Economic Development

Concepts and Issues

Abdul Baki
Director, BPATC
abaki_23@yahoo.com
Outline
 Definition
 Different views on Development
 Growth vs Development
 Core values of Development
 Objectives of Development
 Development as freedom
 Human Development Index
 Conclusion
 Development !!!! ????.........
 What is the meaning of growth if it is not translated into the lives of people?
- UNDP Human Development Report 1995
 Development can be seen ….. as a process of expanding the real
freedoms that people enjoy.
- Amarya Sen, Nobel Laureate in Economics.
 Our primary goal in development must be reduce the disparities across and
within countries….. The key development challenge of our time is the
challenges of inclusion.
- James D. Wolfensohn, Former President, World Bank
 For a poor person everything is terrible – illness, humiliation, shame. We
are cripples; we are afraid of everything; we depend on everyone. No one
needs us. We are like garbage that everyone wants to get rid of.
- A blind woman from Moldova
Meaning of Development

Development is not purely an economic

phenomenon but rather a multi-dimensional process
involving reorganization and reorientation of entire
economic AND social system.

Development is process of improving the quality of

all human lives.
 Meaning of Development
TRADITIONAL ECONOMIC MEANING

Development is the CAPACITY of the national economy, whose

initial economic condition has been more or less static for a long
time, to GENERATE and SUSTAIN an annual increase in its
GROSS NATIONAL PRODUCT at rates of 5% to 7%

There is a stress on the industrialization often at the expense

of agriculture and rural development.

DEVELOPMENT is seen as an economic phenomena in

which rapid gains in overall growth would either tric kle d o wn
to the masses in the form of jobs and other economic
opportunities.
Meaning of Development
NEW ECONOMIC VIEW

 DEVELOPMENT is the reduction or elimination of poverty,

inequality and unemployment within the context of a growing
economy.

 The development of PEOPLE rather than development of

things.
 The challenge of development is to IMPROVE the quality of
life. Especially in the world’s poor countries.

 Development means less poverty, cleaner environment, more

equal opportunity, greater individual freedom and a richer
cultural life.
Sen’s View

“Economic growth cannot be sensibly treated

as an end in itself. Development has to be
more concerned with enhancing the lives we
lead and the freedoms we enjoy.”

Amartya Sen
Development as Freedom
1998 Nobel Laureate in Economics
Sen’s cont’d..

 Sen attempts to expand the basic interpretations of

freedom by examining five elemental forms of
instrumental freedoms:
 political freedoms,
 economic facilities,
 social opportunities,
 transparency guarantees, and
 protective security.

 These freedoms constitute not only the means, but

also the ends in development.
Common Characteristics of
Developing Nations

 Political instability  High levels of

 Policy inconsistency unemployment and
 Low levels of living underemployment
standard  Dependence on
 Low levels of agricultural
productivity production and
 High rates of primary-product
population growth exports
and dependency  Prevalence of
burdens imperfect markets
 Resource gap  Weak institutions
Growth vs Development

 Economic growth is the increase of a nation’s real output

(GDP).
- Is a quantity based concept - not quality based
- A direct measure of changes in the size of the
economy
 Economic development is the process by which a nation
enhances its standard of living over time.

 GDP per capita is considered as a key indicator of

Development.
Objectives of Development

The improvement in the access and

distribution of basic necessities

The improvement of living standards

The expansion economic and social

opportunities
Three Core Values of Development

Sustenance: The Ability to Meet Basic Needs

All the persons have certain basic needs which are necessary
for the survival. They consist of food, shelter, health and
protection. If any one of them is missing or in short supply in
any economy it would represent the state of under-
development.
Self-Esteem: To Be a Person
A second universal component of the good life is a self-esteem,
a sense of worth and self-respect. It means that the other
people could not use him for their own ends. It also means that
each person should be given his due respect and due right.
Three Core Values of Development
(cont’d..)

 Freedom from Servitude: To Be Able to choose

 The third universal value required for economic development
is concerned with human freedom. By freedom it means the
emancipation from alienating material conditions of life and
from social servitude to nature, ignorance, other people,
misery, institutions and dogmatic beliefs.
 Economic Development: How the notion evolved
over time

 Economic history of the modern world started with the

Industrial Revolution (17th Century)

 Factory-based industrial production came into being

 Markets expanded :
 Division of labour promoted large-scale production.
 Larger surplus led to greater capital formation, investment,
production capacity and growth of income

 The economy transformed gradually

- From a primarily agricultural to an industrial economy
 Cont’d…..
 Arthur Lewis’ model of Economic
Development
- Mobilize surplus generated by agriculture.

- Use this surplus to set up industry.

- Shift surplus labour from agriculture to newly set up

industry.

- This will set in a process of industrialization and

income growth.
Cont’d…..
 The Trickle Down question :

- Does a higher overall income growth rate mean a

higher income level for all?
 Experience of countries during the 1960s :
 Most developing countries of Asia, Africa & Latin
America experienced income growth along with rising
income inequality
 In most of these countries incidence of absolute
poverty increased.
 Cont’d….
 Simon Kuznets’ hypothesis :
– With rising per capita income, income inequality rises
first and then starts declining after a threshold income
level has been crossed.

 Many country experiences corroborated this hypothesis.

 Policy implication of Kuznets’ hypothesis:

 Intervention needed to improve income
distribution & alleviate poverty of the population.
Cont’d….

