World map

CHAPTER 1 ©E.Wayne Nafziger Development Economics

 Chapter 1

Introduction

CHAPTER 1 ©E.Wayne Nafziger Development Economics

 Chapter organization
• Chapters 1-5 focus on principles and concepts of
economic development.
• Chapters 6-7 examine income distribution, including a
discussion of the distribution between urban and rural
areas and the process of agricultural transformation.
• Chapters 8-13 analyze the role of population, production
factors, and technology in economic development, with
special emphasis in Chapter 13 on the environment and
natural resources.
• Chapters 14-17 discuss the macroeconomics and
international economics of development.
• Chapter 18 looks at planning for economic development.
• Chapter 19 analyzes stabilization, adjustment, reform, and
privatization.
CHAPTER 1 ©E.Wayne Nafziger Development Economics
 HOW THE OTHER TWO-THIRDS LIVE

Inequality between the world’s rich and poor

• Development economics focuses primarily on the

poorest two-thirds of the world's population.
• These poor are the vast majority, but not all, of the
population of developing countries, which
comprise 82 percent of the world’s population.
• If you have an average income in the United
States and Canada, you are among the richest 5
percent of the world's population.

CHAPTER 1 ©E.Wayne Nafziger Development Economics

 Inequality between the world’s
rich and poor
• 700-1,000 million (10-15%) of world’s 6.5 billion (5.3
billion in less developed countries or LDCs) are living
on no more than $1/day (i.e., in 1985 prices, $1.50 in
1993 prices, $2/day in 2005 prices).
• A person’s material well-being (whether rich, poor, or in
between) is tied to the long-run growth record of his or
her country, a focus of this course.
• Income inequality is even greater for the world as a
whole than for South Africa and Brazil.

CHAPTER 1 ©E.Wayne Nafziger Development Economics

 A North American family
• An average family in the United States and Canada.
• A family of four.
• Has an annual income of $55,000 to $60,000.
• Lives in a three bedrooms apartment, a living room,
kitchen.
• Three meals a day.
• Children are in good health.
• Average life expectancy of 77 years.
• Both parents received a secondary education.
• Jobs relieved by modern machinery and technology.
• However, they may experience stress, frustration,
boredom, insecurity.
CHAPTER 1 ©E.Wayne Nafziger Development Economics
 Farm families in a low-income
country, India
• Illustrates majority of the world’s low income population in Asia,
Africa, and Latin America.
• Father, mother and their four children.
• Combined annual income of $900 to $1200.
• Family receives consumption shares from the landlord in return for
agricultural work.
• The rice-based daily meal.
• One-room mud house thatched with palm leaves, and the crudely
stitched clothing are produced locally.
• No electricity, clean water, or latrine.
• Average life expectancy is 63 years.
• Neither parents can read or write.
• Contrast to tiny middle and upper class in peasant, agricultural society.

CHAPTER 1 ©E.Wayne Nafziger Development Economics

 Asia’s Development
• Asia’s Golden Age of Development

• Asia’s Competition

• Asia/US Relative Income

CHAPTER 1 ©E.Wayne Nafziger Development Economics

 Globalization, Outsourcing, &
Information Technology
• India & other Asian economies gain from
economic growth and reform.
• A.P. D’Costa (2003): of India “You have fiber
optic lines running parallel with bullock
carts.”
• India’s and US’s worlds increasingly
intersecting.
• Asia’s competition and American protests.

CHAPTER 1 ©E.Wayne Nafziger Development Economics

CHAPTER 1 ©E.Wayne Nafziger Development Economics
Critical Questions in Development Economics

1. How do the poorest two-thirds of the world live?

2. What is the meaning of economic development and economic growth?
3. What is the history of economic development? How have developing
countries performed economically in the last half century?
4. What are the major characteristics and institutions of developing
countries?
5. What are the major theories of economic development?
6. Has economic growth in the third world improved the living conditions
of its poor?
7. How can poverty be reduced in the rural areas of low-income
countries?
8. What effect does population growth have on economic development?
9. Why is there so much unemployment in developing countries?
10. What factors affect labor skills in the third world?
continued

CHAPTER 1 ©E.Wayne Nafziger Development Economics

Critical Questions in Development Economics

11. What criteria should be used to allocate capital between alternative

projects? How important are information and other technology in
economic development?
12. What factors contribute to successful entrepreneurial activity in
developing countries?
13. Are humankind’s economic policies sustainable over the next few
centuries?
14. What monetary and fiscal policies should a country use to achieve
economic development with price stability?
15. How can less-developed countries (LDCs) export more and import
less?
16. What policies can ease the international debt and financial crises in
developing countries?
17. What trade strategies should developing countries use?
18. Should developing countries rely on market decisions or state
planning in allocating resources?
19. Do price and exchange-rate decontrol, financial liberalization,
deregulation, and privatization improve LDC performance?
CHAPTER 1 ©E.Wayne Nafziger Development Economics