Development Economics Semester VI - ECON 3204. 9/12/20152 What is development economics? Development economics is a branch of economics which deals with.

Development Development EconomicsEconomics

Semester VI - ECON 3204Semester VI - ECON 3204

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What is development What is development economics?economics?

• Development economics is a branch of Development economics is a branch of economics which deals with economic aspects economics which deals with economic aspects of the development process.of the development process.

• Economic DevelopmentEconomic Development means study of the means study of the transformation of an economy from that of a transformation of an economy from that of a low per capita income to a high income low per capita income to a high income ensuring decent living standard for all its ensuring decent living standard for all its citizens.citizens.

• Development is a long term process,Development is a long term process, where several changes in social customs, on where several changes in social customs, on attitudes towards life, in rules/regulations and attitudes towards life, in rules/regulations and institutions take place.institutions take place.

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In a nut shell, …In a nut shell, … • Development = Growth + Structural and Development = Growth + Structural and

institutional changes.institutional changes.

• The task of development economists is The task of development economists is to understand the processes of long to understand the processes of long term economic growth on one side, and term economic growth on one side, and the accompanying structural and the accompanying structural and institutional changes in the economy on institutional changes in the economy on the other. This second part may be the other. This second part may be unique to a country and usually it is unique to a country and usually it is context specific.context specific.

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Need of Need of Multidisciplinary ApproachMultidisciplinary Approach in in development economicsdevelopment economics

• Unlike in other fields of economics, Unlike in other fields of economics, approaches in development approaches in development economics may incorporate social, economics may incorporate social, political and other factors to political and other factors to understand the complexity of understand the complexity of economic and social phenomena. economic and social phenomena.

• Why? Why?

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Traditional meaning of economic Traditional meaning of economic developmentdevelopment

• Economic Development has Economic Development has traditionallytraditionally meant the increase in meant the increase in capacity capacity of a national of a national economy, whose initial economic condition has economy, whose initial economic condition has been more or less static for a long time, been more or less static for a long time, to to generate and sustain an annual increase of generate and sustain an annual increase of 5 to 7% or more in its GNP or GDP.5 to 7% or more in its GNP or GDP.

• Real Per capita GDP or Per capita GNP are even Real Per capita GDP or Per capita GNP are even better measures as they neutralize the inflation better measures as they neutralize the inflation and population size.and population size.

• Prior to 1970s, at least, development was nearly Prior to 1970s, at least, development was nearly always seen as an economic phenomenon where always seen as an economic phenomenon where increase in per capita income was seen as increase in per capita income was seen as central concern,central concern, and problems of inequality in and problems of inequality in income distribution, poverty, unemployment income distribution, poverty, unemployment were of secondary importance. were of secondary importance.

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The new economic view of The new economic view of developmentdevelopment• The experience of the 1950s and 1960s, The experience of the 1950s and 1960s,

when many developing nations did realize when many developing nations did realize their growth targets but the levels of living of their growth targets but the levels of living of the masses remained mostly unchanged. the masses remained mostly unchanged. This signaled that there was something This signaled that there was something wrong with the ‘old definition’ of wrong with the ‘old definition’ of development.development.

• This led to ‘dethronement of GNP’.This led to ‘dethronement of GNP’.• During 1970s, economic development was During 1970s, economic development was

redefined in terms of reduction of poverty, redefined in terms of reduction of poverty, inequality and unemployment within the inequality and unemployment within the context of a growing economy. Redistribution context of a growing economy. Redistribution from growth became a common slogan.from growth became a common slogan.

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• Dudley Seers (an economist) raised the basic Dudley Seers (an economist) raised the basic question on the meanings of development:question on the meanings of development:

““the questions to ask about a country’s development the questions to ask about a country’s development are: what has been happening to poverty? What has are: what has been happening to poverty? What has been happening to unemployment? What has been been happening to unemployment? What has been happening to inequality? happening to inequality? If all three of these have declined from high levels, If all three of these have declined from high levels, then beyond doubt this has been a period of then beyond doubt this has been a period of development. If one or two of these problems have development. If one or two of these problems have been growing worse, especially if all three have, it been growing worse, especially if all three have, it would be strange to call the result ‘development’ would be strange to call the result ‘development’ even if per capita income doubled.” even if per capita income doubled.”

(Dudely Seers, The meaning of development 1969)(Dudely Seers, The meaning of development 1969)

The new economic view of The new economic view of developmentdevelopment(contd….)(contd….)

