Week 02

ECONOMIC DEVELOPMENT THEORIES

What Is Development Economics?

Development economics is a branch of economics that

focuses on improving fiscal, economic, and social
conditions in developing countries. Development
economics considers factors such as health, education,
working conditions, domestic and international policies,
and market conditions with a focus on improving
conditions in the world's poorest countries.
The field also examines both 
macroeconomic and microeconomic factors relating to
the structure of developing economies and domestic and
international economic growth
Key terms
Development economics is a branch of economics whose goal is to
better the fiscal, economic, and social conditions of developing
countries.
Areas that development economics focuses on include health,
education, working conditions, and market conditions.
Development economics seeks to understand and shape macro and
microeconomic policies in order to lift poor countries out of poverty.
The application of development economics is complex and varied as
the cultural, social, and economic frameworks of every nation is
different.
Four common theories of development economics include
mercantilism, nationalism, the linear stages of growth model, and
structural-change theory.
UNDERSTANDING DEVELOPING ECONOMICS
Development economics studies the transformation of
emerging nations into more prosperous nations.
Strategies for transforming a developing economy tend
to be unique because the social and political
backgrounds of countries can vary dramatically. Not
only that, but the cultural and economic frameworks
of every nation is different also, such as women's rights
and child labor laws.
UNDERSTANDING DEVELOPING ECONOMICS
Students of economics, and professional economists, create
theories and methods that guide practitioners in determining
practices and policies that can be used and implemented at the
domestic and international policy level.
Some aspects of development economics include
determining to what extent rapid population growth helps or
hinders development, the structural transformation of
economies, and the role of education and healthcare in
development.
They also include international trade, globalization, sustainable
development, the effects of epidemics, such as HIV, and the
impact of catastrophes on economic and human development.
Types of Development Economics

1. Mercantilism
Mercantilism is thought to be one of the earliest forms
of development economics that created practices to
promote the success of a nation. It was a dominant
economic theory practiced in Europe from the 16th to
the 18th centuries. The theory promoted augmenting
state power by lowering exposure to rival national
powers.
Types of Development Economics

Like political absolutism and absolute monarchies,

mercantilism promoted government regulation by
prohibiting colonies from transacting with other
nations.3
Mercantilism monopolized markets with staple ports
and banned gold and silver exports. It believed the
higher the supply of gold and silver, the more wealthy it
would be. In general, it sought a trade surplus (exports
greater than imports), did not allow the use of foreign
ships for trade, and it optimized the use of domestic
resources.
Types of Development Economics

2. Economic Nationalism
Economic nationalism reflects policies that focus on
domestic control of capital formation, the economy, and
labor, using tariffs or other barriers. It restricts the
movement of capital, goods, and labor.4
Economic nationalists do not generally agree with the
benefits of globalization and unlimited free trade. They
focus on a policy that is isolationist so that the industries
within a nation are able to grow without the threat of
competition from established companies in other
countries.
Types of Development Economics
The economy of the early United States is a prime
example of economic nationalism. As a new nation, it
sought to develop itself without relying so much on
outside influences. It enacted measures, such as high
tariffs, so its own industries would grow unimpeded.
Types of Development Economics

3. Linear Stages of Growth Model

The linear stages of growth model was used to revitalize the
European economy after World War II.6
This model states that economic growth can only stem from 
industrialization. The model also agrees that local institutions
and social attitudes can restrict growth if these factors influence
people's savings rates and investments.6
The linear stages of growth model portrays an appropriately
designed addition of capital partnered with public
intervention. This injection of capital and restrictions from the
public sector leads to economic development and
industrialization.
Types of Development Economics
4. Structural-Change Theory
The structural-change theory focuses on changing the
overall economic structure of a nation, which aims to
shift society from being a primarily agrarian one to a
primarily industrial one.7
For example, Russia before the communist revolution
was an agrarian society. When the communists
overthrew the royal family and took power, they
rapidly industrialized the nation, allowing it to
eventually become a superpower.
What Is Development Economics Used for?

Development economics is the study of how emerging

nations become more financially stable. It can be used
as a tool for students and economists working to
develop policies that can be used in creating domestic
and international policy.
What Is the Goal of Development Economics?

Ultimately, the study of development economics is

meant to help better the financial, economic and
social circumstances in developing countries through
the enactment of certain structures and policies.
The Bottom Line

Development economics examines things like the

structure of domestic and international economies in
order to improve conditions in developing countries.
There are many theories of development economics.
While mercantilism, nationalism, linear stages of
growth, and structural-change theory are four of the
most common, this field of study continues to develop
and change.
 THANKS
ANY QUESTION?