SUBJECT COURSE:

ECONOMIC DEVELOPMENT
 Economic Development

DEVELOPMENT ECONOMICS

\
Topics:
Definition of Developmental Economics
Economic Output (The Circular Flow Model)
of Gross Domestic Product (GDP) and
Gross National ProductImportance of
Allocation of Resources
I. Pre-test / Activity:

One-Sentence Summary
On your OneNote, write a one-sentence summary
(bullet points) of your key takeaways in our
discussion of quality of life, definition of development
and its objectives.
 II. Learning Outcomes

1. Understand Development and how it relates to

economic theory
2. Understand the circular flow model and its basic
components in economic analysis
1. Definition of Developmental Economics
Traditional economics - is concerned primarily with the
efficient, least-cost allocation of scarce productive
resources and with the optimal growth of these resources
over time so as to produce an ever-expanding range of goods
and services.
 Political economy goes beyond traditional economics to
study, among other things, the social and institutional
processes.
 Development economics is the study of how economies
are transformed from stagnation to growth and from low
income to high-income status and overcome problems of
absolute poverty.
Economic Output (The Circular Flow Model)
Both economic units buy and sell.
These flows are simultaneous and repetitive: the flow of
economic resources and finished goods and services is
counterclockwise, while the flow of income and
consumption expenditures is clockwise.
RESOURCE MARKET SIDE
• Business organizations are on the demand side (or buying
side) of the resource markets
• Households - as resource owners and suppliers - are on the
supply side (or selling side)
PRODUCT MARKET SIDE
• Households are on the
demand side as
consumers or buyers
• Business are on the
selling side as sellers
Figure 1. Circular Flow Model
3. Concept of Gross Domestic Product (GDP) and Gross
National Product
-Appreciation and limitations of GDP/ GNP - Is GDP/ GNP a
measure of quality of life?
• Gross national product, or GNP - includes what is produced
domestically and what is produced by domestic labor and
business abroad in a year.
Gross domestic product, or GDP is a useful indicator of a
nation’s economic performance, and it is the most commonly
used measure of well-being.
GNP - some important limitations, including:
• The exclusion of non-market transactions
• The failure to account for or represent the degree of income
inequality in society
• The failure to indicate whether the nation’s rate of growth is
sustainable or not
• The failure to account for the costs imposed on human health
and the environment of negative externalities arising from the
production or consumption of the nation’s output
• Treating the replacement of depreciated capital, the same as the
creation of new capital
• Man-made or natural calamities
• Loss to society or emotional trauma of individual is never accounted in
this system.
• Indicators provide information inherent in long-term sustainability.
• Role of minerals and mining endorse major contribution in achieving
sustainable development.
• Nonrenewable natural resources play significant place in the following
five indicators.
The Human Development Index (HDI)
• The HDI is developed as a ratio of a particular country to
the most developed country. It varies between zero and
one. Both of these additional indicators are somewhat
related to per-capita income.
Healthy Life Expectancy
• A measure used by the World Health Organization (WHO)
summarizes the expected number of years to be lived in
“full health.”
Green GNP
• Green GNP is the informal name given to national income
measures that are adjusted to take into account the
depletion of natural resources (both renewable and non-
renewable) and environmental degradation.
 VI. Other Reading Materials

Links
https://www.khanacademy.org/economics-finance-domain/macroeconomics/macro-
economic-indicators-and-the-business-cycle/macro-limitations-of-gdp/a/gdp-the-problem-of-
double-counting

https://link.springer.com/referenceworkentry/10.1007%2F978-94-007-0753-5_1211

https://www.sciencedirect.com/topics/earth-and-planetary-sciences/gross-national-product

https://www.khanacademy.org/economics-finance-domain/ap-macroeconomics/economic-
iondicators-and-the-business-cycle/limitations-of-gdp/a/lesson-summary-the-limitations-of-
gdp
 VII. References

Dowling, J.M. and Valenzuela, R. (2012). Economic

Development in Asia, Second Edition, Singapore: Cengage
Learing Asia Pte Ltd.
Todaro, M. & Smith, S. (2015). Economic Development,
Twelfth Edition, USA: Pearson
Mutya, R. (2017). Economics with Agrarian Reform and
Taxation, Anvil Publishing Inc.