COURSE CONTENTS REVIEW
Week 1: Principles and concepts of Development economics
1.1 Economic growth vs. development
Economic growth measures the official economy in
quantitative terms and tangible outcomes, with a focus on GDP
and overall output. Economic development focuses on intangible
changes to provide qualitative results, which in turn lead to
quantitative results. Developmental indicators carried out include
HDI,HPI,GDI, literacy rate, life expectancy rate, mortality rate
and others.
Positive change in economic development can lead to
economic growth. Economic growth can be considered as an
overarching goal of economic development
Week 2: Classic theories of economic growth and development
2.1. Rostow’s stages of growth and the Harrod-Domar model:
- Describing and explaining context; 5 stages; the role of
physical capital
Rostow's model
The 5 stages of development for national growth include (1)
the traditional social stage, (2) the preparatory stage for take-off,
(3) the take-off stage, (4) the stage of technological maturity and
(5) high mass consumption stage
This model is considered as a simple economic model,
focusing only on growth factors, attaching importance to
investment capital, but ignoring institutions, the role of the
government, and international economic relations.
The role of physical capital
The Harrod-Domar Model
S = sY = k∆Y = ∆K = I
In economics, capital refers to the assets—physical tools,
plants, and equipment—that allow for increased work
productivity.
 By increasing productivity through improved capital
equipment, more goods can be produced and the standard of living
can rise.
- The ICOR: as an indicator measuring investment
efficiency
ICOR (Increased Capital - Output Ratio) reflects the
efficiency of using invested capital for economic growth.
k(ICOR) = ∆K/∆Y= (Output Growth Factor / Capital)
Increased production capital savings and investment are
decisive factors for economic growth. Economic growth increases
as the saving rate increases and the ICOR is lowered
2.2. Lewis structural-change model
- Describing and explaining it in theory and drawbacks
Initially, most workers worked with farmland, which was a
fixed resource. Labor is a variable resource and more and more
people work with farmland leading to underemployment.
Urban workers, engaged in the manufacturing sector, tend to
generate higher output value than those engaged in agriculture. As
a result, urban wages are higher, which can attract surplus
agricultural workers to migrate to cities and engage in production.
High urban gathering will encourage businesses to expand and
thus lead to more rural-to-urban migration
Drawbacks
The model assumes that the urban area is full of workers, but
in developing countries, the urban area still has a surplus of labor
In developing countries when the agricultural sector has a
surplus of labor, the W of the industrial sector still increases
2.3. Romer’s endogeneous growth theory:
- Emphasizing the roles of human capital and knowledge
in economic growth
In Romer's endogenous growth theory, human capital and
knowledge play an important role in promoting economic growth.
According to Romer, the human capacity for research and
innovation is the most important factor for economic
development, and investment in research and development (R&D)
is the key to achieving sustainable growth. .
Human capital plays an important role in the R&D process.
Highly qualified staff and specialized knowledge will help the
company create new products or improve existing products more
effectively. Therefore, investing in training and education is very
important in the process of building human capital. Week 3: Contemporary models of development
In addition, knowledge is also an important factor in 3.1. Describe and explain the model of low-level equilibrium
economic development. Knowledge includes knowledge of which may cause the poverty trap for developing countries.
science, technology, business and administration. Sharing
knowledge between different companies and industries can help
speed up the R&D process and boost economic growth.

