub-sectors. Agriculture
captures value added from the production
of agricultural crops such as rice, corn, etc.,
ornamental plants and livestocks. Fishery includes
commercial and municipal fishing, aquaculture
and the harvesting of marine products. Forestry
represents activities such as logging and gathering
of forestry products.
Industry sector represents value added of firms
engaged in mining, quarrying, manufacturing,
construction and utilities.
Services sector is made up of the following sub-
sectors: transportation, communication and
storage, trade, finance, ownership of dwellings
and real estate, private services and government
services.
Nominal GDP, Real GDP, and Price Level
Nominal GDP is GDP evaluated at current market
prices. Therefore, nominal GDP will include all of
the changes in market prices that have occurred
during the current year due to inflation or deflation.
Inflation is defined as a rise in the overall price
level, and deflation is defined as a fall in the overall
price level. In order to abstract from changes in
the overall price level, another measure of GDP
called real GDP is often used. Real GDP is GDP
evaluated at the market prices of some base year.
For example, if 2000 were chosen as the base year,
then real GDP for 2005 is calculated by taking the
quantities of all goods and services purchased in
2005 and multiplying them by their 2000 prices.
Other Concepts in National Income
Accounting
There are two types of expenditures, however,
that are included in the expenditure approach to
GDP measurement but do not provide households
or firms with any form of income: depreciation
expenditures and indirect business taxes.
Depreciation expenditures, made to replace
existing but deteriorated investment goods, do
increase the incomes of those providing the
replacement goods, but they also decrease
the profit incomes of those purchasing the
replacement goods. The result is that aggregate
income remains unchanged. Indirect business
taxes consist of sales taxes and other excise
taxes that firms collect but that are not regarded
6 7
as a part of firms’ incomes. Consequently, indirect
business taxes are not included in the income
approach to GDP measurement but are included in
the expenditure approach.
In order to finetune value for a more accurate
accounting of the economy’s final product,
depreciation expenditures are deducted from GNP.
(1) Net National Product(NNP)=GNP-
Depreciation
(2) National Income (NI) =Net National Product-
Indirect Business Taxes(IBT)
National income is the income earned by the
different sectors in the economy-households,
business, and government sector-after
deducting indirect business taxes.
(3) Personal Disposable Income(PI)=NI-
(UCP+CT+GI)+TP
Where: NI=national income, UCP=undistributed
corporate profits, CT=corporate tax, TP=transfer
payments
Personal disposable income is the individual’s
income that is available for consumption and
savings.
(4) PI=Personal Consumption (C) + Personal
Savings (S)
Growth rate of GDP
What is interesting is the annual growth rate, or
year-to-year percentage change, in the value of
GDP. To calculate the percentage change in a
statistic, such as GDP, one needs to know the
value of the statistic at two dates in time. Suppose
that the value of GDP last year was GDPL and the
value of GDP in the current year is GDPC. Then, the
percentage change, or growth rate, of GDP is given
by
A positive growth rate of GDP implies that
the economy is expanding, while a negative
growth rate of GDP implies that the economy is
contracting. An expanding economy is said to be in
a boom/peak, while a contracting economy is said
to be in a recession/contraction.
Business Cycle Pattern
The four parts of a business cycle are contraction/
recession, expansion, peak/boom, and trough. The
red line, which presents a hypothetical tracking
of real GDP, is used to illustrate the alternative
parts of a business cycle. Long-run trend is the
straight, blue line. The long-run trend represents
D E V E L O P E D B Y : P U P C S S D D E PA R T M E N T O F E C O N O M I C S
the production capacity of the economy and full
employment.
1. Contraction- A period of decline in which
economic activity decreases for at least six
months is termed a contraction. Contractions, also
termed recessions. During the recession economic
output declines, therefore unemployment is rising
and inflation is declining.
2. Trough- The end of a contraction and transition
to an expansion is designated a trough. During the
trough economic output is at its lowest, therefore,
unemployment is at its highest and inflation at its
lowest.
3. Expansion- A period of growth in which
economic activity tends to increase from month
to month and year to year is termed an expansion.
The early part of an expansion is often termed a
recovery. During the recovery economic output
increases, therefore, unemployment is declining
and inflation is rising.
