Lecture 1

1

S Z A B I S T

WELCOME TO THE COURSE OF

ECONOMIC DEVELOPMENT

BY

MANZOOR ALI ISRAN

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Course outline

1. Introduction to the course; Economics, Institutions, and Development

2. Theories of Economic Development

3. Theories of Economic Development (continued)

4. Hourly 1; Case Study Discussion

5. Historic Growth and Contemporary Development

6. Growth, Poverty, and Income Distribution

7. Growth, Poverty, and Income Distribution (continued)


9. Population Growth; Unemployment

10. Agricultural Transformation and Rural-Urban Migration

11. Education and Development

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Economic Development


13. Trade Theory and Trade Policy Debate

14. Macroeconomic Stabilization and Fiscal Reforms

15. Role of the State in Economic Development; Globalization

16. Final Test

Recommended Text Book

1. Economic Development, Michael P. Todaro, 8th Edition.

Reference Books

1. State, Market and Civil Society, John Martinussen

2. Neoliberalism and Democracy, Arthur MacEWAN

3. Politics and Development, Olle Tornquist.

4. In Defense of Globalization, Jagdesh Bagwati.

5 . Development Thinking at Millennium, Joseph Stiglitz

6. Development Policies in a World of Globalization, Joseph Stiglitz

7. The Natural State: The Political-Economy Of Non-Development, Douglass C. North, John Joseph Wallis, and Barry R. Weingast

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• Introduction– Sharp contrast in life style – Haves and have nots.

• Examples.– Example of rich

• North American Nuclear Family• Earning $ 30,000 – 40,000 PM• Living in comfortable house in the city apartment or

suburban house with small garden.

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• House has separate bedroom for each of the two children.

• filled with numerous consumer goods/appliances such as oven, computers/home theatre and etc.

• Most of the items are imported. • It has mountain imported mountain bikes for kids

to play.• Family consumes imported fruit from Brazil,

Kenya or Colombia and canned fish from Peru, Japan & Australia.

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• Bananas from and other tropical fruit from Central America.

• Both Children have access to good education and health facilities.

• The life expectancy of the family is 72-76 years.

• Family because of strong financial position is in position to sustain inflationary or recessionary economic pressures.

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• Because of their high social status they are in position to stroll, walk, breathe clean air, drink pure mineral water. Overall family lives in good environmental conditions.

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Poor Family• In contrast to what have discussed previously,

let us have a look at Asian Family:• Average Asian family comprise 10 members.

– Parents, five to seven children, in some cases, eleven children, two grand parents and some aunts and uncles.

– They have annual income of $ 700 to 800 annual. – They live one-room house.– All the family members must work all the day to

survive. – None of the adult can read and write.

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• Only one child goes to school and the rest work either in sweatshops or restaurants as daily wagers.

• And that can not proceed beyond three or fours years of primary education.

• House has no electricity, sanitation or drinkable water.

• Family even can not afford to get basic Medicare.

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• Another view• Suppose that we are visiting large and beautiful city situated along the coast

of South America.

• And there is another poor dwelling few hundred meters away from that metropolis.

• The wealthy family lives in multi room complex on the top floor of modern building overlooking the sea while poor family is cramped tightly into a small makeshift shack or squatter slum on the hill behind that seafront building.

• For the illustrative purpose, let us assume it is sat. evening and family is preparing for dinner.

• In the ABC apartment, a servant is setting table with expensive imported china, high quality silverware and the fine Lenin.

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• Russian salads and French hors d’oeuvers and Italian wine will constitute the first of several courses.

• Family first son is back home from his university in North America and the other two children are on vacation from boarding schools in France and Switzerland.

• Father is prominent surgeon.

• His clientele consists of wealthy local and foreign dignitaries and business people.

• In addition to his practice, he owns considerable amount of land in the countryside.

• Annual trips aboard imported luxury cars and the finest fod and clothing are commonplace amenities for this fortunate family in the penthouse apartment.

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Poor family living in the shanty house. • Poor family lives in the dirt-floored shack on the side of

the hill.• They can view see but it is not that much relaxing as it is

for the rich family.• The stench of sewers make that enjoyment remote.• There is no dinner table being set. • Seven illiterate children spend their time on the streets

begging for money, shining shoes and stealing.• Family income is not more than $200 per year.

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• This fleeting glimpse of the at life in different parts of the world, rich and poor raises many question.

• Why one part is so rich and other so poor?

• Can traditional low-income, subsistence societies be transformed into modern high productivity high income nation?

• To what extent the development aspiration of the poor helped or hindered by the economic activities of the rich nations.

• By what process and under what conditions do rural subsistence farmers in the remote regions of Nigeria, Brazil or Pakistan evolve into successful commercial farmers.

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Economic DevelopmentSome critical questions

• Apart from that so many other question such as variation in the standard of living, health, nutrition, education, employment, population growth and life expectancy can be asked on the basis of very superficial look at life around the world.

1. What is the real meaning of development, and how can different economic concepts and theories contribute to a better understanding of the development process.

2. What are the sources of national and international growth.

3. Which are the most influential theories of development. Is underdevelopment internally or internationally induced phenomenon?

4. What can be learned from the historical record of economic progress in the developed world? Or the initial conditions similar or different for contemporary LDCs from what the developed countries faced on the eve of their industrialisation.

