REVIEWER IN ECONDEV
context of a growing economy
Economics
 Economics is a branch of social
science that deals with the efficient
allocation of resources, production,
distribution and consumption of
goods and services
Other Social sciences
- anthropology, sociology, psychology,
political science
Economic Resources/inputs/factors of
production
 Land – natural resources
 Labor – manpower
 Capital – goods produced used as
resources
 Entrepreneurship – act of organizing
those three
Economic development
- The study of how economies are
transformed from stagnation to
growth and from low-income to
high-income status, and overcome
problems of absolute poverty.
Traditional Definition
- It means achieving sustained rates of
growth of income per capita to
enable a nation to expand its output
at a rate faster than the growth rate of
its population.
New Meaning
- economic development came to be
redefined in terms of the reduction or
elimination of poverty, inequality,
and unemployment within the
Nature of Economic development
- It is concerned with economic,
cultural and political requirements
for effecting rapid structural and
institutional tansformations of entire
societies in a manner that will mostly
efficiently bring the fruits of
economic progress to the broadest
segments of their populations.
Purpose of Economic Development
- to help people understand developing
economies in order to help improve
the material lives of the majority of
the global population
Income per capita = gnp/population =
1000000/2000000 = 0.5
= 2000000/1000000 = 2
GDP Gross Domestic product –
summation of all final goods and services
produced by a country for one year
Per capita income – individuals income
Absolute poverty
- unable to meet the minimum levels
of income, food, clothing, health
care, shelter and other essentials
Magnitude of World Poverty
- The magnitude of absolute poverty
results from a combination of low
per capita incomes and highly
unequal distributions of that income.
Poverty has been an issue of interest to:
 World Bank (WB),
  International Monetary Fund (IMF),
Food and Agricultural Organization
(FAO)
 World Health Organization (WHO)
 UNICEF
 International Labour Office
World Bank- org known as an international
financial institution that provides
development funds to developing countries
in the form of interest-bearing loans, grants
and technical assistance;
figure of $370 per person a year to meet
the cost of minimum adequate caloric
intakes and other basic necessities.
Income fall beyond this figure are poor and
those who fall beyond $275 are extremely
poor (poverty line)
33 percent of the Third-World population
are poor and 18 percent are extremely
poor
'Poverty Equilibrium'
- poverty itself maintains the forces
that lead to its perpetuation.
POVERTY
- a condition of life so characterised
by malnutrition, illiteracy and
disease as to be beneath any
reasonable definition of human
decency.
- state or condition in which a person
or community lacks the financial
resources and essentials for a
minimum standard of living.
Poverty trap
- a mechanism that makes it very
difficult for people to escape poverty.
- created when an economic
system requires a significant amount
of capital in order to earn enough to
escape poverty.
Critical Components of the Structure of
the Developing worlds
1. The size of the country (geographic area,
population, and income)
2. Its historical and colonial background
3. Its endowments of physical and human
resources
4. The relative importance of its public and
private sectors
5. The nature of its industrial structure
6. Its degree of dependence on external
economic and political forces
7. The distribution of power and the
institutional and political structure within the
nation.
Characteristics of the Developing World
1. Lower levels of living and productivity
2. Lower levels of human capital
3. Higher levels of inequality and absolute
poverty
4. Higher population growth rates
5. Greater social fractionalization- citizens
of a country may be divided into (ETHNIC,
CULTURAL, RELIGIOUS ASPECT)
6. Larger rural populations but rapid rural-
to-urban migration
7. Lower levels of industrialization
8. Adverse geography
(RESOURCES/WEATHER & CLIMATE)
9. Underdeveloped financial and other
markets
10. Lingering colonial impacts such as poor
institutions and often external dependence.
Indicators of Development
- INCOME
GDP/GNP/GNI
PPP –PURCHASING POWER
PARTY
- HEALTH AND EDUCATION
Human development index
- Socioeconomic dev’t based on
income per capita, education and
health
Theories of Economic Development
a. Linear Stages Theory
- states that development undergoes
stages of growth in achieving
development
- According to Walt W. Rostow, there
is a series of steps that is undergone
by a country in achieving growth
form underdevelopment stage to
development stage. This is called
“takeoff into self-sustaining
growth.
Harrod-Domar growth model
- This growth model is also known as
the AK model because it is based on
a linear production function with
output given by the capital stock, K
times a constant, often labeled A.
b. Structural Change Model
- This model describes the
transformation of the economic
structures of the developing
countries from traditional subsistence
agriculture to modern industrialized
economy.