4. Peak- The end of an expansion and the transition
to a contraction is designated a peak. During the
peak of the business cycle economic activity
(output) is at its highest, therefore unemployment
is very low, but inflation is high.
The Business Cycle diagram.
The primary causes of the changes in output
reflected in the business cycle are changes in
spending. This could be changes in consumer
spending (C), government spending (G), business
spending on new capital (I), or purchases by
foreigners Xn).
Stabilization Policies
Government policies designed to reduce
unemployment and/or inflation.
There are two major types of stabilization policies:
demand-management policies, and supply-side
policies.
Demand-Management Policies
Policies designed to shift the AD curve in order to
reduce unemployment or to reduce inflation. Some
of the determinants of aggregate demand can be
manipulated by the government to achieve these
goals.
There are two types of demand-management
policies depending upon who conducts the policy:
1. Fiscal policy is undertaken by the president and
congress, and;
2. Monetary policy is undertaken by the Bangko
Sentral ng Pilipinas (monetary authority)
Fiscal Policy
There are two types of fiscal policy: expansionary
fiscal policy, and contractionary fiscal policy.
Fiscal Policy and the Crowding-Out Effect
Crowding out occurs when an increase in
government spending results in less spending
by the private sector. This occurs when the
government borrows more when interest rates
are low to finance its expenditures, thus pushing
interests upward. Business firms that wanted to
borrow at the lower interest rates, no longer borrow
when the interest rates went up, thus business
spending falls.
Expansionary Fiscal Policy
The goal of expansionary fiscal policy is to reduce
unemployment. Therefore the tools would be
an increase in government spending and/or a
decrease in taxes. This would shift the AD curve
to the right increasing real GDP and decreasing
unemployment, but it may also cause some
inflation.
Contractionary Fiscal Policy
The goal of contractionary fiscal policy is to reduce
inflation. Therefore the tools would be a decrease
in government spending and/or an increase in
taxes. This would shift the AD curve to the left
decreasing inflation, but it may also cause some
unemployment.
Monetary Policy for Recession and
Inflation
Easy Monetary Policy
The goal of an easy monetary policy is to reduce
unemployment during recessionary period.
Therefore, the tool would be an increase in the
 I N S T R U C T I O N A L M AT E R I A L F O R E C O N O M I C D E V E LO P M E N T
Fiscal Policy & the Crowding Out Effect. Expansionary
Fiscal Policy Diagram.
Monetary Policy for Recession & Inflation. Easy
Monetary Policy Diagram.
money supply. To increase money supply, the
Central Bank will take some combination of the
following actions; buy government securities from
banks and the public, lower reserve requirement
and lower discount rate.
The outcome would be an increase in excess
reserves and thus, an increase in money supply. An
increase in money supply will lower interest rate,
increasing investment, aggregate demand and
8 9
Fiscal Policy & the Crowding Out Effect. Contractionary
Fiscal Policy Diagram.
Monetary Policy for Recession & Inflation. Tight
Monetary Policy Diagram.
real GDP. This would shift the AD curve to the right
decreasing unemployment, but it may also cause
some inflation.
Tight Monetary Policy
The goal of a tight monetary policy is to reduce
inflation. Therefore, the tool would be a decrease
in the money supply. Central Bank will sell
government securities to the banks and the public,
D E V E L O P E D B Y : P U P C S S D D E PA R T M E N T O F E C O N O M I C S
Monetary Policy & the Net Export Effect. Easy Monetary
Policy Diagram.
increase the reserve requirement or increase the
discount rate in order to decrease the supply of
money. Banks will then realize that their reserves
are below than those required by the Central Bank.
The Central Bank needs to reduce their checkable
deposits by refraining from issuing new loans, thus,
lowering the supply of money.
The decrease in money supply will result to an
increase in interest rate. The higher the interest
rate will discourage investment, lowering aggregate
demand and restraining inflation. This would shift
the AD curve to the left decreasing inflation, but it
may also cause some unemployment.
Monetary Policy and the Net Export
Effect
Easy Monetary Policy
The adoption of an easy monetary policy during
recession has an effect to the level of exports and
imports in an economy.
When the Central Bank uses an easy monetary
policy, the demand for domestic currency will
decrease because of the decline in the level
of interest rate. The decrease in interest rate
will discourage foreign investors to invest in
the country, thus, resulting to a decrease in the
demand for domestic currency but an increase in