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5. How can improvement in the role and women have a especially beneficial impact on development prospects. Do large families make sense in an environment of wide-spread poverty and financial insecurity.

6. Do Third World Educational system really promote economic development or simply a mechanism to enable certain select groups or classes of people to maintain the position of wealth and power and influence

7. As 60% to 70% of many LDC population still reside in rural areas, how can agricultural and rural development best be promoted? Are agricultural prices are sufficient to stimulate food production, or are rural institutions changes (land, redistribution, roads, transport, education, credit, etc) also needed.

8. What do we mean by environmentally sustainable development ? Are there serious economic costs of perusing sustainable economic development as opposed to simple output growth, and who bears the major responsibility for global environmental damage – North South.

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9. Is international trade desirable from point of view of development of poor nations? Who really gains from trade and how the advantage distributed among nations?

10. Should export of the primary good be promoted or should all LDCs attempt to industrialize by developing their own heavy manufacturing industries as rapidly as possible.

11. How do developing nations get into such serious foreign debt problem, and what are the implications of this debt for the economies of less developed countries.

12. When and under what conditions should LDC government adopt a policy of foreign-exchange control, raise tariffs, or set quotas on the importation of certain non-essential goods in order to promote their own industrialisation or to ameliorate chronic balance of payment problems. What has been the IMF stabilisation programme and World Bank stabilisation programme lending on balance of payment & growth of LDC.

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13. Should large multinational corporations be encouraged to invest in the economies of poor nations, and if, under what conditions? How have the emergence of the “global factory” and globalisation of trade and finance influenced international economic relations.

14. What is impact of foreign economic aid from rich countries? Should developing countries continue to seek such aid, and if so, under what conditions and for what purposes? Should developed countries continue to offer aid, and if so, under what conditions and for what purposes?

15. Are free markets and economic privatisation the answer to development problems of developing countries, or Third World governments have major role to play in the their economies.

16. What is the role of financial and fiscal policy in promoting economic development? Do large military expenditure stimulate or retard economic growth?

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17. What are the most significant issues facing the developing world in the twenty first century? Will greater global interdependence between the first and Third World nations or hinder development prospects.

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• Nature of Development Economics. – It is the science through which material

(food, shelter, and clothing) and non-material (education, knowledge and spiritual fulfilment) are realized.

– What study Development Economics? Some critical questions.

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• What do we mean by Development– Traditional approach– New approach

• Core values– Sustenance – the ability to meet basic needs– Self Esteem – To be a person with self

respect. – Freedom from servitude – to be able to

choose.

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• Three objective Development Economics. 1. To make and increase the availability of and widen

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

2. To raise level of living by providing more jobs and education while paying greater attention to cultural and humanistic values.

3. To expand the range of economic and social choices available to individual or nation by freeing them from the servitude and dependence in relation to others.

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• Conceptualisation of Development

• Understanding Development

• Neoclassical conception of Development

• Development was restricted to growth. • Moreover, It was defined as “process whereby the real per capita income

of a country increased over a long period of time while simultaneously poverty is reduced and the inequality in society is diminished”.

• Later on in the wake of growing criticism of the conception of the development and the policies of the World Bank and IMF, the conception was little bit altered and new strategy was adopted ---

• Basic Need or redistribution with growth.

• This was called Trickle Down/Trickle down plus

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• Late conception of Development forwarded by Amartya Sen, Paul Streeten and Muhbool Haq and contained in the Human Development Report 1990

• In contrast to the previous conception of the development, it was seen as

• “Enlargement of the choices of People” • It concentrated around three choices:

– The opportunity to lead a long and healthy life– The opportunity to acquire knowledge– And the opportunity to have access to resources needed for

decent standard of living

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• Latter addition – Political Freedom– Human rights – Human Development for women and men – Environmental and other aspects of sustainability– Themes regarding citizen’s participation and opportunities to

affect the political decision in society. – It was quite paradigm shift and this new paradigm called

“PARADIGM FOR SUSTAINABLE DEVELOPMENT’ or it was just like Development by People.

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• Amartya Sen’s conception of Development– Development as freedom – Virtuous Circles

– It consists of five freedoms

• Political freedoms

• Economic facilities

• Social opportunities

• Transparency guarantees

• Protective security

• Each of these distinct types of rights and opportunities helps to advance the general capability of a person.

• Public policy to foster human capabilities and substantive freedoms in general can work through the promotion of these distinct but interrelated instrumental freedoms.

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• Dudley Seers, a British Development Economist, advocated ‘growth fetishism’ with social development.

• He raise a three question to measure the level of development. – What has been happening to poverty?– What has been happening to unemployment?– What has been happening to inequality?

• According to him if all three of thee have declined from high level then there has been development.

• And if any one of these three growing worse then it would be strange to call the result development.

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• Theories of Development– Modernist ion Theory – Dependency Theory– Dialectical Modernization Theory

– Capacity building and development by people– Development and security.

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• Actors of Development– State– Market– Civil Society/NGO

• Approaches to Development– Top Down/Bureaucratic – Bottom up or People-centred.

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Lecture 1

Documents

economic development

economic development

family income

rich family

family members

fortunate family

development thinking

development policies