Fely Chpater 1econ Dev 1 Pwrpt

8/3/2019 Fely Chpater 1econ Dev 1 Pwrpt

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Development Economics

1. Traditional economicsconcerned

primarily with the efficient, least-costallocation of scarce productive resources

and with the optimal growth of these

resources overtime so as to produce an ever-

expanding range of goods and services.

Traditional neoclassical economics dealswith an advanced capitalist world of perfect

markets; consumer sovereignty; automatic

price


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p

adjustments; decisions made on basis

of marginal, private-profit, and utility

calculations and equilibrium outcomes

in all product and resource markets. It

economic rationality and a purelymaterialistic, individualistic, self

interested orientation towardeconomic decision making.


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2. Political economy - goes beyond

traditional economics to study,

among other things, the social and

institutional processes through which

certain groups of economic andpolitical elites influence the

allocation of scarce productiveresources now and in the future,

either exclusively


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for their own benefit or for that

of the larger population aswell. It is concerned with the

relationship between politicsand economics, with a special

emphasis on the role of powerin economic decision making.


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3. Development economicsconcerned with

the efficient allocation of existing scarce (or

idle) productive resources and their sustainedgrowth over time, it must also deal with the

economic, social, political, and institutional

mechanisms, both public and private,necessary to bring about rapid and large scale

improvements in the levels of living for the

masses of poverty stricken, malnourished, andilliterate peoples of Africa and Asia, and Latin

America.


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It must be concerned also with the cultural,

and political requirements for effecting rapid

structural and institutional transformation ofentire societies in a manner that will most

efficiently bring the fruits of economic

progress to the broadest segments of the

populations.

It must focus on the mechanisms that keep

families, regions and the entire nations in

poverty traps, and on the most effective

strategies for breaking out of these traps.


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A larger government role and

some degree of coordinatedeconomic decision making

directed toward transforming theeconomy are usually viewed as

essential components of

development economics.


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Economies as social systems: The need

to go beyond simple economics

Economics and economic systemsespecially in the developing world, must

be viewed in broader perspective than thatpostulated by traditional economics.

They must be analyzed within the context

of the overall social system of a countryand within an international global context

as well.


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Social system means the

interdependence relationships between so

called economic and non-economic

factors. The latter include attitudes

toward life, work, and authority; publicand private bureaucratic, legal, and

administrative structures; patterns of

kinship, and religion; cultural traditions;systems of land tenure; the authority and

integrity of government agencies;


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the degree of popular participation in

development decisions and activities; and the

flexibility or rigidity of economic and socialclasses.

The factors stated above vary widely from one

region of the world to another and from oneculture and social setting to another.

At the international level, considerations mustalso be on organization and rules of conduct of

the global economy.


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What is development?

1. Traditional economic measures

development has traditionally meant thecapacity of a national economy, whose

initial economic condition has been more or

less static for a long time, to generate and

sustain an annual increase in its GNP at

rates of perhaps 5% to 7% or more. Acommon alternative economic index of

development has been the use of rates of

growth of


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income per capita or per capita GNP to take

into account the ability of a nation to expand

its output at a rate faster than the growth of itspopulation. Levels and rates of growth of

real per capita GNP (monetary growth of

GNP per capita minus the rate of inflation) arenormally used to measure the overall

economic well-being of a populationhow

much of real goods and services is available tothe average citizen for consumption and

investment.


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Economic development in the past has also

been typically seen in terms of the planned

alteration of the structure of production andemployment so that agricultures shares of

both declines and that of the manufacturing

and service industries increases.

Development strategies have therefore

usually focused on rapid industrialization,often at the expense of agriculture and rural

development.


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2. The new economic view of

developmentdevelopment must be

conceived of as a multidimensionalprocess involving major changes in social

structures, popular attitudes, and nationalinstitutions, as well as the acceleration of

economic growth, the reduction of

inequality, and the eradication of poverty.Development must represent the whole

gamut (scope) of change


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by which an entire social system,

tuned to the diverse basic needs and

desires of individuals and social

groups within that system, moves

away from a condition of life widelyperceived as unsatisfactory toward a

situation or condition of life regardedas materially and spiritually better.


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Three core values of development

1. Sustenance: the ability to meet basic human

needs such as food, shelter, health and protection.Without sustained continuous economic progress

at the individual as well as the societal level, the

realization of the human potential would not bepossible. Rising per capita incomes, the

elimination of absolute poverty, greater

employment opportunities, and lessening incomeinequalities constitute the necessary but not the

sufficient conditions for development.