the demand for foreign currency because domestic
Monetary Policy & the Net Export Effect. Tight Monetary
Policy Diagram.
investors will bring their investments to other
countries that offer a higher interest rate.
The decline in the demand for domestic currency
leads to the depreciation of the domestic currency
which make the domestic products attractive to
other countries, therefore, the level of exports and
aggregate demand will increase.
Tight Monetary Policy
A tight monetary policy results to an increase in
the interest rate which encourages capital inflows.
Investors see that investing in a country that offer
a higher interest rate is profitable. This results to
an increase in the demand for domestic currency
which in turn leads to the appreciation of the
domestic currency. The effect of the appreciation
of the domestic currency is an increase in the level
of imports/decrease in exports
“Supply-Side Economics”
Supply-Side economic policy occurs when the
government tries to increase aggregate supply.
This will reduce both unemployment and inflation.
Example of these policies are removing regulation,
promoting competition among firms, providing
incentives for firm, maintaining an efficient legal
system and encouraging technological progress.
 I N S T R U C T I O N A L M AT E R I A L F O R E C O N O M I C D E V E LO P M E N T
CHAPTER 2
GROWTH AND
DEVELOPMENT
The gap between the rich and the poor as depicted in an
alternate poster of Bong Joon Ho’s critically acclaimed
2019 film, Parasite. (Source: https://mymodernmet.
com/wp/wp-content/uploads/2020/02/parasite-film-
tribute-13.jpeg).
Mad World
A lot has changed in the modern world in terms of
human and socio-economic development. Several
watershed moments in modern history contributed
to these changes—the aftermath of the Second
World War ushered further economic growth and
industrialization through post-war reconstruction
and enhancements. Former colonies gained
independence while their economies began
expanding. Of course, poverty remains a prevalent
concern, and this would remain a central issue in
the coming years.
By 1970s, the prevailing idea that economic growth
through liberal policies have become the subject of
intense debates. Major powers such as the United
States and Western Europe believe that liberal
democracy and capitalism are twin formulas for
10
socio-economic development, while the Union of
Soviet Socialist Republics (USSR) led by Russia
and a host of East European countries advocate
a socialist-communist development agenda.
Ideological battles coupled with several proxy wars
embodied the Cold well until the 1980s. In 1990,
Deng Xiao Ping awakened the dragon and opened
the Chinese economy to the world, lifting the lives
of many Chinese households out of poverty. A year
before that though, a major blow to human rights
and freedom of expression happened in Beijing’s
Tiananmen Square. Such stark contrast brings to
mind the confluence of human freedoms with that
of economic growth and development—should
one be pursued with the other as tradeoff or
should they both be endeavored by governments.
This becomes more emphasized when the Iron
Curtain fell in 1991 and the Soviet Union broke
apart. Francis Fukuyama declares this as the “end
of history” as liberal democracy triumphed over
communism.
World dynamics changed further since then.
Several economic transitions to liberal democracy
were seen as transformative as it closed gaps
between the developed and developing worlds.
A new crop of advancing economies—Brazil,
Russia, India, China, and South Africa (collectively
known as “BRICS”) were touted as the next wave
of developed economies because they have
improved incomes, gross domestic products
(GDPs), and poverty thresholds. In East Asia,
the unprecedented industrialization of Japan,
South Korea, Singapore, Hong Kong, and Taiwan
(dubbed as “tiger economies”) challenged existing
perspectives on growth and development given
the large roles played by their governments in
shaping their upward economic trajectory (see:
Peter Evans’ and Johnson Chalmers’ discussions
on “developmental states”). While we welcomed
these new developments, one should note that
development is a process attained in decades, not
years or days.
Are development gaps indeed significantly
closed by a transition to liberal democracy and
capitalism? A closer look at current realities point
a different idea. At least 2/5 of the population
remains in absolute poverty or in situations where
people are unable to meet the minimum standards
of real incomes, food, clothing, shelter, healthcare,
and other basic human necessities. Most of them
remain in subsistence economies—production
and incomes incurred are mainly for personal
consumption and the standard of living are small
even in meeting basic needs. Note that these do
not happen across worlds, i.e. between developed
and developing economies; but are significantly