 Poverty took up the centre stage of

development discussions in late 1970s
 Concept of Absolute Poverty in terms of Food
Security & Nutritional Inadequacy evolved
 Along with per capita income & income
inequality measure, incidence of poverty
became a major development indicator of the
developing countries of the World.
Cont’d….
 In mid 1980s, Professor Amartya Sen enunciated a
comprehensive notion of Human welfare in terms of
his famous Entitlement, Capabilities & Functioning
concepts.
 In brief :
- Welfare / Well being derives from consumption
(of goods & services)
- Access to consumption requires Entitlement (in
terms of purchasing power for procuring goods &
services for consumption)
Cont’d….

 Capabilities (defined in terms of health, access

to education, Knowledge & information) helps
converting consumption into welfare i.e
command over commodities

 Lack of entitlement / capabilities is defined to be

violation of proper Functioning
Development puzzle

Growth without Development

 High level income
 Poor health and education standard
 High inequality
 Development puzzle cont’d…..

 The World Bank (2005) : “different policies can yield the same result,
and the same policy can yield different results, depending on country
ins titutio na l c o nte x ts a nd und e rly ing g ro wth s tra te g ie s .”

 There is no single set of policies that can be guaranteed to ignite

sustained growth. Nations that have succeeded at this tremendously
important task have faced different sets of obstacles and have
adopted varying policies .

 It seems harder than ever to identify the keys to growth. For every
example, there is a counter-example. The current nostrum of o ne
s iz e d o e s n’t fit a ll is not itself a big idea, but a way of expressing the
absence of any big ideas.
Development is fragile and unpredictable (!!)

 Brazil and Cote d’Ivoire were success stories of 1960-

80, China and India were definitely NOT
 China and India are success stories 1980-2007, Brazil
and Cote d’Ivoire definitely NOT
 Different answers that have disappointed: investment,
education, health, privatization, structural adjustment,
population control, foreign aid.
 No consensus among development economists about
how to achieve development
Freedom from foreign control

 Growth under colonialism was poor, growth has been

much higher since independence in most countries
 Growth under foreign aid/structural adjustment is poor
 Most successful examples of growth are homegrown :
China, India, Vietnam, Turkey, Chile, Singapore, Taiwan,
South Korea, Mauritius.
 Each society figured out its own unique path to
accommodate dynamic individuals. Not told what to do by
international organizations or invading armies.
Cont’d…..
Democracy and development

 The impact of Democracy and Development is

mixed. This is a “Chicken and egg problem”.
 Experiences from East Asian Countries (China,
S Korea, Japan, Singapore, Malaysia), India
Latin America and African nations
 Empirical results for in 1980s and later show that
multiparty democratic states have better
economic policies than autocratic ones.
Classification of countries by World Bank
 
Countries are divided in the following
income groups (based on GNI 2011):

 Low income : $1,025 or less

 Lower middle income : $1,026 to $4,035
 Upper middle income : $4,036 to $12,475
 High income : $12,476 or more
Human Development Index (HDI) UNDP

 In late 1980s, Professor Mahbub Ul Haq, under

the auspices of UNDP concretized &
implemented Human Development as a
measurable concept.

 As a core concept, Human Development

encompasses three basic dimensions :
– Income
– Health
– Literacy
Features of HDI

 Scale 0 to 1
 Indicators :
 Longevity – as measured by Life expectancy in birth
 Knowledge – as measured by a weighted average of
adult literacy (two-third) and mean years average of
schooling (one third)
 Standard of living- as measured by real per capita
GDP adjusted for Purchasing power parity (PPP)
 HDI 2013
Country Rank Value HD Group Life expectancy Per capita PPP
(yr.) ($)
Bangladesh 146 0.515 Low 69.2 1785
India 136 0.554 Medium 65.4 3468
Pakistan 146 0.515 Low 65.4 2550
Srilanka 92 0.715 Medium 74.9 4943
Nepal 157 0-463 Low 68.8 1160
Bhutan 140 0.538 Medium 67.2 5293
Maldives 104 0.688 Medium 76.8 5276
Afghanistan 175 0.374 Low 48.7 1416
China 101 0.699 Medium 73.5 7476
South Africa 121 0.629 Medium 52.8 9469
Brazil 85 0.788 High 73.5 10162
Russia 55 0.755 High 68.8 14561
USA 3 0.937 Very high 80.7 36402
Norway 1 0.955 Very high 81.1 47567
Japan 10 0.912 Very high 83.4 32295

Source: Human Development Report 2013, UNDP.

HDI 2013 Comparison among groups

HDI group Average Value Average Life Average Per

Expectancy capita PPP ($)
Very High 0.905 80.0 33352
High 0.758 73.1 11579
Medium 0.640 69.7 5276
Low 0.466 58.7 1585

South Asia 0.558 65.9 3435

LDCs 0.449 59.1 1327
Bangladesh 0.515 68.9 1785

Source: Human Development Report 2013, UNDP.

United Nations’
Millennium Development Goals (MDG)

1. Eradicate Extreme Hunger and Poverty

2. Achieve Universal Primary Education
3. Promote Gender Equality and Empower Women
4. Reduce Child Mortality
5. Improve Maternal Health
6. Combat HIV/AIDS, Malaria and other diseases
7. Ensure Environmental Stability
8. Develop a Global Partnership for Development
In 1987 Brundtland report “Our Common
Future” defined sustainable development as
development that ‘meets the needs of the
present generation without compromising the
ability of future generations to meet their
needs’ (WCED 1987).
Thank you