- Explaining the key features of increasing returns to scale

of the human capital (learning-by-doing) and technological
spillover effects of the knowledge like public goods (learning-by-
watching).
The increasing returns to scale of human capital and the
technological spillover of knowledge are two key features of
Romer's endogenous growth theory.
Increasing returns to scale of human capital: According to
Romer, economic growth depends not only on the accumulation of
capital and labor, but also on the ability of people to research and
innovate. Therefore, increase investment in human capital and This shape reflects the typical nature of the addition
training, to help employees have highly specialized knowledge Stable balance: points D1 and D3. Here investors adjust their
and optimize the use of resources. As a company increases its investment decisions in coordination with industry averages.
human resource efficiency, its revenue and profit will increase in The initial curve does not increase as quickly as more
size. investors make investment decisions. But after enough investment,
Technological spillover of knowledge as a public good: investors started providing external benefits to neighboring
Technology is an important factor in economic development. investors and the curve increased at a much faster rate. Finally,
Creating new products or improving existing products through after most of the potential investors have been heavily impacted
R&D is a way to promote economic growth. However, technology and most of the significant gains have been realized, the curve
is not only used at a single company, but can also be shared and begins to rise at a decreasing rate.
applied across different companies and industries. This helps
create the spillover effects of technology, which improves the Unstable balance: point D2. As investors coordinate their
productivity and efficiency of production across many different investment decisions, the equilibrium shifts to D1 (decrease
companies and industries. investment) or D3 (increase investment).
 If expectations shift slightly above or below these levels,
investors will adjust their behavior in a way that brings the
economy back to equilibrium.
=> Investors' investment decisions are mutually reinforcing,
and public policy intervention from the government is required to
correct market failures.
3.2. Describe and explain the Hausmann-Rodrik-Velasco
growth diagnostics framework.
- Which aspects is most interesting to you?
The growth diagnostic view holds that low growth is mainly
the result of a low rate of private investment. The process is
carried out through three main causal factors: high financing costs,
low allocation or profitability, and the provision of few
complementary factors. That is, entrepreneurs may not be willing
to invest because the cost of capital to start or expand their
business is high, because they perceive that returns will be low, or
because other factors complements such as poor physical
infrastructure and human resources
The left part of the decision tree - additional factors.
According to decision trees, one of the reasons why companies
don't grow can be due to the poor geography of the country.
Vietnam is located in an area where many natural disasters occur,
the country stretches north-south, making cross-Vietnam
transportation expensive.
Second about infrastructure. Although Vietnam has made
many improvements, it is still in a poor state. Currently, Vietnam's
railways are lagging behind, most of the routes need to be
renovated and upgraded; Internet access quality is not uniform, in
poor households in mountainous areas 3G/4G signal is still
limited..
Third is the quality of human capital. Vietnam currently has
an abundant labor force compared to many countries in the region
and the world. However, the quality of Vietnam's human
resources is at a low level in the international capacity ladder, with
a shortage of skilled workers and high-level technical workers.
Week 4: Income inequality
and welfare
4.1. Lorenz Curve and
GINI coefficient:
- Describing and
explaining how it is
measured,
Lorenz curves are a type
of graph used to show the
degree of inequality in a
distribution.
 The cumulative percentage of households is shown on the
horizontal axis, and the
cumulative percentage of
income shown on the vertical
axis.
The Lorenz curve is
often shown with the GINI
Coefficient - Shows the
degree of inequality in the
distribution of income among
residents (disparities in
wealth)
Number 0: for absolute income equality
Number 1: for absolute income inequality
- Its meanings,
implications and
shifting typologies.
The Lorenz curve is
always below the 45 incline
and has an upward concave
side. The more concave the
curve, the higher the income
inequality. The Lorenz curve
coincides with the line 45 which is the line of absolute equality.
At A: Equality; At B:
Inequality; In B and C: the poor in C
will be poorer than B and the rich in
C will also be richer than B
Week 6: Environment and technologies
6.1. Sustainable development: what it is defined and the
environmental accounting
Sustainable development has been defined as “meeting the
needs of present generation without compromising the wellbeing
of future generations”
Sustainable Development and Environmental Accounting
Environmental accounting
-The incorporation of environmental benefits and costs into the
quantitative analysis of economic activities.
Environmental capital
- The portion of a country’s overall capital assets that directly
relate to the environment—for example, forests, soil quality, and
ground water.
Sustainable development
- A pattern of development that permits future generations to live
at least as well as the current generation, generally requiring at
least a minimum environmental protection
Sustainable net national income (NNI*)
- An environmental accounting measure of the total annual income
that can be consumed without diminishing the overall capital
assets of a nation (including environmental capital).

