ECON 317: Economic Growth & Development 1 · ECON 317: Economic Growth & Devt 1 Dr. Emmanuel...

ECON 317:

Economic Growth & Development 1

Lecturer:

Dr. Emmanuel Codjoe

Economics, Institutions and

Development: A Global Perspective

Introduction

Introduction to Economic Development

• According to Robert Lucas (1988), the problem of economic development is one of accounting for observed patterns, across countries and across time, in levels and rates of growth of per capita income.

• As Daron Acemoglu and James Robinson (2008) put it, “the most important questions in ....

ECON 317: Economic Growth & Devt 1 Dr. Emmanuel Codjoe


• .... in social science concern the causes of cross-country differences in economic development and economic growth.”

• “ Why are some countries much poorer than others?”

• “ Why do some countries achieve economic growth while others stagnate?”



• Many reasons have been attributed to why such

differences in economic growth rates occur.

However, only a few will be explored in this

course.

• Some of these reasons include, geographic

endowments, innovation, institutions, culture,

‘useful knowledge’.






course.

• Some of these reasons include, capital formation,

growth in total factor productivity, geographic

endowments, technological innovation,

institutions, culture, ‘useful knowledge’.






course.

• Some of these reasons include, geographic

endowments, innovation, institutions, culture,

‘useful knowledge’.



• Evidently, the primary objective of nearly

every country in the world is to achieve

economic development: raising the well-being

and social capabilities of persons resident in

these countries.

• How do we assess how much development

has occurred over a period of time?



Distinguishing Between “Growth” and

“Development”

• Occasionally, the terms growth and development are used to mean the same thing. Why?

• Because growth of per capita income is supposed to contribute to a general increase in the standard of living of the people in general.




“Development”

• In strictly economic terms, development has

traditionally meant achieving sustained rates

of growth of income per capita to enable a

nation to expand its output at a rate faster

than the growth rate of its population.




“Development”

• Consequently, modern growth, is usually defined

to involve a substantial increase of real income per

capita sustained over a long period of time.

• In simple terms, the average incomes of people

not only get better but also continue to do so.




“Development”

• But it now widely accepted that economic

development goes beyond the level or growth

of per capita income, although income has a

great deal to do with it.




“Development”

• For instance, whilst the per capita income of Kuwait, Qatar, or Saudi Arabia is very high, it will be wrong to suggest that the “average” citizen in these countries enjoys a standard of living higher than an “average” citizen of the USA, Denmark or Sweden.




“Development”

• In the past, economic development has also been seen in terms of the planned alteration of the structure of production and employment so that agriculture’s share of both declines and that of the manufacturing and service industries increases: what has been termed, Structural Change.




“Development”

• Nevertheless, the development experiences of many developing countries between the 1950s and 1980s, suggested that development must also involve the removal of poverty and undernutrition, reduction in inequality, infant mortality, and unemployment, avoidance of discrimination, and access to sanitation, clean drinking water and health services.




“Development”

• This points to several issues in distinguishing

between growth and development:

–The distribution of income: a country’s GDP

may grow a very fast rate and yet only a small

proportion of the population benefit from this.




“Development”

• This points to several issues in distinguishing

between growth and development:

–The population growth rate: where population

growth rate matches output growth rate, then per

capita growth rate is negligible.




“Development”

• This points to several issues in distinguishing between growth and development:

– Foreign exchange conversion: in a world of floating exchange rates, foreign exchange conversion of per capita real income may not always be an adequate index of development.




“Development”

• This points to several issues in distinguishing between growth and development:

–Existence of ‘Dual’ Societies: ‘dual’ societies are characterised by contrasts between the very rich and the very poor, between towns and villages, between different social classes, etc.




“Development”

• Where these characteristics have been observed, we might expect to see growth without development.

• Another important feature of the measure of the level of economic development is the quality of life index.




“Development”

• It is contended that such quality is not adequately reflected in the index of per capita income growth. Thus, country X may have a lower per capita real income than country Y, but the quality of life enjoyed by citizens of country X may be better than that of Y.




“Development”

• But there is the problem of setting up the

index to measure the ‘quality’ of life.

However, several factors are involved in the

measurement of such ‘quality’. These include

the following:




“Development”

1. Education and literacy rates

2. Life expectancy

3. Level of nutrition measured by calorie supply per head (good nutrition)

4. Consumption of energy per head

5. Infant mortality per 1000 live births




“Development”

6. Access to a variety of goods and services

7. Luxury of leisure and entertainment

8. Live in healthy environment

9. Freedom from any form of discrimination

10. Access to good health care and housing




“Development”

11. A society that is tolerant of diversity

12. A society with tolerable levels of equality

13. A society with political rights and freedoms, intellectual and cultural development, high levels of personal security, social order, etc.




“Development”

• Clearly, there is an entire multitude of yardsticks that can be relied on in defining the ‘quality’ of life index.

• Development must therefore be conceived of as a multidimensional process involving major changes in many aspects of human life.




“Development”

• These changes will include, those 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.



