DEVELOPMENT

ECONOMICS

Nguyen Quynh Hoa, PhD

 Course description
• INTENDED LEARNING OUTCOMES

• COURSE CONTENT
- Topic 1: Overview of economic development
- Topic 2: Economic Growth
- Topic 3: Social Advancement and Development

• KEY TEXTS
- Michael Todaro and Stephen Smith, 2015, Economic Development,
Twelfth Edition, Pearson
- Dwight Perkins, Steven Radelet and David Lindauer, 2006, Economics of
Development, Sixth Edition, Norton
 ASSESSMENT & GRADING POLICY
The final scores will be composed of the following components:
• Presentation: 10% (including attendant and active participation
(discussions, quizzes, exercises…) in class (1 absent minus 1 point
for attendant – 1 late – ½ absent day). Each student can absent up
to 3 class sections excluding test section
• Mid – term exam (included 4 open book mini test in class (10%)):
40%
• Final exam: 50%.
Topic 1: OVERVIEW OF
ECONOMIC DEVELOPMENT

What is What do we mean Basic indicators of

development by economic economic
economics development development

The common
The classification
characteristics of
of world
developing
economies
countries
Reading Materials
• Michael Todaro et al 12th edition. Chapter 1, 2
• Perkins et al, 2006. Chapter 1
• Acemoglu et al, 2012. Why nations fail. Milken Institute
Review, Third quarter
• Sachs, 2003. Institutions matter, but not for everything.
Finance and Development
• World Bank, World Development Report (WDR), Oxford
University Press,
• UNDP, Human Development Report (HDR), Oxford
University Press. Both publications can be accessed online
in pdf.
 What Development economics
• Economics >< Development economics
• Traditional economics- efficient allocation of scarce resources
• Political economics- social and political process
• Development economics- Role of values, attitudes, and institutions
• 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
poverty.
• Development economics is a branch of economics that
focuses on the process of improving the economies of
developing countries (improve the material lives of the
majority of the global population)
Principles and Concepts: Economic development

• What is the real meaning of development?

• What’s development process?
• Does historical record of development help us
understand it better?
• Is development process of developing nations
independent or interdependent with that of
developed nations?

7
Definition of Economic Development:
• 1950s: In economic terms, development is the
capacity of a nation to generate and sustain an
annual increase in its GNP of 5% or more.
• 1970s: Dethronement of GNP in the 1970s and
increasing emphasis on “redistribution from
growth”
• Increasing emphasis on non-economic social
indicators
• Economic development consists of the reduction
or elimination of poverty, inequality and
unemployment within the context of a growing
economy.
8
Human goals of economic development:
Sen’s “Capabilities” Approach: 1985
• Economic growth is not an end in itself and has to
enhance the lives people lead and the freedoms that
they enjoy
• Capability to function is what matters for status as a
poor/non-poor person and it goes beyond availability
of commodities
• Capabilities: “freedom that a person has in terms of
the choice of his functionings,…”
• Functionings is what a person does with commodities
of given characteristics that they possess/control

9
• The concept of functionings reflects the various things
a person may value doing
• Therefore, development cannot focus only on income,
but we also need to look at other factors impacting a
person’s capability to function.
• Amartya Sen traced five sources of disparity between
real incomes and actual advantages:
• Personal heterogeneities
• Environmental diversities
• Social climate variations
• Differences in relational perspectives
• Distribution within family

10
Definition of Economic Development: 1990s

• World Bank in its 1991 WDR asserted that the

“challenge of development is to improve the
quality of life.”
• The improved QOL involves higher incomes, better
education, higher standards of health and nutrition, less
poverty, a cleaner environment, more equality of
opportunities, greater individual freedom, and a richer
cultural life.

11
Definition of Economic Development:

• Conclusion:
“Development is a multi dimensional
process involving changes in social
structures, popular attitudes, and national
institutions, as well as the acceleration of
economic growth, the reduction of
inequality, and the eradication of
poverty.” (Todaro and Smith)
 Human being is the center of economic
development
12
• Development is both a physical reality and a state of
mind for attaining a better life.
• Three basic core values as a practical guideline for
understanding development
• Sustenance
• Self-esteem
• Freedom
• Specific components of better life vary from time to
time and from society to society.
• Three Objectives of Development:
• Increase availability and distribution of basic goods
• Raise levels of living
• Expand range of social and economic choices available
to individuals
 Overall objective: Increase standard of living for
inhabitant
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The stages of economic development
 The classification of world economies  Defining the Developing World

• World Bank Scheme- ranks countries on GNI/capita

LIC, LMC, UMC, OECD where LIC = Low-Income Countries, LMCs=
Lower-Middle-Income Countries, UMCs= Upper-Middle-Income
Countries; (LMCs + UMCs) = Middle-Income Countries
• Basic Indicators of Development
Health
Life Expectancy
Education
HDI as a holistic measure of living levels
• Developed >< Developing countries
 HDI Ranking Value Number of countries
Very high human
development 0.808 – 0.944 47
High human
0.7 – 0.79 47
development
Medium human 0.556 – 0.698 47
development

Low human development 0.337 – 0.54 45

19
Human development index
Developed >< Developing countries

• Developed countries:
- High income
- Modern technology
- High human development
Developing countries
-NICs
-OPECs
-LDCs
 Characteristics of the Developing World:
Diversity within Commonality
1. Lower levels of standard of living: low income, high levels of inequality and absolute poverty,
poor health and inadequate education
2. Lower levels of productivity
3. Higher Population Growth Rates and dependency burdens
5. Greater social fractionalization
6. Larger rural population- rapid migration to cities
7. Lower levels of industrialization and manufactured exports
8. Adverse geography
9. Underdeveloped financial and other markets (imperfect market, incomplete information)
10. Colonial legacies- poor institutions etc.
The necessity of development (Vicious Circle
of Poverty)
The necessity of development (Vicious Circle
of Poverty)
Low Income Countries Today And Developed Countries in their earlier stages

Eight differences
• Physical and human resource endowments
• Per capita incomes and levels of GDP
• Climate
• Population size, distribution, and growth
• Historic role of international migration
• International trade benefits
• Scientific/technological research
• Efficacy of domestic institutions

2-25
 Activities 1: Internet exercise
Provide the following comparative indicators in a table format
Indicators:
- Population; annual population growth rate;
- GDP per capita (or GNI per capita); in current USD and PPP USD
- Composition of GDP (%) (the share of agricultural, industrial and service
sector in GDP)
- HDI;
- life expectancy at birth;
- mortality rate;
- crude birth rate;
- % people living below “$1” per day;
- GINI coefficient;
- literacy rate;
http://wdi.worldbank.org, human development report