Defining

Development
ECON 3.

ECONOMIC DEVELOPMENT
Growth vs. Development
Economic growth:

◦ Narrower concept than development

◦ Increase in country’s real level of national output caused by an increase in

quality and quantity of resources
Growth vs. Development
Economic development:

◦ An increase in living standards, improvement in self-esteem needs and

freedom from oppression as well as a greater choice

◦ “The process of improving the quality of all human lives and capabilities by
raising people’s levels of living, self-esteem, and freedom” (Todaro and
Smith, 2012)
Growth vs. Development
Economic development:

◦ One method of measuring development is the HDI which takes into account
the literacy rates & life expectancy which affect productivity and could lead
to growth
In Focus: The HDI
To broaden the development debate beyond income poverty, the Human
Development Report introduced the HDI. This index measures countries’
achievements in terms of:

◦ a long and healthy life, measured by life expectancy at birth;

◦ knowledge, measured by adult literacy rate and the combined primary,
secondary, and tertiary gross enrollment ratio; and
◦ a decent standard of living, measured by GDP per capita in purchasing
power parity (PPP) (in US dollars)
In Focus: The HDI
World Map of Countries by HDI
In Focus: The HDI
For data on HDI:
https://ourworldindata.org/h
uman-development-index
In Focus: The HDI
United Nations Development Program: “Human
Development Reports,” http://hdr.undp.org/en/2020-
report.
According to the United Nations
Development Programme, in 2015 the
Philippines ranks 116th, two notches
below its 2014 rank as 114th, of the 188
countries included in the Human
Development Report. The country’s life
expectancy at birth is 68.3 years,
expected years of schooling is 11.7,
mean years of schooling is 9.3, and
gross national income per capita is
8,395 US dollars.
Growth vs. Development
Economic growth:
◦ does not take into account the size of the informal economy
◦ Sector that is not regulated or protected by the state

Economic development:
◦ alleviates people from low standards of living into proper employment with
suitable shelter
Growth vs. Development
Economic growth:
◦ does not take into account the depletion of natural resources which might
lead to pollution, congestion and disease

Economic development:
◦ is concerned with sustainability which means meeting the needs of the
present without compromising future needs
Environmental Kuznets Curve
Development and Globalization
Since 1945, there were high levels of economic growth and
unprecedented official development policies

These are largely due to international institutions that facilitate:

◦ Trade – GATT, later on WTO
◦ Finance – IMF
◦ Multilateral development cooperation – World Bank
Development and Globalization
But while the world is getting smaller because of economic
globalization, societies are not necessarily growing closer to each
other
◦ There is wide gap in income and living standards within and among
countries (called the Global Divide)

The world continues to face these perennial problems:

◦ Underdevelopment, poverty, and inequality
Development and Globalization
Some people continue to live in absolute poverty
◦ A situation of being unable to meet the minimum levels of income, food,
clothing, health care, shelter, and other essentials.

Some societies continue to be a subsistence economy

◦ An economy in which production is mainly for personal consumption and
the standard of living yields little more than basic necessities of life—food,
shelter, and clothing.
Traditional Perspectives of
Development
In the past, development was equated with income and
growth
◦ For example, in comparing levels of development, the World Bank ranks
countries in terms of per capita income

◦ Income per capita is the total gross national income of a country divided by
its total population.
Traditional Perspectives of
Development
◦ Gross national income is the total domestic and foreign output claimed by
residents of a country. It comprises gross domestic product (GDP) plus
factor incomes accruing to residents from abroad, less the income earned
in the domestic economy accruing to persons abroad.

◦ Gross domestic product (GDP) is the total final output of goods and
services produced by the country’s economy, within the country’s territory,
by residents and nonresidents, regardless of its allocation between
domestic and foreign claims
Traditional Perspectives of
Development
However, today, to determine how many people benefit from
economic growth, one must look at other factors other than
income and growth
◦ Another important factor is income distribution

◦ Income inequality is a measure of how the wealth in the economy is

distributed among the population
In Focus: Grow, Poverty and
Inequality
Properties of growth, inequality and poverty:
◦ Holding inequality constant, growth ↑ poverty ↓
◦ Holding growth constant, inequality ↑ poverty ↑

So, if the objective is to reduce poverty, then growth is a

plus for poverty reduction and increased inequality a
minus
In Focus: Grow, Poverty and
Inequality
“Is growth good for the poor?”

◦ Yes, if growth is viewed in isolation.

◦ But if growth is accompanied by increased inequality, then the net effect is
no longer clear
In Focus: Grow, Poverty and
Inequality
“Is growth good for the poor?”

◦ Yes, if growth is viewed in isolation.

◦ But if growth is accompanied by increased inequality, then the net effect is
no longer clear
Traditional Perspectives of
Development
Income inequality is important in part because it tells about
the conditions in the society: the privileged wealthy lead
luxurious lives while some people live in poverty

◦ Income inequality is also a constraint on development

New Perspectives of Economic
Development
1998 laureate of the Nobel
Memorial Prize for Economic
Sciences

◦ Developed more sophisticated

measures of poverty, and for his
work on the causes and prevention
of poverty
New Perspectives of Economic
Development
Amartya Sen:

◦ “Poverty is not just the lack of money; it is not having the capability to
realize one’s full potential as a human being.”

◦ “Freedoms are not only the primary ends of development, they are also
among its principal means.”
New Perspectives of Economic
Development
In effect, Sen argues that poverty cannot be properly measured by
income or even by utility as conventionally understood.

What matters fundamentally is not the things a person has—or the

feelings these provide—but what a person is, or can be, and does,
or can do.
New Perspectives of Economic
Development
To make any sense of the concept of human well-being in general,
and poverty in particular, we need to think beyond the availability
of commodities and consider their use: to address what Sen calls
functionings

◦ Refer to what a person does (or can do) with the commodities of
given characteristics that they come to possess or control
New Perspectives of Economic
Development

◦ Capabilities refer to the freedoms that a person has in terms of the

choice of functionings, given his personal features (conversion of
characteristics into functionings) and his command over commodities
New Perspectives of Economic
Development
Sen’s perspective helps explain why development economists have placed so
much emphasis on health and education, and more recently on social
inclusion and empowerment, and have referred to countries with high levels
of income but poor health and education standards as cases of “growth
without development.”
Recent Development Efforts
UN Millennium Summit (2000)
◦ One of the largest gatherings of world leaders
◦ Aim: to define the role of the UN at the turn of the 21st century
◦ Outcome: UN Millennium Declaration
Recent Development Efforts
Recent Development Efforts
UN Millennium Development Goals
◦ Derived from the UN Millennium Declaration
◦ Eight international development goals through 2015
◦ All member states as well as other IOs have committed to the MDGs
◦ Target year: 2015
Recent Development Efforts
Recent Development Efforts
UN Conference on Sustainable Development (2012)
◦ Outcome: SDGs
◦ 17 Development Goals for the world’s future
◦ Backed up by 169 detailed targets
◦ Negotiated over a two-year period at the UN
◦ Agreed to by nearly all the world’s nations in 2015
Recent Development Efforts
Sustainable Development Goals
◦ Characteristics:

1. Universality
◦ First, and most important, these Goals apply to every nation and
every sector. Cities, businesses, schools, organizations, all are
challenged to act.
Recent Development Efforts
2. Integration
◦ Second, it is recognized that the Goals are all interconnected, in a
system. We cannot aim to achieve just one Goal. We must achieve
them all.

3. Transformation
◦ And finally, it is widely recognized that achieving these Goals
involves making very big, fundamental changes in how we live on
Earth.
Recent Development Efforts