Defining Economic Development: Sen’s Capabilities Approach

• This is attributed to Nobel Economics Laureate, Amartya Sen.

• He argued that “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”.



Defining Economic Development: Sen’s

Capabilities Approach

• To develop this point, he used the concept of

capabilities, which is largely defined as the

freedoms that people have, given their

personal features and their command over

commodities.




• Sen himself defines capabilities as “the freedom that a person has in terms of the choice of functionings, given his personal features (conversion of characteristics into functionings) and his command over commodities.”

• Functionings, refers to what a person does (or can do) with the commodities of given characteristics that they come to possess or control.




Some Key Capabilities:

• Some of the important “Beings” and “Doings” in the capability to Function include the following:

–Being able to live long

–Being well-nourished

–Being Healthy




– Being literate

– Being well-clothed

– Being mobile

– Being able to take part in the life of the community

– Being happy (a state of being that may be valued as a functioning)



How the Other Half Live?

• The Brandt Report (1980) highlighted the growing gap in social and economic development between the developed and less developed nations of the world.

• The report also provided a basis for what some referred to as the Brandt line, dividing the rich North and the poor South.




• It is therefore easy to see why and how development could mean different things to different people.

• Nevertheless, having an acceptable measure permits an assessment of the level of progress (or otherwise).




• Additionally, the Brandt Report also warned of the tendency of the ‘North’ to put up economic barriers against the growing industrial ‘South’.

• Nevertheless, it also noted the mutually interdependent relationship between the two worlds.




• We also know that a significant proportion of the world’s population live in absolute poverty.

• Absolute poverty refers to the situation of being unable to meet the minimum levels of income, food, clothing, healthcare, shelter, and other essentials.




• It is therefore easy to see why and how development could mean different things to different people.

• Nevertheless, having an acceptable measure permits an assessment of the level of progress (or otherwise).




• The Brandt Report also warned of the tendency of the ‘North’ to put up economic barriers against the growing industrial ‘South’.

• Thus, poverty remains a major challenge in today’s world, despite the increase in global wealth over the last 100 years.

• We know that a significant proportion of the world’s population live in absolute poverty.




• The challenge of poverty remains real for many countries in the world; a significant proportion of the world’s population live in absolute poverty.

• This is in stark contrast to the increase in global wealth over the last 100 years. World GDP is more than 3 times what it was about 100 years ago.




• We take a snapshot into the lives of the poor, with a few quotations from these people.

• When one is poor, she has no say in public, she feels inferior. She has no food, so there is famine in her house; no clothing, and no progress in her family.

—A poor woman from Uganda




• For a poor person everything is terrible—illness, humiliation, shame. We are cripples; we are afraid of everything; we depend on everyone. No one needs us. We are like garbage that everyone wants to get rid of.

—A blind woman from Tiraspol, Moldova

• Life in the area is so precarious that the youth and every able person have to migrate to the towns or join the army at the war front in order to escape the hazards of hunger escalating over here.

—Participant in a discussion group in rural Ethiopia




• However, it is worth noting that tremendous progress has been made over the last century.

• Several regions of the world have recorded remarkable reductions in the levels of absolute poverty in the last 50 years, which have been especially helped by the impetus provided by the MDGs and SDGs.




• The Brandt Report also warned of the tendency of the ‘North’ to put up economic barriers against the growing industrial ‘South’.

• Thus, poverty remains a major challenge in today’s world, despite the increase in global wealth over the last 100 years.

• We know that a significant proportion of the world’s population live in absolute poverty.




• Despite the picture of improvement in

poverty levels painted, progress has been

slower at higher poverty lines.

• Moreover, progress has been uneven across

the regions of the world.




• The other half therefore live in a world

characterised by the following:

–Unemployment; dwindling job opportunities

– Low and falling incomes

–High prices for essential commodities

–Unsafe sources of drinking water




– Poor sanitation

–High infant and maternal mortality

– Poor diet

– Poor health care facilities/services

– Poor education




• These features point to the main dimensions

of poverty. Thus, the meaning of poverty is

not only restricted to that related to income.

Other aspects of poverty include the

following:




–Food and Shelter

–Health and Education

–Energy

–Rights and Participation

–Freedom and Empowerment



Economics and Development Studies

• Traditional economics focuses primarily on

the efficient, least-cost allocation of scarce

productive resources and with the optimal

growth of these resources over time so as to

produce an ever-expanding range of goods and

services (sustained GDP growth).




• Political economy considers issues outside the domain of traditional economics. These include, the social and institutional processes through which certain groups of economic and political elites influence the allocation of scarce productive resources now and in the future, either for their own benefit exclusively or for that of the larger population as well.




• The emphasis is on the relationship between

politics and economics, with a particular focus

on the role of power in economic decision

making.

• Development Studies has a much greater scope.




• It is concerned with the following issues:

– the efficient allocation of existing scarce

(or idle) productive resources,

– their sustained growth over time,




– the interaction between economic, social, political, and institutional mechanisms, both public and private, necessary to bring about rapid and large-scale improvements in levels of living for the peoples of Africa, Asia, Latin America, and the formerly socialist transition economies – Eastern European countries.