evident within societies, i.e. a sprawling metropolis
D E V E L O P E D B Y : P U P C S S D D E PA R T M E N T O F E C O N O M I C S
like Metro Manila existing side-by-side “iskwater”
areas in the outskirts of the city. We have these
In this instructional material, we utilize
development economics. Todaro and Smith defines
in the slums of India (e.g. imagine Slumdog
Millionaire’s background), homoresu in Japan
it as the “study of how economies are transformed
from stagnation to growth, and from low-income
(i.e. “homeresu” are literally homeless peoples
living in subways or back alleys in major cities),
to high-income status, and overcome problems of
absolute poverty (p.10).” Its ultimate purpose is to
cage homes in Hong Kong and South Korea (e.g. help us understand the circumstances faced by
again imagine the neighborhoods in Bong Joon developing economies, which in turn may be used
Ho’s Parasite), or the favelas in South America to “improve the material lives of the majority of the
(e.g. Brazil, Colombia, and Argentina). In the same population.” Scholars, thinkers and development
society, both the luxuries and excesses of the rich workers believe that development economics, as
exist with the abject poverty of many households. any other social science, should not be value-free.
This means that we “examine economic analysis
Development and Economics and correctness of economic propositions in light
Development is a major goal for most societies, of underlying assumptions and value premises.”
but the term is quite broad and may mean many
things. We use the definition provided by Todaro We cannot say that unemployment is addressed
and Smith (p. 7, 2015): development is the process just because the numbers declined; there is a need
of improving the quality of all human lives and to examine how certain interventions affected
capabilities by raising people’s levels of living, self- employment rates or how certain definitions
esteem, and freedom. How do we attain it? affect the way we collect labor statistics. Or that
the economy and standard of living improved
We can look to traditional economics which because GDP increased as well as GDP per capita.
emphasizes utility, profit maximization and market We need to ask critical questions in order to
efficiency to induce economic growth, which better understand levels of development, degrees
then trickles down to the benefit of individuals of distribution of the benefits of development,
and households. Political economy may also and ultimately, its sustainability for the next
offer answers—merging economic analysis with generations.
practical politics, viewing economic problems in
its political context, with the end goal of producing Over the years, development acquired evolved
policies that harmonize economic and political and expanded definitions as provided in the table
incentives. below.
ERA / PERIOD DEFINITION OF DEVELOPMENT
1970 and earlier years Development means gain in an overall and per capita GNI growth trickle down to the
masses in the form of jobs and other economic opportunities or creating a wider
distribution of the economic and social benefits of growth.
During 1970 Development is redefined in terms of the reduction or elimination of poverty, inequality,
and unemployment within the context of a growing economy. Thus, redistribution from
growth became a common slogan.
1991 World Bank The challenge of development is to improve the quality of life especially in the
world’s poor countries, a better quality of life generally calls for higher incomes-but it
involves much more. It encompasses as ends in themselves better education, higher
standards of health and nutrition, less poverty, a cleaner environment, more equality of
opportunity, greater individual freedom, and a richer cultural life.
Dudley Seers raises important questions on development. Denis Goulet note that “the prevalent
the “redistribution from growth” discourse and emotions of underdevelopment is a sense of
challenges development thinkers: if poverty, personal and societal impotence in the face of
unemployment, and inequality are growing worse, disease and death, of confusion and ignorance
“it would be strange to call the result ‘development’ as one gropes to understand change, of servility
even if per capita income doubled (p. 17 in Todaro towards men whose decisions govern the cause of
and Smith, 2015).” events, of hopelessness before hunger and natural
catastrophe.”
Aside from these numbers, the emotions and
insights of the actual poor individuals and What is clear then among the discussions is the
households are also important gauges of “multidimensionality” of development. It does
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 I N S T R U C T I O N A L M AT E R I A L F O R E C O N O M I C D E V E LO P M E N T D E V E L O P E D B Y : P U P C S S D D E PA R T M E N T O F E C O N O M I C S