Examples of SCM
- two-sector surplus labor
- patterns of development
Patterns of Development
- This focuses on the process of
replacing traditional sector to
industrial sector.
Capital, labor, and a set of
interrelated changes in the economy
are the drivers of this transition
c. International-Dependence
revolution
- Main proposition is that
underdevelopment exists in
developing countries because of
continuing exploitative economic,
political and cultural policies of
former colonial rulers toward less
developed countries
three major streams of thought
 the neocolonial dependence model
- believes that the developing
countries are underdeveloped and
continues to be due to the historical
evolution of a highly unequal
international capitalist system of rich
country–poor country relationships
- exploitation
- Center - In dependence theory, the
economically developed world.
- Periphery - In dependence theory,
the developing countries.
 - Comprador group - In dependence
theory, local elites who act as fronts
for foreign investors
Dependence The reliance of
developing countries
on developed-
country economic
policies to stimulate
their own economic
growth.
Dominance In international
affairs, a situation in
which the developed
countries have much
greater power than
the less developed
countries
Underdevelopment
- An economic situation characterized
by persistent low levels of living in
conjunction with absolute poverty,
low income per capita, low rates of
economic growth, low
consumption levels, poor health
services, high death rates, high
birth rates, dependence on foreign
economies, and limited freedom to
choose among activities that satisfy
human wants.
 the false-paradigm model
- Underdevelopment is due to faulty
and misleading and inappropriate
advice given by the experts coming
from developed countries.
- 2. theory (new political economy
 the dualistic-development thesis
- is the existence of the rich and the
poor: rich and poor nations, rich and
poor people.
Dualism
- The coexistence of two situations or
phenomena (one desirable and the
other not) that are mutually exclusive
to different groups of society
Autarky
- Some countries may adopt self-
reliance. It is the same as being a
closed economy; but most countries
today have opened their economies
already.
D. Neoclassical Counterrevolution
- In developed nations, this
counterrevolution favored supply-
side macroeconomic policies,
rational expectations theories, and
the privatization of public
corporations.
In developing countries, it called
for freer markets and the
dismantling of public ownership,
statist planning, and government
regulation of economic activities
3 component approaches of the
Neoclassical Counterrevolution
1. Free-market analysis.
- Theoretical analysis of the properties
of an economic system operating
with free markets, often under the
assumption that an unregulated
market performs better than one with
government regulation.
approach).
- The theory that self-interest guides
all individual behavior and that
governments are inefficient and
corrupt because people use
government to pursue their own
agendas.
 3. Market-friendly approach.
- The notion historically promulgated
by the World Bank that successful
development policy requires
governments to create an
environment in which markets can
operate efficiently and to intervene
only selectively in the economy in
areas where the market is inefficient.
E. O-Ring Theory of Economic
Development
- tasks of production must be executed
proficiently together in order for any of them
to be of high value.
Accelerating Urbanization
- The higher the concentration of
people in these cities will increase
the impact of natural and man made
disasters and it will require a massive
whole of government approach to
address the humanitarian defense and
security challenges that accompany
them.
Personal distribution of income (size
distribution of income)
 The distribution of income
according to size class of persons
without regard to the sources of that
income. For example, the share of
total income accruing to the poorest
specific percentage or the richest
specific percentage of a population
Size Distributions - are usually used by
economists that deal with individual persons
or households and the total incomes they
receive regardless of how it is received,
meaning it concerns only how much income
was received.
A common method is to divide the
population into successive
Quintile - A 20% proportion of any
numerical quantity. A population divided
into quintiles would-be divided into five
groups of equal size.
Pano sya kunin?
- By 4 of personal income (money units) add
Decile - A 10% proportion of any numerical
quantity; a population divided into deciles
would be divided into ten equal numerical
groups.
Pano sya kunin?
- By 2 of personal income (money units) add
How to compute for Kuznets ratio
Measuring income inequality
1. Lorenz curve
- A graph depicting the variance of the size
distribution of income from perfect equality.
The farther the lorenz curve the higher is the
inequality while the nearest the curve the
inequality is lower.
2. Kuznets curve
- A graph reflecting the relationship between
a country’s income per capita and its
inequality of income distribution.
