In this chapter, we discuss
the following :
ECONOMIC
DEVELOPMENT
AC 2203
Unit 2
Overview of Development Economics
Defining Economic Development & Growth
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Some of the World’s
Biggest Questions
• Why do living conditions differ so drastically for people
across different countries and regions with some poor and
some so rich?
• Why are there such disparities not only in income and wealth,
but also in health, nutrition, education, freedom of choice,
women’s autonomy, environmental quality, access to
markets, security, and political voice?
• Why is output per worker many times higher in some
countries than others?
• Why do workers in some countries have fairly secure, formal
jobs with regular, predictable pay, while in other countries
such jobs are extremely scarce and most work in informal
settings with fluctuating and insecure earnings?
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• Defining Economic Development
• How distinct is Development Economics from other aspects of
economics.
• How is Development is measured.
• The new approaches used in measuring Economic Development.
• What approaches are used in Economic Development to compare
between countries
Some of the World’s
Biggest Questions
• Why are populations growing rapidly in some countries,
while on the verge of shrinking in others?
• Why are public services so inefficient, insufficient, and
corrupt in some countries and so effective in others?
• Why have some formerly poor countries made so much
progress, and others so comparatively little?
• How have child illness and death rates fallen so much in
the world, and what can be done in places where they
remain far higher than average?
• How can we measure the impacts that government policies
and nongovernmental organisation (NGO) programmes
make in improving the well-being of the poor and
vulnerable; and what lessons have we learned?
 How the other half of the “When one is poor, she has no say in
world live… public, she feels inferior. She has no
food, so there is famine in her house;
no clothing, and no progress in her
“When food was in abundance, relatives
family.”
—A poor woman from Uganda
used to share it. These days of hunger,
however not even relatives would help
you by giving you some food.” - a man from
Nichimishi Zambia

“We have to line up for hours

before it is our turn to draw water.“- “For a poor person everything is terrible—
Mbwadzulu Village (Mangochi), Malawi 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 Tiraspol, Moldova

Disclaimer: The pictures used are not the actual pictures as referred and mentioned in the scenarios but for illustration and representation Disclaimer: The pictures used are not the actual pictures as referred and mentioned in the scenarios but for
purposes only. illustration and representation purposes only.

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How Countries Are Classified by

What do we mean by Their Average Levels of
Development?
Development?
• Gross national income (GNI)
•Traditional Economic Measures • The total domestic and foreign output claimed by
residents of a country, consisting of gross domestic
• Gross National Income (GNI) product (GDP) plus factor incomes earned by foreign
• Income per capita residents, minus income earned in the domestic
economy by nonresidents.
• Utility of that income?

Source: https://blogs.worldbank.org/opendata/new-world-bank-country-classifications-income-level-2022-2023

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 Source:
https://datahelpdesk.worldbank.org/knowledgebase/articles/90651
9-world-bank-country-and-lending-groups
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Source:
https://datahelpdesk.worldbank.org/knowledgebase/articles/90651
9-world-bank-country-and-lending-groups
11
Source:
https://datahelpdesk.worldbank.org/knowledgebase/articles/90651
9-world-bank-country-and-lending-groups
Source:
https://datahelpdesk.worldbank.org/knowledgebase/articles/906519-
world-bank-country-and-lending-groups
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 How living differs Living Standards Strata
around the world?

• Living standards strata

• Stylized sets of material living
conditions; the 4-strata schema was
created by Hans Roslin

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Living Standards Strata Economic Development

defined..

• The capacity of a national economy, whose

initial condition has long been static for a long
time, to generate and sustain an annual
increase in its Gross National Product at rates
5% to 7%. (Todaro, 1994)

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 The Other Definitions of
Development…
Definition of Economic
Development
• Sustained acceleration of
economic growth over a
long period of time
Reference:
Tan, G. (1999). The End of the Asian Miracle: Tracing Asia’s Economic
Transformation. Marshall Cavendish Academic.
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Definition of Economic Development
• Permanent than transitory sources
of growth
• Economic independence
• Political independence
• Independent rather than dependent
development
• Modernization of values and
attitudes
• Modernization of institutions
• Increasing range of choice in all
aspects of life (economic, social,
and political)
• Improved quality of life
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Definition of Economic Development Comments
Comments
• Change in structure of production • Emphasis on structural change
towards higher productivity • Emphasis on qualitative change
activities • Emphasis on social development
• Diversification of economic base and provision of basic needs
• Growth oriented • Shift towards wider range and • Emphasis on how the benefits of
• Emphasis on capital higher quality products and economic growth are shared
accumulation services
• Eradication of mass employment,
mass poverty, mass literacy,
endemic diseases, premature
deaths and high infant mortality
• Access to clean water suppl, basic
medical services, education and
• More equal income distribution
• More equal opportunities to acquire
income producing assets
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Comments
The New Economic View of
Development
Leads to improvement in
wellbeing, more broadly
• Concern with less tangible aspects understood
of development
• Emphasis on non-economic
aspects of development
• Emphasis on quality of the growth • Amartya Sen’s “Capability”
processes.
Approach
• “Functionings” – state of “being and
doing” as an achievement
• “Capabilities” - set of valuable
functionings that a person has effective
access to.
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 • Beings and Doings: • Development and happiness
https://econreview.berkeley.edu/beyond-gdp-economics-and-happiness/
• Some Important “Beings” and “Doings” in Capability to • Well-being in terms of being well and having freedoms of choice
Function:
• Being able to live long
• Being well-nourished
• Being healthy
• Being literate
• Being well-clothed
• Being mobile
• Being able to take part in the life of the community
• Being happy – as a state of being - may be valued
as a functioning