not just pertain to economic advancements and
growth in productivity, but equally places emphasis
on positive improvements in social structures,
popular attitudes and national institutions. It also
ensures that inequalities are reduced, and poverty
is ultimately eradicated.
individuals and households, and in the process
reducing the various sources of disparities which
affect functionings and hinder capabilities.
In other studies, happiness is also seen as a
measure for development. It is, to a certain extent,
an indicator of well-being—greater happiness can
3. To expand the range of economic and social choices available to individuals and nations by freeing
them from servitude and dependence not only in relation to other people and nation-states but also to the
forces of ignorance and human misery.
Core Values of Development Economics
CORE VALUES DEFINITION

Development as Freedom;
Happiness as a Measure of Development
This is the ultimate thesis of Amartya Sen’s
revolutionary “capabilities approach” in
development economics. Development is the
end goal, but also in itself, a means to achieve
and enjoy freedom. Development relies on an
individual’s “functionings,” “what people do or can
do with the commodities of given characteristics
that they come to possess or control.”
These functionings depend on social conventions
enforced in a certain society where an individual
resides; the position of the person in the family
and in the society; the presence or absence of
festivities (e.g. marriages, seasonal festivals,
funerals); and an individual’s physical distance
from the home of friends, extended families, or
relatives.
broaden a person’s capability to function, and Sustenance Ability to meet Basic Needs such as food, health, shelter, and protection. Have enough
thereby ensure improvements in the quality of in order to be more. Rising per capita incomes, the elimination of absolute poverty,
living. Richard Layard outlines seven (7) factors greater employment opportunities, and lessening income inequalities therefore
constitute the necessary but not the sufficient conditions for development.
that affect national happiness: family relationships,
financial situations, work, community and friends, Self-esteem To be a Person. A sense of worth or self-respect, of not being used as a tool by others
health, personal freedom, and personal values. for their own needs. As Denis Goulet put it, “Development is legitimized as a goal
because it is an important, perhaps even as indispensable, way of gaining esteem.
With financial security or situation in the mix, Freedom from servitude To be able to choose. Constitutes the value of human freedom. Amartya Sen writes
the question “can money buy happiness” finds a of “development as freedom”. W. Arthur Lewis, emphasized the relationship between
new perspective. A certain study notes that an economic growth and freedom from servitude when he concluded that “the advantage
average income of $10,000 to 20,000 per capita
of economic growth is not that wealth increases happiness, but that it increases the
range of human choice.”
helps citizens escape poverty, and thereby connote
higher levels of happiness. Such an income may
satisfy certain basic needs and a few luxuries as
people may now have disposable incomes. For
developing economies, it “reaffirms the importance
of economic development... whether the objective
is solely happiness or more inclusively and
persuasively expanded human capabilities.”