6.2. Environment economics: externalities vs. public goods
Externalities occur when a person's welfare or the productive
capacity of a business is directly affected by the actions of other
consumers or businesses.
-Negative externalities adversely affect others
Example: a chemical plant pollutes the environment and destroys
the landscape of a lake for the entertainment of others.
-Positive externalities benefit others
For example, a teacher who has received a flu shot reduces the
probability that a student will get the flu
A public good is a good or service whose consumption by one
person does not prevent others from consuming it.
Examples: roads, bridges, piers, airports, bus stations, national
security, clean water or the environment
A public good creates a positive externality
Week 7: Roles of the State in the economy
7.1. Roles of the State in the economy:
- Market failures: externalities vs. public goods
The state plays a very important role in the management and
operation of activities related to exogenous effects and public
goods.
With exogenous effects, the state has a responsibility to
monitor and control the production and consumption activities of
organizations and individuals to ensure that they do not cause
negative impacts on the environment and public health. . The state
can impose regulations and punish organizations and individuals
that do not comply with these regulations. In addition, the state
can also promote sustainable production and consumption
activities, helping to minimize exogenous effects.
With public goods, the state plays a key role in providing
and managing public products and services for the entire
community. Public goods are the physical facilities and social
infrastructure necessary to make everyday life more convenient
and safer. The state has a responsibility to invest in and provide
public goods such as roads, electricity, clean water, education and
health to ensure that everyone has access to these facilities.
In addition, the state has a responsibility to manage and
distribute public goods efficiently and fairly, ensuring that
everyone benefits from these products and services. State policies
and decisions about public goods can affect a country's economy
and society, and therefore need to be carefully calculated and
policy driven.
1.2 Common characteristics of the developing countries
Ten characteristics
– Lower levels of living and productivity
– Lower levels of human capital
– Higher levels of inequality and absolute poverty
– Higher population growth rates
– Greater social fractionalization
– Larger rural population - rapid migration to cities
– Lower levels of industrialization and manufactured exports
– Adverse geography
– Underdeveloped financial and other markets
– Colonial Legacies and External Dependence
1.3 Differences of developing countries today and developed
countries in the past
Eight differences
– Physical and human resource endowments
– Per capita incomes and levels of GDP in relation to the rest of
the world
– Climate
– Population size, distribution, and growth
– The historic role of international migration
– International trade benefits
– Basic scientific / technological research and development
capabilities
– Efficacy of domestic institutions
1.4 Compositions of Human Development Index, Milennium
Development Goals
Human Development Index
Human Development Index (HDI) is a composite measure
reflecting human development in terms of: health (expressed in
average life expectancy at birth); knowledge (expressed in the
education index) and income (expressed in the gross national
income per capita)
Milennium Development Goals
Eight goals adopted by the United Nations in 2000
– Eradicate extreme poverty and hunger
– Achieve universal primary education
– Promote gender equality and empower women
– Reduce child mortality
– Improve maternal health
– Combat HIV/AIDS, malaria, and other diseases
– Ensure environmental sustainability
– Develop a global partnership for the development
4.3. Kuznet’s inverted-U hypothesis: empirical vs. Theory
The inverted U hypothesis is an economic theory about the
economic development of a country; growth first, social justice
later
There are many studies that suggest that this law does not
apply to all countries.
4.4. Policy options
 - How the state can intervene to reduce inequality There is a positive correlation with economic development
– Changing relative factor prices and urban population growth
– Progressive redistribution of asset ownership World urban population distribution (in billions)
– Progressive taxation 2000 2025
– Transfer payments and public provision of goods and services World 3.2 5.1
Week 5: Population growth, urbanisation and human capital MDCs 1.0 (31%) 1.1 (22%)
development LDCs 2.2 (69%) 4.0 (78%)
The LDCs experience rapid urban population growth because of :
5.1. Major characteristics of the population growth in the -Natural increase: birth rate > death rate
world -Rural-urban migration: movement of rural workers to urban areas
- Growing rates and size of the world population, 5.4. Informal sector and Todaro’s migration model
There are three major factors that affect population growth:
fertility rate, life expectancy, and net immigration levels. - Implications of the urbanisation
Most rural migrants find jobs in the “informal” urban labor
Stage I: High birthrates and death rates markets
Stage II: Continued high birthrates; declining death rates
The “informal” urban labor force is a large component of the
because of improved medicine
urban labor force
Stage III: Falling birthrates and death rates, eventually
stabilizing due to improved medicine and decline in the fertility -Advantages
rate Contributes to economic growth
5.2. The Malthusian population trap: technology Requires small capital investment
Requires low cost of training and education
Rapid income growth due to technological advancement
Supplies semi-skilled labor to industry
Greater food production due to land-intensive technology Uses labor-intensive technology to create jobs
and application of modern farm inputs -Disadvantages
Economic growth faster than population growth, resulting in Induces R-U migration
the rise of per capita income over time Exerts pressure on urban infrastructure
Adds to pollution, congestion, and crime
5.3. Major characteristics of the urbanisation trends:
-Women in U-Informal Sector
- Distribution and implications Represent the bulk of the informal sector labor supply
Economic development causes urbanization
Earn low wages in unstable jobs with no benefits (e.g.,
housekeeping)
Run micro-enterprises (e.g., home-made foodstuffs and
handicrafts)
Engage in illegal activities (e.g., prostitution)
-Urban open-unemployment is in double-digits in many LDCs
The problem is much more serious because
Discouraged workers are excluded
Underemployment is not measured
-Factors affecting migration decision
Expected urban income
Probability of finding an urban job
Cost of living in urban areas
-Decision criterion:
Migration will take place if the present value of “expected”
benefits exceed costs
-Benefits from migration:
Higher urban wage
Enjoyment from urban entertainment
-Costs of migration:
Transportation cost
Opportunity cost of being unemployed
Greater living expenses
Psychic cost of being away from home and family
-Non-economic factors inducing migration:
Distance: the farther the distance, the larger is the
transportation cost
Relatives living in urban areas helping reduce living
expenses
Information flow about job openings in the “informal” sector
City lights: movie theaters, restaurants, amusement parks,
etc.
5.5. Human capital
- Health and education as both inputs and outcomes of the
development?
Relationships between them?
Education plays a key role in the ability of a developing
country to absorb modern technology and to develop the capacity
for self-sustaining growth and development.
Health is a prerequisite for increases in productivity, and
successful education relies on adequate health as well
These are investments in the same individual
Greater health capital may improve the returns to
investments in education
Greater education capital may improve the returns to
investments in health
With higher income, people and governments can afford to
spend more on education and health
With greater health and education, higher productivity and
incomes are possible
5.6. Child labour
- Different approaches to child labour
The first recognizes child labor as an expression of poverty
 The second approach emphasizes strategies to get more
children into school
The third approach considers child labor inevitable, at least
in the short run
The fourth approach, most often associated with the ILO,
favors banning child labor

7.2. Business environment:

- WB’s Ease of Doing Business rankings