© Natalya Brown 2008 ECON 3066 Economic Development Todaro dan Smith: Economic Development, 9 th...

© Natalya Brown 2008

ECON 3066Economic

DevelopmentTodaro dan Smith: Economic Development, 9th edition, CHAPTERS 1-2; 4-10; 12; 14 Sadono Sukirno. Ekonomi Pembangunan: Proses, Masalah dan Dasar KebijakanMubyarto. Sistem dan Moral Ekonomi IndonesiaKindleberger, P. et al. Economic Development

TOPICS

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ECON 3066Economic

DevelopmentTWO QUIZZES : 15%

MID-TERM : 30%

FINAL-TERM: 40%

ASSIGNMENT : 15%

RULES

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LECTURE 1: Introduction

Economics, Institutions and Development

• Overview– Global Differences in Standard of Living– Nature of Development Economics– What is Development Economics– Purpose of Development Economics– Values in Development Economics– Economies as social systems– The Meaning of Development– New Economic View of Development

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LECTURE 1: Introduction Economics, Institutions and Development

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The majority of the 6.4 billion people in the world live in absolute poverty.



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Part of the 6.4 billion people in the world live in luxury




• Global Differences in Living Standards– Differences in:

• Household Size, Income and Property• Educational Attainment and Opportunities• Health and Nutrition

–Access to basic necessities (e.g. clean water)–Life Expectancy

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• Global Differences (Cont’d)• Employment Opportunities• Inequality within Countries/Cities

– Interdependence: Economic and Environmental interdependence in an ever-shrinking world

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Average living condition, between countries

Variable North America Rural Asia

Nuclear family 4 persons 8 persons or more

Yearly average income

USD50,000,- USD 250-300

Levels of living Reasonably good Bad

Economy Developed In some parts: Subsistence



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Average living condition, within country

Variable DKI Papua


LECTURE 1: Introduction Development Measures by Country

Standard Measures Malaysia Brazil Sudan Canada

GDP per capita (PPP US$) 9,512 7,790 1,910 30,677

Combined Primary, Secondary, Tertiary Gross Enrolment Ratio (%)

71 91 38 94

Infant Mortality Rate (per 1000 live births)

7 33 63 5

Life Expectancy at birth (years)

73.2 70.5 56.4 80.0

Average Household Size 5.6 2.6

Population Living below $2/day

9.3 22.4

Source: UNDP Human Development Report, 200504/19/23 13



The Nature of Development Economics

• Traditional economics (neoclassical economics): concerned with the efficient allocation of scarce

productive resources and optimal growth of these resources to achieve sustained growth

deals with, e.g.:– an advanced capitalist world of perfect markets– consumer sovereignty– automatic price adjustments assumes:– economic rationality– a purely materialistic, individualistic, self-interested

orientation toward economic decision-making

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The Nature of Development Economics (cont’d)

– Political economy: analyzes how politics and economics are

related; role of power in decision making

studies the social and institutional mechanisms through which decisions about the allocation of scarce productive resources are made.

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– Development economics has a broader scope.

– It deals with: efficient allocation of scarce resources and

sustained growth, and the role of economic, social, political and

institutional mechanisms in promoting/hindering rapid and large-scale improvements in the well being of the people in LDCs

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– Some characteristics of LDCs (challenges)

Market imperfection: most commodity and resource markets are highly imperfect

Informational asymmetry: consumers and producers have limited information

Structural changes in the society and the economy

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Political and social considerations:

economic calculations dominated by political and social priorities; family, clan, religious, or tribal considerations may take precedence over private, self-interested utility or profit-maximizing calculations

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Requires larger government role, wide scale

planning and coordinated efforts

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What is Development Economics

The economics of the contemporary poor, underdeveloped nations with varying ideological orientations, diverse cultural backgrounds, and very complex yet similar economic problems that usually demand new ideas and novel approaches.

Neither the same with economics of advanced capitalist nations nor to centrally planned economies.

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Ultimate Purpose of Development Economics

TO HELP US BETTER UNDERSTAND

DEVELOPING ECONOMIES IN ORDER TO HELP

IMPROVE THE MATERIAL LIVES OF THE

MAJORITY OF GLOBAL POPULATION

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Questions asked in Development Economics:

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

• To what extent are the development goals of developing countries thwarted by the economic activities of developed nations?

• How is it that extreme inequality can exist not only across continents but within cities and countries?

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LECTURE 1: Introduction More Questions:

• What lessons can developing countries learn from the historical record of economic progress of developed countries?