3. Gini coefficient
- An aggregate numerical measure of income
inequality ranging from 0 (perfect equality)
to 1(perfect inequality). It is measured
graphically by dividing the area between the
perfect equality line and the Lorenz curve by
the total area lying to the right of the
equality line in a Lorenz diagram. The
higher the value of the coefficient is, the
higher the inequality of income distribution;
the lower it is, the more equal the
distribution of income
Gini Coefficient Four highly desirable
properties
• Transfer principle (sometimes called the
Pigou-Dalton principle after Its creators)
- It states that, holding all other incomes
constant, if we transfer some income from a
richer person to a poorer person (but not so
much that the poorer person is now richer
than the originally rich person), the resulting
new income distribution is more equal.
• The anonymity principle
- Simply means that our measure of
inequality should not depend on who has the
higher income; for example, it should not
depend on whether we believe the rich or the
poor to be good or bad people
• Scale independence
- Principle means that our measure of
inequality should not depend on the size of
the economy or the way we measure its
income; for example, our inequality measure
should not depend on whether we measure
income in dollars or in cents or in rupees or
rupiahs or for that matter on whether the
economy is rich on average or poor on
average—because if we are interested in
inequality, we want a measure of the
dispersion of income, not its magnitude
(note that magnitudes are very important in
poverty measures).
• The population independence principle
- Somewhat similar; it states that the
measure of inequality should not be based
on the number of income recipients. For
example, the economy of China should be
considered no more or less equal than the
economy of Vietnam simply because China
has a larger population than Vietnam
1. Headcount index is the proportion
of a country’s population living
below the poverty line.
2. Total poverty gap (TPG) is the sum
of the difference between the poverty
line and the actual income levels of
all people living below that line. This
is calculated to raise everyone below
the poverty line.
3. Foster-Greer-Thorbecke (FGT)
index is a class of measures of the
level of absolute poverty
Poor Countries
 It should be noted that the poor come
from poor countries. Among those
that’re growing, at current growth
rates, it would take decades to reach
the levels of income at which
poverty tends to be eradicated.
Higher national incomes greatly
facilitate poverty reduction, while at
the same time, poverty still needs to
be addressed directly
Top 5 are from Sub-Saharan Africa.
1. Somalia
- Located in the Horn of Africa, has faced
prolonged violence and is currently
challenged by the Al-Shabab insurgency
group. This instability, coupled with drought
vulnerability, is likely to persist, making
Somalia the world’s poorest country by
2026.
2. South Sudan
- The country faces severe food insecurity
due to violence, currency depreciation,
fallout from the Ukraine war, and supply
disruptions. Intense flooding also hampers
activity. Additionally, falling oil prices are
expected to impact government revenue.
3. Sierra Leone
- Despite a civil war ending in 2002, the
Ebola epidemic and recent conflict in
Ukraine have hindered economic progress,
leading to import price increases and violent
protests.
4. Malawi
- The economy relies heavily on subsistence
agriculture and tobacco production, with
high public debt potentially stifling private
investment. Electricity shortages also
hamper business activities. Political
fragmentation, dependence on international
financing, and vulnerability to extreme
weather events are additional challenges.
5. Central African Republic
- Weak governance and armed rebel control
hinder progress, while reliance on Russian
mercenaries strains international relations.
- Economic growth is expected to remain
below the Sub-Saharan African average due
to persistent violence.
- The drafting of a new constitution and the
adoption of bitcoin as legal tender are
pivotal developments to monitor.
Global megatrends are macroeconomic
and geostrategic forces that are shaping our
world, and our collective futures in profound
ways. The implications of these forces are
broad and varied, and they will present us
with both tremendous opportunities to seize
—as well as extremely dangerous risks to
mitigate.
5 MEGATRENDS
1. Shift in global economic power
- The focus of global growth has
shifted. Western economic
dominance is a relatively recent
historical phenomenon that is
waning, and the development we see
are essentially a rebalancing of the
global economies
- China is also expanding its economic
presence in the West to include
resource investments in Africa and
North Sea
2. Demographic Change:
- Refers to shifts in population
demographics, such as aging
populations in some regions and
youth bulges in others, impacting
social structures, workforce
dynamics, and resource allocation.
3. Rapid Urbanization:
- The trend towards increasing urban
populations, leading to challenges
related to infrastructure, resource
management, social cohesion, and
security in densely populated areas.
4. Rise of Technology:
- Signifies the rapid advancements in
technology, including artificial
intelligence, cybersecurity, and
autonomous systems, which are
transforming warfare, intelligence
gathering, and security operations

5. Climate Change and Resource

Scarcity
- Highlights the environmental
challenges posed by climate change,
resource depletion, and natural
disasters, impacting security through
conflicts over scarce resources,
migration pressures, and
vulnerabilities to extreme weather
events