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• The World Bank, which during the 1980s The World Bank, which during the 1980s championed economic growth as the championed economic growth as the goal of development, joined the chorus goal of development, joined the chorus of observers taking a broader of observers taking a broader perspective when in its 1991 World perspective when in its 1991 World Development report it asserted:Development report it asserted:

““the challenge of development …. is to the challenge of development …. is to improve the quality of life. ….. It improve the quality of life. ….. It encompasses as ends in themselves encompasses as ends in themselves better education, more equality of better education, more equality of opportunity, greater individual freedom, opportunity, greater individual freedom, and a richer cultural life.” and a richer cultural life.”

The new economic view of The new economic view of developmentdevelopment (contd….) (contd….)

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Amartya Sen’s ‘Capabilities’ Amartya Sen’s ‘Capabilities’ ApproachApproach

• Amartya Sen, the 1998 Nobel laureate in Amartya Sen, the 1998 Nobel laureate in economics, argues that the ‘capability to economics, argues that the ‘capability to function’ is what really matters for status as function’ is what really matters for status as a poor or non-poor person. a poor or non-poor person.

• ““economic growth can not be sensibly economic growth can not be sensibly treated as an end in itself. Development has treated as an end in itself. Development has to be more concerned with enhancing the to be more concerned with enhancing the lives we lead and the freedoms we enjoy.”lives we lead and the freedoms we enjoy.”

• In effect, Sen argues that poverty cannot be In effect, Sen argues that poverty cannot be properly measured by income or even by properly measured by income or even by utility as conventionally understood; what utility as conventionally understood; what matters is not the things a person has – but matters is not the things a person has – but what a person is, or can be, and does, or can what a person is, or can be, and does, or can do.do.

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Three core values of Three core values of developmentdevelopment

What do we mean by ‘development as What do we mean by ‘development as sustained elevation of an entire society and sustained elevation of an entire society and social system toward a ‘better’ or more humane social system toward a ‘better’ or more humane life?’ At least three basic components or core life?’ At least three basic components or core values should serve as a conceptual basis and values should serve as a conceptual basis and practical guideline for understanding the inner practical guideline for understanding the inner meanings of development;meanings of development;

• SustenanceSustenance: the ability to meet basic needs,: the ability to meet basic needs,

• Self-esteemSelf-esteem: to be a dignified person,: to be a dignified person,

• Freedom from servitudeFreedom from servitude: emancipation : emancipation from misery, chronic poverty, dogmatic beliefs from misery, chronic poverty, dogmatic beliefs etc. etc.

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Three objectives of Three objectives of developmentdevelopmenti- to increase the availability and i- to increase the availability and

widen the distribution of basic life-widen the distribution of basic life-sustaining goods such as food, sustaining goods such as food, shelter, health, and protection.shelter, health, and protection.

ii- to raise level of living, including the ii- to raise level of living, including the better jobs, better education, better better jobs, better education, better health, and less vulnerability.health, and less vulnerability.

iii- to expand the range of economic iii- to expand the range of economic and social choices available to and social choices available to individual – with least inequality.individual – with least inequality.

World Bank classificationWorld Bank classification• As of 2014, the World Bank income classifications As of 2014, the World Bank income classifications

by GNI per capita are as follows:by GNI per capita are as follows:

• Low income: $1,045 or lessLow income: $1,045 or less

• Lower middle income: $1,046 to $4,125Lower middle income: $1,046 to $4,125

• Upper middle income: $4,126 to $12,745Upper middle income: $4,126 to $12,745

• High income: $12,746 or moreHigh income: $12,746 or more

Low- and middle-income economies are sometimes Low- and middle-income economies are sometimes referred to as developing economies. The term is referred to as developing economies. The term is used for convenience; it is not intended to imply used for convenience; it is not intended to imply that all economies in the group are experiencing that all economies in the group are experiencing similar development or that other economies similar development or that other economies have reached a preferred or final stage of have reached a preferred or final stage of development.development.

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United Nations Development United Nations Development Program (UNDP) Program (UNDP) Country classifications based on HDI quartiles. Country classifications based on HDI quartiles.

•A country is in the very high group if its HDI is in the top A country is in the very high group if its HDI is in the top quartile ( > 76), quartile ( > 76),

•In the high group if its HDI is in between 51–75, In the high group if its HDI is in between 51–75,

•In the medium group if its HDI is in between 26–50 and In the medium group if its HDI is in between 26–50 and

•In the low group if its HDI is in the bottom quartile. In the low group if its HDI is in the bottom quartile.

Countries in the very high HDI category are referred to as Countries in the very high HDI category are referred to as developed, and countries not in this group are referred to as developed, and countries not in this group are referred to as developing. developing.

•HDR 2013 p. 140HDR 2013 p. 140

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