• What are the primary causes of extreme poverty?

• What strategies have been most successful in eradicating poverty?

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LECTURE 1: Introduction Even more questions:

• What roles do population growth and migration play in the development process?

• Do the educations systems in developing countries promote development and reduce inequality or do they help to sustain wealth and class structures?

• Are deregulation and privatization the answer?

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Values in Development Economics

• The goals of this discipline are derived from subjective value judgments about what is good and desirable.

• The goals are:– Economic and Social Equality– Elimination of Poverty– Universal Education– Higher Living Standards

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LECTURE 1: Introduction Values (cont’d)

– National independence– Institutional Modernization– Political and Economic Participation– Grassroots democracy– Self-reliance– Personal Fulfillment

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Economies as Social Systems

Social system: interdependent relationship between economic and noneconomic factors.Noneconomic factors:attitudes toward life, work, and authority; patterns and kinship and religion; cultural traditions; the authority and integrity of government agencies; levels of political participation; public and private bureaucratic, legal, and administrative structures; systems of land tenure; flexibility/rigidity of economic and social classes.

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The Meaning of Development

• Traditional Measures– The capacity of a once relatively stagnant national

economy to generate and sustain significant economic growth

• Annual increases of 5% or higher in gross national product. Alternative measures include income per capita and real income per capita (‘real’ – accounting for inflation).

– Changes in the structure of production – shifts from agriculture towards manufacturing and services (i.e. industrialization)

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The Meaning of Development

• Traditional Measures

– Trickle down

– Little attention paid to eradicating poverty, unemployment, inequality, and discrimination

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New Economic View of Development

• Contemporary Measures– Broader:

include the reduction of poverty, unemployment and inequality within the context of a growing economy

– Multidimensional: No longer be just higher incomes, must also include e.g., better education, health and nutrition, equal opportunities, individual rights and freedoms, and clean environment

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Sen’s Capability Approach

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

-Amartya Sen, Development as Freedom1998 Nobel Laureate in Economics

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Sen’s Functionings and Capabilities

• What matters is:what a person is, or can be, and does or can

do• What matters for well-being is ‘functioning’: not the characteristics of commodities consumed, as

in the utility approach, but what use the consumer can and does make of commodities

e.g. a book is of little value to an illiterate person(except as cooking fuel or a status symbol)

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Five Sources of Disparity between (measured) real incomes and actual

advantages

• Sen’s Five Sources:– Personal heterogeneities– Environmental diversities– Variations in social climate– Differences in relational perspectives– Distribution within households

• Sen argues that changes in functions and capabilities are better measures of development

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Sen’s Functionings and Capabilities

• Capabilities:

“the freedom an individual possesses with respect to choice of functionings, given his/her personal features/traits (conversion of characteristics into functionings) and his command/control over commodities”

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Three Core Values of Development

Common goals:1. Sustenance: the ability to meet basic needslife-sustaining basic needs – food, shelter, health and

protection. “absolute underdevelopment” describes the absence or

critical supply of these basic needs. Rising per capita incomes, elimination of absolute

poverty, greater employment opportunities, and lessening income inequalities, necessary but not sufficient conditions for development

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Common goals:

2. Self-Esteem: to be a persona sense of worth and self-respect (i.e. identity,

respect, honor, recognition, dignity). a sense of not being used as a tool by others for

their own end ‘development is legitimized as a goal because it is

an important, perhaps even an indispensable, way of gaining esteem.

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Common goals:

3. Freedom from Servitude: to be able to choose human freedom; emancipation from alienating material

conditions of life and from social servitude to nature, ignorance, other people, misery, institutions, dogmatic beliefs, especially that poverty is predestination.

‘the advantage of economic growth is not that wealth increases happiness, but that it increases the range of human choice” (W.A. Lewis).

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Three Objectives of Development

1)The improvement in the availability and distribution of basic life-sustaining goods

2)The improvement of living standards

3)The expansion of the range of economic and social choices

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United Nations’ Millennium Development Goals

1. Eradicate Extreme Hunger and Poverty2. Achieve Universal Primary Education3. Promote Gender Equality and Empower Women4. Reduce Child Mortality5. Improve Maternal Health6. Combat HIV/AIDS, Malaria and other diseases7. Ensure Environmental Stability8. Develop a Global Partnership for Development

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LECTURE 1

• Next topic:

Comparative Development: Differences and Commonalities among Developing Countries

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© Natalya Brown 2008 ECON 3066 Economic Development Todaro dan Smith: Economic Development, 9 th...

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