It is further defined by sources of disparities which

include: (1) personal heterogeneities (e.g. disability,
illness, age, gender); (2) environmental disparities
(e.g. access to heating, weather experiences,
infectious diseases, etc.); (3) variations in social
climates (e.g. prevalence of crime and violence,
degree of “social capital”); (4) resource distribution
within the family (e.g. economic status, shared
consumption, income of the family); and (5)
differences in relational perspectives (i.e. some
goods are essential because of local traditions and
customs, or social norms).
For Sen, functioning in itself is an achievement—it
is different from just obtaining a certain good
or service, to actually utilizing it and extracting
happiness or sustenance from such good or
service. A person’s valuation of certain perks in life
or worthwhile endeavors therefore varies, and “is
not necessarily the same as what gives pleasure to
that person.” In essence, a person enjoys freedom,
and thereby development, when functionings turn
into capabilities.
An individual has the ability to choose functionings,
given personal features and command over
commodities. What does this tell us? Societies
should endeavor towards improving human
functionings and turning them into capabilities;
broadening the set of choices available to
12
Mapping happiness and development. (Source: Todaro
and Smith, 2015, p. 21).
Three Objectives of Development
1. To increase the availability and widen the
distribution of basic life-sustaining goods such as
food, shelter, health and protection.
2. To raise levels of living, including, in addition to
higher incomes, the provision of more jobs, better
education, and greater attention to cultural and
human values, all of which will serve not only to
enhance material well-being but also to generate
greater individual and national self-esteem.
The map shows the Global North and Global South.
This illustrates the geographical inequality between
major regions of the world. (Source: https://images.
mapsofworld.com/answers/2018/06/world-map-global-
north-and-south-division.jpg)
Comparative Development
Geographically speaking, most of the developed
countries are in North America and Europe, hence
the term Global North or First World; while those
that have lesser incomes and are developing
economies so to speak are found in Latin America,
Africa, and Asia—the Global South or Third World.
The terms are used interchangeably, but First
World-Third World were products of the Cold War
discourse. First World countries include US and
majority of Western Europe which advocate for
capitalism and liberal democracy; while the Soviet
Union and its allies (i.e. Union of Soviet Socialist
Republics or USSR; mostly from Eastern Europe)
push forward a more socialist economic model
and are called the Second World. Other countries
not aligned with or overtly included in these two
major camps—mostly from Asia, Africa and Latin
America (i.e. former colonies by US and European
World income distribution by percentile and region.
(Source: Todaro & Smith, 2015, p. 12).
countries) are called the Third World. With the
decline of socialism and the fall of the Soviet
Union, the terms First World and Third World
remained in the discourse. It remains a powerful
illustration of the impact of “uneven systems of
political power” towards economic and human
development. San Juan (2018) notes that whatever
term used, inequality is real and undeniable.
For the World Bank, development is characterized
by levels of income. Lower income countries are
those with GNI per capita of $1,025 and less.
Middle income countries are divided into two: lower
middle-income countries have GNI per capita of
$1,026 to 4,035, while those with $4,036 to 12,475
are upper middle-income countries. Countries with
GNI per capita amounting to $12,476 and above
are high income countries. To a certain extent, the
level of industrialization and access to international
markets are also factored in the development
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 I N S T R U C T I O N A L M AT E R I A L F O R E C O N O M I C D E V E LO P M E N T
Countries classified by gross national income (GNI) per capita. (Source: Todaro & Smith, 2015, p. 46).
discourse. The World Bank categorizes countries
with relatively advanced level of economic
development with a substantial and dynamic
industrial sector and close links to international
trade and financial markets as newly industrialized
countries (NICs). These include Japan, South
Korea, Taiwan, Singapore, and Hong Kong.
Note however that income levels do not fully
describe the depth of development in a certain
economy. For instance, oil-producing countries
in the Middle East such as Saudi Arabia and
Kuwait have higher incomes, but their citizens
do not fully enjoy better healthcare or access
to education; women are not allowed to drive in
Saudi Arabia, until recently. Basic indicators such
as real incomes, purchasing power parity, and
access to health and education, are also important
considerations for development. This is embodied
in the Human Development Index (HDI) which
