Determinants of

Economic Development
Chapter 3
Introduction

• Economic development is not determined by economic factors

alone. There are non-economic factors that affect economic
development, and they have greater influence than the economic
ones,
• Clearly, solving economic problems with economic solutions only is
inadequate. More often than not, the problems remain unsolved.
• This chapter discusses the various factors of economic
development. Their effects on the development of nations,
especially the less developed ones are explained.
Factors of Economic Development

• Economic Factors: • Non-economic Factors:

1. Capital a. Social structure
2. Market b. Family system
3. Technology c. Cultural values
d. Political conditions
e. Corruption in public administration
f. Religion
g. Population
h. Geography
1. Capital

• In economics, capital refers to finished goods which are being used

to produce other goods.
• Machines, buildings, tools, equipment, etc. are specifically called
physical capital.
• In the case of money, it is financial capital.
• People are classified as human capital.
1. Capital

• Obviously, machines accelerate the production and distribution of

goods. Work can be done in lesser time and effort. This also
reduces the unit cost.
• The rich countries like the United States, Japan, and those in
Western Europe, have been using modern machines in agriculture,
industry, and service organizations.
• On the other hand, the less developed countries do not even have
enough funds for road construction, electrification,
communication, irrigation, and other vital projects for economic
development.
2. Technology

• Technology refers to better technique or methods of production.

• However, it can also be applied in other fields like public
administration, education or social work.
• For instance, social technology is concerned with the improvement
of attitudes and values of the people. Public administration
technology deals with the improvement of social goods in order to
maximize the satisfaction of social wants.
2. Technology

• Research has contributed much to the development of technology.

But research and development require big funds.
• The rich countries can afford to undertake necessary and
expensive research and development projects.
• On the other hand, the less developed countries merely copy or
imitate Western technology.
Technology for the Less Developed Countries

• Actually, there is nothing wrong with the importation of technology. It

saves both money and time.
• However, the imported technology should be suitable to local
conditions.
• In the case of he industrial countries, they use machines or capital-
intensive technology, because labor is scarce and therefore expensive.
So, it is more economical for them to use machines rather than employ
workers. For the poor countries, they have an oversupply of unemployed
and underemployed individuals. They should therefore use labor-
intensive technology. This mean more labor and less machines.
3. Market

• The growth of markets reflects an expanding economic development.

For as long as the various sectors of the economy are equitably
benefited, economic growth is real and enduring.
• Transportation, communication, and electricity greatly help in the
growth of markets. In addition, contact between sellers and buyers is
easier and more convenient.
• A market becomes bigger when more people buy more goods.
• Obviously, it is unfair for any government agency to tell farmers to
improve their production methods if there are no profitable markets
for their products.
3. Market

• Needless to say, the industrial countries have considerable

advantages in both local and foreign markets. Their products are
of better quality. Their prices are lower, if there are no taxes or
tariffs imposed on them. The less developed countries are
excellent markets for their products. The colonial mentality of the
people further bolster the lucrative business of the multi-national
corporations.
a. Social Structure

• A society which has a more equitable distribution of wealth and

income, and economic freedoms, provides a more fertile
environment for economic development.
• On the other hand, a society whose wealth and income belong to
very few families does not encourage economic development.
• In the case of the caste system of India, it was abolished by the
constitution.
b. The Family System

• Family members in Western societies like the United States are

more individualistic and self-reliant.
• An extended family system, which is common in the Philippines
and other developing countries, is good in the sense that there is
unity, and the welfare of the old and the young members are
protected by the stronger adult members, usually the eldest sons.
• However, it has dominant features which are not favorable to
economic development.
b. The Family System

• Another, close family ties hamper labor mobility, and the choices
of better economic opportunities.
• Likewise, the family obligations of the older children to their
parents and younger brothers and sisters have been a part of
culture.
• In the highly developed countries, the governments take care of
the aged and the jobless.
c. Cultural Values

