ECODEV M1 NOTES

ECONOMIC GROWTH & DEVELOPMENT

Concept of Production
o The concept of production is limited by the
amount of resources available in the Production
Possibility Frontier (PPF), the basic measure of
a nation’s income, that is the Gross Domestic
Product (GDP)
o The market value of all final products of a
country, the relationships of inflation and
unemployment, fiscal and monetary policies,
functions of money, various economic theories,
and central to economic growth occurs when the
BRANCHES OF ECONOMICS PPF shifts outward, like technological
innovation and capital accumulation, and the
increase in real GDP.

In 2013, the World Bank Group adopted the twin goals

to guide its work:
-Ending extreme poverty
-Boosting shared prosperity

FACTORS IN BUILDING AN ECONOMY

1. Saving and Investment
- There is a need for a country to promote
both domestic and foreign investments in
order to reduce unemployment. Ideally, a
 reduction in unemployment will reduce
poverty levels and the government’s social
burden, which will allow for increased
public savings.
2. Diminishing Returns and Catch-up Effect
- Productivity is considerably affected
minimally when the workers with a large
quantity of capital they use in the production
process are given extra units of capital. In
the long run, a higher saving rate leads to
greater productivity and income but not
greater growth in these variables.
3. Investment from Abroad
- An investment that is sponsored with foreign
money and operated domestically is called a
foreign portfolio investment. It is expected
that the use of foreign money would mean
more opportunities to produce where the
money is capitalized, but, of course, a
certain interest in that money is foreseen as
well.
- The World Bank (WB) and the International
Monetary Fund (IMF) were established to
ensure that there is economic prosperity
around the world by financing public goods
and services with funds accumulated from
more advanced economies like the United
States of America.
4. Education
- Education benefits human capital which is
as important as physical capital. In fact, the
largest chunk of the annual budget is
dedicated to the education sector. More
quality educated people produced in a
country would mean an opportunity to
generate more and better ideas to produce
goods and services.
- In developing economies, highly educated
individuals may opt to serve in other
countries with a higher standard of living,
hence brain drain – the emigration of most
highly educated workers to rich countries.
5. Health and Nutrition
- A healthy population would also mean
human capital, just like education, hence are
capable to produce more goods and services
because they can maximize employment as
compared to an unhealthy population.
- Other things remain fixed, healthier
individuals are more productive. Policies
that lead to economic growth would
consider having healthy workers to promote
greater productivity.
6. Property rights and Political Stability
- Property rights ensure the exercise of rights
over one’s property and these guarantee
more production of goods and services. In
addition, when there is less uncertainty in
government decisions and policies,
especially in terms of market trading, there
is an opportunity to improve production
processes and distribute products in the
country.
- A stable political environment is considered
to have efficient executive, legislative, and
judiciary systems, working together for the
country’s economic development.
7. Free Trade
- A competitive economy that reduces or
eliminates trade restrictions experiences
economic growth after benefitting from
more products to be used as input to
production.
- Outward-oriented policies give way to
developing countries’ opportunity to interact
with other countries and trad freely, thus
creating more prospects to improve
production.
8. Research and Development
- The products of research and development
(R&D) are new ideas, goods, and services
that people consume.
- To protect idea, a patent is awarded to an
innovator for a certain number of years to
encourage more researchers to discover
beneficial things.
- R&D turning money into knowledge and
innovation is a process of creating a
business out of this knowledge.
9. Population Growth
- There are two schools of though regarding
population growth
- A relatively large population means more
human resources working and contributing
to the production of the country
- It also means more people to consume those
goods and services.
- There are countries with a few population
and slow population growth rate but are
considered developed like Germany, having
an annual growth rate of 0.2%, and
Singapore, -0.3% in the 2020 study of the
World Bank.
 In production, we consider the factors such as
quantity of labor (L), the quantity of physical
capital (K), quantity of human capital (H),
quantity of natural resources (N), and
 technological advances (T), and if we are to
summarize the output of production (Y), we say
Y=Tf{L, H, N}
 The production function shows that all other
things remain constant; output increases as
physical capital, human capital, labor, and
natural resources increase.
 Productivity means the amount of goods and
services produced from each unit of labor.
 Remember the factors of production: land,
labor, capital, entrepreneurship, and
technology.