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2. Self-esteem: to be a persona second

universal component of the good life is self-

esteem, a sense of worth and self-respect, ofnot being used as a tool by others for their own

ends. The nature and form of this self esteem

may vary from society to society and fromculture to culture. However, with the

proliferation of the modernizing values of

developed nations, many societies indeveloping countries that have had a profound

sense of their own worth suffer from


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cultural confusion when they come in

contact with economically and

technologically advanced societies. This isbecause national prosperity has become an

almost universal measure of worth. Due to

the significance attached to material in

developed nations, worthiness and esteem

are nowadays increasingly conferred onlyon countries that posses economic wealth

and technological power.


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The three objectives of development

1. To increase the availability and widen the

distribution of basic life-sustaining goods suchas food, shelter, health and protection.

2. To raise the levels of living, including

higher income, the provision of more jobs,better education, and greater attention to

cultural and human values, all of which will

serve not only to enhance material well-beingbut also to generate greater individual and

national self-esteem.


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Chapter 2Diverse Structures and

Common

Characteristics of Developing NationsAssignment:

1. How does WB define the developedand developing world?

2. List of developed, developing, newly

industrializing countries (NICs)


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The Structural Diversity of Developing

Economies

1. The size of the country (geographicarea, population, and income)size and

income levelThe sheer physical size ofa country, the size of its population, and

its level of income per capita are

important determinants of its economicpotential and major factors differentiating

one developing nation from another.


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2. Historical backgroundmost African

and Asian nations were at one time or n

another colonies of Western Europeancountries, primarily Britain and France

but also Belgium, the Netherlands,Germany, Portugal, and Spain. The

economic structures of these nations, as

well as their educational and socialinstitutions, have typically been modeled

on those of their former colonial rulers.


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3. Physical and Human Resourcesa

countrys potential for economic growth is

greatly influenced by its endowments ofphysical resources (land, minerals, and

raw materials) and human resources(numbers of people and their level of

skills). The extreme case of favourable

physical resources endowment is thePersian Gulf oil states.


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Human resource endowments means

not only number of people and their

skill levels but their cultural

outlooks, attitudes toward work,

access to information, willingness toinnovate, and desire for self-

improvement. The level ofadministrative skills will often

determine the ability of


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the public sector to alter the

structure of production and thetime it takes for such structural

alteration to occur.

Geography and climate can also

play an important role in the

success or failure of developmentefforts.


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4. Ethnic and religious composition

ethnicity and religion often play a vital role in

the success or failure of development efforts.The greater the ethnic and religious diversity

of a country, the more likely it is that there will

be internal strife and political instability.Ethnic and religious composition of a

developing nation and whether or not that

diversity leads to conflict or cooperation canbe important determinants of the success or

failure of development efforts.


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5. Industrial structurethough

rapidly urbanizing, the majority of

developing countries are agrarian in

economic, social, and cultural

outlook. Agriculture, both subsistenceand commercial, is a principal

economic activity in terms of theoccupational distribution of the labor

force.


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6. External dependence: economic, political,

and culturalmost small nations are highly

dependent on foreign investment and tradewith the developed world. Almost all small

nations are dependent on the importation of

foreign and often excessively capital-intensivetechnologies of production. This fact alone

exerts an extraordinary influence on the

character of the growth process in thesedependent nations.


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7. Political structure, power, and

interest groupsit is often not thecorrectness of economic policies

alone that determines the outcome

of national approaches to criticaldevelopment problems. The

political structure and the vestedinterests and allegiances of ruling

elites such as


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the large landowners, urban

industrialists, bankers, foreignmanufacturers, the military, trade

unionists will typically determine

what strategies are possible andwhere the main roadblocks to

effective economic and socialchange may lie.


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Common Characteristics of Developing

Nations

1. Low levels of livingin thedeveloping nations, general levels of

living tend to be very low for the vastmajority of people. This is true not only

in relation to their counterparts in rich

nations but often also in relation to smallelite groups within their own societies.

These low


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levels of living are manifested

quantitatively and qualitatively in the

form of low incomes (poverty),

inadequate housing, poor health,

limited education, high infantmortality, low life and work

expectancies, and in many cases ageneral sense of malaise and

hopelessness.


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2. Per capita national incomeper capita

GNP comparisons between developed

and less developed countries areexaggerated by the use of official foreign

exchange rates to convert the LDCnational currency figures into U.S.

dollars. This conversion does not

measure the relative domestic purchasingpower of different currencies. In an

attempt to rectify this problem,


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researchers have tried to compare relative

GNP and GDPs by using purchasing

power parities (PPPs) instead of exchangerates as conversion factors. PPPs used

common set of international prices for all

goods and services produced, valuing

goods in all countries at U.S. prices. PPP

is defined as the number of units of aforeign countrys currency required to

purchase the identical


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quantity of goods and services in the local

(LDC) market as $1 would buy in the

U.S. Generally, prices of non-tradedservices are much lower in developing

countries because wages are so much

lower. If domestic prices are lower, PPP

measures of GNP per capita will be higher

than estimates using foreign-0exchangerates as the conversion factor.

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