Development Economics

Semester: Fall 2021

Course Supervisor: Sheeba Tahir

Lecturer - KASBIT
Introduction of Development Economics
 Text book :
Economics Development 11th edition by Todaro &
Smith.
 Reference book:
Development economics by Debraj Ray.
Subsistence economy
 An economy in which production is mainly for personal
consumption and the standard of living yields little more than
basic necessities of life—food, shelter, and clothing.
Traditional economics
 Traditional economics is concerned primarily with the efficient,
least-cost allocation of scarce productive resources and with the
optimal growth of these resources over time so as to produce an
ever-expanding range of goods and services.
 An approach to economics that emphasizes utility, profit

maximization, market efficiency, and determination of equilibrium.

 Political economy: The attempt to merge economic analysis with

practical politics— to view economic activity in its political context.
 GROWTH
 Growth in a human being means the increase
in weight and height of the individual. These
are purely physical in nature like increases in
weight from 5 kilos to 50 kilos or increases in
height from 91 centimeters to 191 centimeters.

 In similar fashion, growth in a country’s

economy means increases in physical output or
production.
DEVELOPMENT

 Development in human means not only physical growth but also the necessary
changes that he has to undergo to develop into a matured individual. This means
that the individual’s attitudes, habits, emotions, feelings and intelligence must have
undergone changes to fit into the concept of matured individual.
 In similar fashion, development in a country’s economy means both increases in
output or production and changes in the technical and institutional arrangements
by which the factors of production are produced and distributed.
Definitions of Development Economics
 Development can be seen . . . as a process of expanding the
real freedoms that people enjoy.
(Amartya Sen, Nobel laureate in economics)

 Our vision and our responsibility are to end extreme poverty

in all its forms in the context of sustainable development and
to have in place the building blocks of sustained prosperity
for all.
(Report of the High-Level Panel of Eminent Persons on the
Post-2015 Development Agenda, 2013)
Absolute poverty
 A situation of being unable to meet the minimum levels of
income, food, clothing, health care, shelter, and other
essentials.
Development economics
 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.

 More developed countries (MDCs): The now economically

advanced capitalist countries of western Europe, North
America, Australia, New Zealand, and Japan.

 Less developed countries:

A synonym for developing countries.
Economic Growth
 Six Factors That Affect Economic Growth
 Natural Resources. The discovery of more natural resources like
oil, or mineral deposits may boost economic growth as this
shifts or increases the country's Production Possibility Curve. ...
 Physical Capital or Infrastructure. ...
 Population or Labor. ...
 Human Capital. ...
 Technology. ...
 Law.
Conditions Enabling Human Development
 Health services,
 More secure livelihoods,
 Better nutrition,
 Political cultural freedom,
 Satisfy leisure hours,
 Security against crime and physical violence,
 Greater access to knowledge ,etc
Indicators Of Economic Development
 The most common indicators of economic development are:
 Gross Domestic Product (GDP) per capita,
 The poverty level,
 Life expectancy,
 The proportion of workers in agriculture
 Changes in the physical quality of life.
Economic Development
 Economic development of any nation can be characterized by
the following:
1. Increases in output or production has to be sustained over a
long period of time.
2. Changes in economic structure would spread out in the entire
economy.
3. Growth has to be accompanied by an increase in efficiency
Economic Development

Economic development is shaped not only by

economic factors but also by non-economic
factors like environmental, social, and
cultural conditions of the economy.

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Class Activity:

How important is economic growth to Economic

Development?
 As economic growth we consider the increase in real output (real GDP) over
time caused by additional resources (production inputs) and higher
productivity of these inputs (more efficient production methods). As economic
development we consider not only the increase in output but also the structural,
technological and institutional changes in production and distribution of
product. The latter term is more general.

 The main difference is that development includes a number of structural

changes (social, institutional, economic and cultural). This is why we may say
that less developed economies (relatively low GDP or GNP per capita)
“develop” while the developed (or “mature”) economies (relatively high GDP
or GNP per capita) that present no significant structural changes “grow”.

 Another way of looking at the problem is by saying that development is related

to the increase of output while growth does not necessarily mean development.
As an example the increase in oil production may lead to the increase of the
economy’s product without implying that this growth will lead to the
restructuring of the production, of the technology or the distribution of the
final product.
FIGURE : The Circular Flow of Payments
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