• Some cultural values have negative effects on economic

development. They retard the growth of the economy.
• According to Professor Myrdal, industrialization requires efficiency,
mobility, discipline, and punctuality. In his ten years field research
in Asia, he observed that many Asians do not have these.
• It is really very different in Western culture. They are efficient,
punctual, and responsible.
• In contrast, Filipino officers, especially those in the government are
not as efficient.
The Desire to Imitate

• Many peoples in the less developed countries admire the

consumption habits of the Americans and the Europeans. So, they
take extreme pride in eating their foods, wearing their clothes,
and using their appliances and tools. This is colonial mentality,
pure and simple. They love the products of their former colonial
masters.
• The local elite in the Caribbean islands display their European
goods in order to enhance their social status.
• Another example is Argentina.
The Desire to Imitate

• Such misplaced cultural values do not encourage at all the

production of local goods. They do not help the development of
local industries.
• Whenever an underdeveloped country attains rapid industrial
growth through foreign investments or through its own resources,
some of its cultural values which are not favorable for economic
development do not change.
d. Political Conditions

• Political conditions have considerable impact on economic

development.
• The major role of the government is to provide a high standard of
living for its people.
• But if governments keep on changing very often, economic
programs and projects are likely to suffer.
• Singapore is a tiny state. In terms of natural resources, it is very
poor. And yet it is very affluent and progressive, compared with
most Asian countries.
e. Corruption in Public Administration

• According to an economics professor in Singapore, government

corruption is the number one obstacle to economic development in
Southeast Asia.
• Government corruption is present in any society. However, based on
observations, such corruptions are more rampant in the less
developed countries like those in Asia.
• In dealing with government offices, bribery has been a common
practice.
• Nevertheless, Asian government have taken measures and actions to
weed out inefficient and corrupt employees and officials.
f. Religion

• During the Biblical times, materialism and the pursuit of wealth

were despised and discouraged. Similar attitudes were shown
during the time of the ancient Greek philosophers and the
Scholastics led by Aquinas.
• Such religious concepts and teachings against materialism are not
favorable to economic development.
• Max Weber, author of the Protestant Ethics and the Spirit of
Capitalism, claimed that the Protestant countries are more
progressive.
f. Religion

• Former colonies of Spain are Catholics.

• There are several Catholic practices which are not consistent with
the principles of economic development.
• Nevertheless, religion is only one of the factors of economic
development. It cannot totally influence economic growth.
g. Population

• Population is both an advantage and a disadvantage in economic

development.
• It is an advantage if people are productive and creative.
• On the other hand, population is a great burden if the rate of
population growth is higher than the rate of production growth.
• Poor countries with high birth rates are advised to adopt family
planning programs.
h. Geography

• Geography refers to climate, soil, natural resources, topography,

and structure of the land. These have considerable influence on
economic development.
• In the case of Africa, it is a giant continent, but only 7 percent of
its land is arable. And only 50 percent of the arable land is used
for food production.
• On the other hand, there are countries with poor natural resources
but they were able to achieve remarkable economic growth.
h. Geography

• Good examples of these are Japan and Israel.

• In Japan, only about 16 percent of its total land area is arable or
can be farmed. During winter, one-half of said farm area is
covered with snow. Because of its meager natural resources,
Japan imports about 90 percent of raw materials for its industries.
Despite its geographical limitations, Japan has become the fastest
growing industrial society in the world. Through capital and
technology, it has achieved phenomenal economic growth.
h. Geography

• The same is true with Israel.

• Formerly, it was a barren land. In the beginning, it had a pastoral
economy. Today, Israel has a developed economy. Through modern
agricultural technology, its arid land became fertile and verdant. It
is now an exporter of farm crops, aside from industrial goods.
• Transportation and communication are likewise affected by
geographical structure.
• Geographical disadvantages can be eliminated or reduced through
the proper use of technology and capital.
 Determinants of
Economic Development
Chapter 3