measures socio-economic development based
on combining measures of education, health and
adjusted real incomes per capita. This is further
discussed in the chapter on poverty.
In essence therefore, the world is divided into two:
the developed world, also called First World or the
Global North, and the developing world or the Third
World or Global South. Developing countries are
characterized by these ten (10) characteristics:
1. Low levels of standard of living and productivity.
People may be skilled workers but are
underemployed because labor sectors are not fully
matured or unable to absorb them for employment.
In other cases, workers lack the necessary
14
trainings or advanced skills to allow them to be
more productive or move up the socio-economic
ladder. Overall, productivity is stunted.
2. Low levels of human capital. Societies have poor
literacy rates, diminished access to education, with
most of its people unable to reach higher levels
in school or barely finishing primary education. It
also factors in malnourishment, difficult access
to healthy food sources and hospitals for health
needs.
3. High levels of income inequality and absolute
poverty. The gap between the rich and poor are
wide, often easily characterized by sprawling
metropolises and high-rise condominiums
juxtaposed with slum areas in the outskirts of
town.
4. High population growth rates. Compared to
high-income countries, least developed countries
experience higher population growth rates, with
large youth population. Reproductive health
policies are also less prioritized and/or poorly
implemented, contributing to high population.
5. Greater social fractionalization. Racial and/
or ethnic tensions are present and may heighten
conflicts in these countries. When unresolved, it
may result to civil wars which exacerbate already
debilitating challenges of hunger, malnutrition, and
violence.
6. Large rural populations but rapid rural-to-
urban migration. Because of unequal economic
development, rural populations are forced to
D E V E L O P E D B Y : P U P C S S D D E PA R T M E N T O F E C O N O M I C S
leave their farmlands in search of better income
opportunities in urban centers and megacities.
To a certain extent, this also includes labor
migration from developing to developed countries.
Adverse spillover effects include brain drain, weak
economic foundations, and poor growth of the
countryside. Agricultural economies are also left
behind as children choose jobs in the services
sector instead of continuing farming and fisheries
without any guarantee of improved incomes.
7. Low levels of industrialization and manufactured
exports. Stages towards industrialization
failed to mature or fully develop because of
poor investments or technological shifts.
There is greater emphasis for imports instead
of improving the export economy. In many
developing economies, there is a skewed
preference for the services sector, leaving behind
manufacturing which could have been essential for
industrialization.
8. Adverse geography. While studies already
eschew the idea of “geography is destiny,” at some
point it also affects development. For instance,
landlocked economies have lesser access to
natural resources essential for food production or
even expanding economic endeavors. A country
also sandwiched in conflict zones may find it
difficult to fully experience development given
the presence of crime and violence. Climate
CHAPTER 3
SUSTAINABLE DEVELOPMENT GOALS (SDGs)
The Sustainable Development Goals. (Source: https://global.unitednations.entermediadb.net/assets/mediadb/
services/module/asset/downloads/preset/)
change and natural disasters also complicate
development.
9. Underdeveloped financial and other markets.
Similar to levels of industrialization, the maturity
of financial and other markets is also essential
to economic growth and development. Access
to banks and credit facilities, for instance, are
important in expanding opportunities for citizens to
engage in entrepreneurial activities and livelihood
opportunities.
10. Lingering colonial impacts such as poor
institutions and varying degrees of external
dependence (economic, political, cultural, and
environmental). The developing world are largely
former colonies of those in the developed
world; and this just shows the lasting impact of
colonialism and imperialism. Colonial masters
plundered much of their colonies to enrich their
production and expand their spheres of influence
during the 18th century until the half of the 20th
century. Aside from plundered resources, colonial
masters have also significantly altered political,
social, and economic institutions, influenced
certain norms, and introduced ideas foreign to
what these societies first believed in. Today,
colonies have attained independence, but often
nominal as their economies are still tied to their
colonial masters (e.g. several African countries are
still paying colonial taxes to France).
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 I N S T R U C T I O N A L M AT E R I A L F O R E C O N O M I C D E V E LO P M E N T D E V E L O P E D B Y : P U P C S S D D E PA R T M E N T O F E C O N O M I C S