Source : https://www.facebook.com/ASEANPHI/posts/the-philippines-ranked-60th-out-of-146-countries-2nd-happiest-country-in-
southea/1388600661583905/?locale=ms_MY&paipv=0&eav=AfbqPUFVRDYNW5no6rkEvxYNJFkEwkpBNkzeGbNxT9Nj9wOjxMyGyPXZLJpsUgNRpcs&_rdr

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How is Development Economics How is Development Economics

Distinct from other Aspects of
Economics?
• Focus on the low capita income countries
• Experience of industrial countries as relevant for
analyzing the process of economic growth
• Uses analytical tools and methods developed in
variety of other branches
• Growth theories, macroeconomics, microeconomics,
labor theories, industrial organization, international
trade, and fiscal and monetary policies
• Application of these tools of analysis to the
problems and challenges of developing countries
Distinct from other Aspects of
Economics?
• Economies as Social Systems: The Need
to Go Beyond Simple Economics
• Social Systems
• Interdependent relationships between economic and
non-economic factors
• Success or failure of development policy
• Importance of taking account of institutional and
structural variables along with more traditional economic variables

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 The Central Role of Women in Three Core Values of
Development Development
• To make the biggest impact on development,
societies must empower and invest in women
Almost a third of women’s employment globally is in
in agriculture, including forestry and fishing

Women farmers have significantly less access to,

control over, and ownership of land and other
productive assets compared to their male counterparts.

Women and girls suffer most from the dearth of

safely managed water and sanitation.
Sustenance: Self-Esteem: Freedom from
Women and girls are more likely to carry the The Ability to To Be a Servitude: To Be
burden of energy poverty and experience the
Meet Basic Person Able to Choose
adverse effects of lack of safe, reliable, affordable
and clean energy. Needs

Environmental degradation and climate change have

disproportionate impacts on women and children.

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The Three Objectives of

MDGs to SDGs
Development The Millenium Development Goals MDGs

• To increase the availability and widen the distribution

of life-sustaining goods.
• To raise the standard of living.
• This include economic needs: higher incomes, more jobs,
and material needs.
• Non-economic needs: better education, knowledge and
spiritual fulfillment. –
• To expand the range of economic and social choice.

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 The Sustainable Development Goals SDGs

The Sustainable Development Goals SDGs

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New Approaches To Measuring

SDG Targets 2030…
Economic Development
• The Human
Development Index (HDI)
• United Nations
Development Program
developed HDI in late
1980s.
• This has 3 components :
(1) per capita income, (2)
life expectancy at birth,
(3) and level of
educational attainment
(with adult literacy and
educational enrolment
rates).
• To obtain the HDI, the 3
components are added
with the adjusted
diminishing marginal
use of money
• Developed as a ratio of a
particular country to the
most developed country.
( zero to one )

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 Human
Development
Index

Note: Taken from Todaro, Michael P. and Stephen C. Smith. Economic Development. 12 ed. United States: Pearson, 2015. p. 105-
106

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New Approaches To Measuring

Economic Development
• Healthy Life Expectancy
• Used by World Health Organization (WHO) that
summarizes the expected number of years to be
lived in ”full health”
• The years of ill-health are weighted according to
severity and subtracted from the overall life
expectancy rate to determine the equivalent
years of healthy life.

Source: https://www.who.int/data/gho/data/themes/topics/indicator-
groups/indicator-group-details/GHO/healthy-life-expectancy-(hale)

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 New Approaches To Measuring
Example Economic Development
• Green GNP
• Developed to address
the inherent
shortcomings of GDP
and GNP as growth and
development is based on
what is known as the
“green” system of
national accounting.

• Measures the national

income that is adjusted
to take account the
depletion of natural
resources (renewable
and non-renewable) and
Note: Taken from
https://www.bu.edu/eci/files/2019/06/Ch8_Income_Accounting.pdf
pp. 172

environmental
degradation.

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Making Comparisons
Making Comparisons
Between Countries
Between Countries
• PPP (Purchasing Power
• Exchange Rate Method Parity) Method
• Uses the exchange rate • Develops a cost index for
between the local comparable baskets of
currency and the US consumption goods in the
dollar to convert the local currency and then
currency into its US compares this with prices in
dollar equivalent. the US for the same of
• A country’s GDP ( Gross commodities.
Domestic Product ) and • The number of units of the
GDP per capita would country’s currency required
then be valued to buy the same amount of
accordingly, in US goods and services that a
Dollars. dollar would buy in the US.

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 • Suppose that in 1997 a Big Mac in Australia costs AUD
2.10 while in 2.02 USD in the USA. What is the PPP
exchange rate? Suppose that the market determined
exchange rate is 1.00 USD =1.24 AUD. What is the
implication of the PPP and exchange rate relation?
• The PPP = 2.10 AUD/2.02 USD =0.96
• The relative price by the exchange rate (1 USD=1.24AUD)
• 2.10AUD/ 1.24AUD = 1.69 USD while 2.02 USD for a bigmac
• This means that the US Dollars is overvalued relative
to the Australian Dollars. Purchasing Power must be
held constant ( based on example, 1 bigmac )by
keeping the bundle of goods constant.

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