PRODUCTIVITY FACTORS: The graph explains the relationship between output and
quality. As the level of output goes down, the quality
also drops.
We can replace output with wages, and explain why
wages go down as the quality of input diminishes.
The model explains further why poor countries have
workers that are considered in less capita-intensive
production processes like agriculture.

SOLOW MODEL

In neoclassical economics, one of the most

popular models that is used to understand long-
term growth is the use of the Solow Model.

The model was developed by Robert Solow, an

American economist and a Nobel Prize winner
in Economic Science and in 1956, wherein gross
domestic product per worker, capital per worker,
depreciation rate, savings, and investment rates
are factored in analyzing growth.

Out of the factors of production, the Solow

Model focuses on capital and labor, where
technology is exogenously included.

ECONOMIC DEVELOPMENT IN THE PHILIPPINES

 According to the World Fact Book 2020 of the
Central Intelligence Agency (CIA) of the USA,
O-Ring theory of economic development was proposed the Philippines ranks 132nd out of an estimated
by economist Michael Kremer in 1993, which explains 211 countries or states with a per capita GDP
that production is composed of a set of tasks, and each (on a purchasing power parity basis) of $8, 400
task must be carried out proficiently for each one of the annually in 2017.
tasks to have value.
 Inflation of the country is at 5.7% p.a. (1995-
2004). To date, the annual inflation rate in the
Philippines surged to 8.7% in January 2023,
from 8.1% in the previous month and well-
above market expectations of 7.7%
 A shortfall in the budget, diminishing investor
confidence, and outrageous political scandal
were eminent during the time of former
President Estrada, while Gloria Arroyo acted a
lot of deregulations and privatizations of public
corporations and tax reforms thus, redeeming the
 country’s status in the International Monetary and productive employment and decent work for
Fund and the international community. all”.
 The country’s geographical setup of economic There are many challenges that the world is
activities is considered a drawback, intensifying facing right now, and one major problem is the
underemployment, instability, and even pandemic and its aftermath, an unprecedented
corruption. Power breakdowns limit the room happening that is shaking the modern world.
for development.
8.1 Sustainable Economic Growth
 According to a report by the Philippine Coop,
another factor that is considered in the country’s 8.2 Diversity, innovate and upgrade for economic
economic development is how the government productivity
deals with leftists and separatists, like the New 8.3 Promote policies to support job creation and growing
People’s Army (NPA), Moro National enterprises
Liberation Front (MNLF), Moro Islamic
Liberation Front (MILF), and Abu Sayyaf. In 8.4 Improve resource efficiency in consumption and
1996, a peace agreement was signed by the production
MNLF and joined by the MILF in the peace 8.5 Full employment and decent work with equal pay
process of 2001. The Abu Sayyaf, however,
continued to fight in Mindanao. 8.6 Promote youth employment, education and training
 One of the most noteworthy programs of former 8.7 End modern slavery, trafficking, and child labor
President Duterte is the “ Build, Build, Build”
8.8 Protect labor rights and promote safe working
program which aims to significantly expand
environments
infrastructure and boost employment growth in
the country. It was just hampered by the spread 8.9 Promote beneficial and sustainable tourism
of COVID-19 that started in China. The
Philippines bolstered ties with the economic 8.10 Universal access to banking, insurance and
giant China that gave way to numerous financial services
partnerships in terms of public works and
finance. In addition, there is a pervasive
campaign of the eradication of crime, corruption,
and substance abuse, which was not flouted by
the opposition party.
 Approximately one-third of the country’s GDP
went to exportation after the revival of the Asia-
Pacific region. Electronic products continued to
be the top export followed by agro-based
minerals, forest, and petroleum products.
 Moving onward, the Philippines is faced with a
heavy challenge of economic recovery after
spending most of its budget to tackle the
pandemic in health programs and financial
assistance to its poor constituents.
 The Philippines joined the United Nations in
1945 and is currently a member of the Asia-
Pacific Economic Cooperation (APEC).
Association of Southeast Asian Nations
(ASEAN), World Trade Organization (WTO),
Intergovernmental group of 24 on International
Monetary Affairs and Development (G24), and
Non-Aligned Movement (NAM).

ECONOMIC GROWTH AND THE WORLD

The United Nations Department of Economic

and Social Affairs (UN-DESA) released the 17
sustainable Development Goals (SDG) adopted
by all member countries of the UN.

One of them, SDG 8, “promote sustained,

inclusive, and sustainable economic growth, full