In 2000, countries signed into agreement the eight

(8) Millennium Development Goals (MDGs) to
address the “indignity of poverty.” It “established
measurable, universally-agreed objectives for
tackling extreme poverty and hunger, preventing
deadly diseases, and expanding primary education
to all children, among other development priorities.”
For 15 years of implementation of these goals, the
world was able to reduce income poverty, provide
much needed access to water and sanitation,
drive down child mortality and drastically improve
maternal health. It has made significant strides in
addressing the world’s biggest health challenges
such as HIV/AIDS, tuberculosis, malaria and other
communicable but treatable diseases.
Moving forward with MDGs, the world formulated
17 Sustainable Development Goals (SDGs). It
brings to the fore lessons learned from MDGs,
refining further our collective visions towards a
sustainable and inclusive future. First, the SDGs
believe that no one should be left behind—extreme
poverty in all its forms then should not just be
reduced, but eradicated. Second, sustainability is
at the heart of every development agenda. Third,
jobs and economies are transformed to become
more inclusive, with patterns of work and life
becoming more sustainable. Fourth, institutions
should endeavor to pursue peace and become
more effective, open and accountable. Here, we
emphasize the rule of law, property rights, free
speech and media, open political choices, access
to justice, and accountable governments and
public institutions. Finally, global partnerships
should not only bring together business networks
and the private sector but other important
stakeholders such as governments, non-
government organizations, civil society groups and
ultimately, the people.
The United Nations adopted “People,
Prosperity, Planet, Peace, and Partnership”
as its framework for determining and
implementing the 17 Sustainable Development
Goals. It shows “how the SDGs are an
intertwined framework instead of a group
of siloed goals. Progress on one P must
balance and support progress on another.”
(Photo Source: https://twitter.com/SustDev/
status/647436962324942849?s=20)
Learn more about the SDGs and UN here:
https://unfoundation.org/blog/post/the-
sustainable-development-goals-in-2019-
people-planet-prosperity-in-focus/
STUDENT EXERCISE / ASSESSMENT
Critique the Philippine Development Plan 2017-2022
The Duterte Administration’s crafted its medium-term development plan. It aims to contribute to the
overall goal of achieving Ambisyon Natin 2040, the Philippine government’s long-term plan to improve
the lives of many Filipinos and bring to life our collective vision of a “Matatag, Maginhawa, at Panatag na
Buhay para sa Lahat.” As a group, read the framework of PDP and critique its contents. In particular, use
the following guide questions to write down your critical analysis essay:
• What is the main goal of PDP 2017-2022?
• How does it view development and quality living for Filipinos?
• How does the development plan address continuing problems on poverty and inequality in the
country? Assess if these policies and programs are adequate to tackle the problem; discuss why is it
adequate, or why is it not enough?
• Based on what you’ve learned so far in class and your personal observations, how should we
frame our development plans?
The Abridged Version may be downloaded here: http://www.neda.gov.ph/wp-content/uploads/2017/12/
Abridged-PDP-2017-2022_Final.pdf; while the full version may be accessed here: http://pdp.neda.gov.ph/
wp-content/uploads/2017/01/PDP-2017-2022-07-20-2017.pdf.
REFERENCES USED FOR THIS PART
Dowling, J. Malcolm & Ma. Rebecca Valenzuela (2011), Economic Development in Asia, 2nd ed., Pasig
City, Philippines: Cengage Learning Asia Pte Ltd.
Kuznets, S. (1966). Modern Economic Growth: Rate, Structure and Spread. Yale University Press: New
Haven, Connecticut.
Sachs, J. (2015). The End of Poverty: Economic Possibilities for our Time (10th Ed.) Penguin Group:
place.
San Juan, D.M.M. (2018). Journeys Through Our Contemporary World. Vibal Group: Quezon City,
Philippines.

Seidman, K. F. (2005). Economic Development Finance. Thousand Oaks: Sage Publications: place.

Todaro, M. P., & Smith, S. (2015). Economic Development (12th ed.). Pearson: New York, United States.

Online: www.neda.gov.ph; www.

REVIEW QUESTIONS
1. Cite five (5) major issues of economic development in the world today.

2. What matters for growth is not so much the rate of investment but the efficiency with which it is used
and the policy environment in which it takes place.’ Discuss this statement using relevant data and
literature relating to at least two developing countries.

3. Why did so many countries in Sub-Saharan Africa experience economic stagnation in the 1980s and
1990s? Is there any evidence of recovery in the last decade?

4. The rapid economic growth of China and India in the last twenty years owes much to the size of theirs
economies, so their experience cannot be replicated in smaller economies.’

5. What is the relation between economic growth and economic development?

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