• Nevertheless, it is worth noting that developing

countries are a non-homogeneous group.

• However, there are a few common

characteristics that can be found in a majority

of them. these include:




• They are countries faced with complex social, political and economic problems

• Most commodity and resource markets (in these countries) are highly imperfect

• Consumers and producers have limited information




• Existence of multiple equilibria, rather than

single equilibrium, which mean prices do not

always equate demand and supply

• Prevalence of social, cultural and political norms

and attitudes




• As a result of the heterogeneity of the developing world, and the complexity of the development process, development studies uses an eclectic approach, combining relevant concepts and theories from traditional economic analysis with new models and broader multidisciplinary approaches derived from studying the historical and contemporary development experience of Africa, Asia, and Latin America.



Economies as Social Systems: Going Beyond Simple Economics

• So far we have the need for economics to embrace a broader perspective on development.

• This raises the need for issues concerning the economic development of countries to be analysed within the context of the overall social system of a country, and indeed within an international, global context as well.



Economies as Social Systems: Going

Beyond Simple Economics

• By “social system,” we mean the interdependent

relationships between economic and

noneconomic factors.

• Social systems include the following:



Economies as Social Systems: Going Beyond

Simple Economics

• Attitudes toward life, work, and authority;

• Public and private bureaucratic, legal, and

administrative structures;

• Patterns of kinship and religion;

• Cultural traditions;




• Systems of land tenure;

• The authority and integrity of government agencies;

• The degree of popular participation in development decisions and activities; and

• The flexibility or rigidity of economic and social classes




• Additionally, there is the need to expand the context outside that of the country, to include the international/regional context:

• That is, the organization and rules of conduct of the global economy: how they were formulated, who controls them, and who benefits most from them.




• This situation is especially true today with the spread of market economies (neoliberal economics) and the fast pace face of globalization (involving trade, finance, corporate boundaries, technology, intellectual property, and labour migration).



From MDGs to SDGs

• The Millennium Development Goals (MDGs) were eight goals adopted by the United Nations in 2000 to be achieved by 2015. They were:

– Eradicate extreme poverty and hunger

– Achieve universal primary education

– Promote gender equality and empower women

– Reduce child mortality



From MDGs to SDGs

– Improve maternal health

– Combat HIV/AIDS, malaria and other diseases

– Ensure environmental sustainability

– Develop a global partnership for development

• As the end-period set for the MDGs approached and progress had been mixed, a new set of goals were proposed, the Sustainable Development Goals (SDGs).



From MDGs to SDGs

• The SDGs has 17 goals relating to the future of international development. These are:

–End poverty in all its forms everywhere

–End hunger, achieve food security and improved nutrition and promote sustainable agriculture

–Ensure healthy lives and promote well-being for all at all ages



From MDGs to SDGs

– Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all

– Achieve gender equality and empower all women and girls

– Ensure availability and sustainable management of water and sanitation for all

– Ensure access to affordable, reliable, sustainable and modern energy for all



From MDGs to SDGs

– Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all

– Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation

– Reduce inequality within and among countries

– Make cities and human settlements inclusive, safe, resilient and sustainable



From MDGs to SDGs

–Ensure sustainable consumption and

production pattern

–Take urgent action to combat climate change

and its impacts

–Conserve and sustainably use the oceans, seas

and marine resources for sustainable

developmentECON 317: Economic Growth & Devt 1

Dr. Emmanuel Codjoe


From MDGs to SDGs

– Protect, restore and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss

– Promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable and inclusive institutions at all levels

– Strengthen the means of implementation and revitalize the global partnership for sustainable development



Defining the Developing World

• The term developing world is used to describe a group of diverse countries not part of the group of countries variously termed, “North”, “rich countries”, “industrialised countries”.

• Thus, whilst it is debateable to lump together dissimilar countries as one group – developing countries, most international institutions use the term to categorise this group of countries.




• The most common way to define the developing world is by per capita income; an approach used by several international agencies, such as the OECD, World Bank, UN, IMF, etc.

• The real income per capita adjusted for purchasing power is the measured used by the World Bank for classifying countries into different states of development.




• The World Bank converts all nations’ national income into Gross National Income in US$, adjusted for Purchasing Power Parity, to allow for comparison across countries.

• Based on these computations, the World Bank classifies countries according to the following criteria:




• Low-income economies – GNI per capita of $1,045 or less in 2013

• Middle-income economies – GNI per capita of more than $1,045 but less than $12,746 in 2013

• High-income economies – GNI per capita of more than $12,746 in 2013




• Lower-middle income and Upper-middle income are separated by a GNI per capita of $4,125

• With a number of important exceptions, the developing world consists of countries with low-, lower-middle or upper-middle incomes.




• An evolution of terms: In the past, there was a distinction between the Third World, which consisted of mainly very poor countries, and the First World, which consisted of countries in Western Europe, North America, Japan, Australia and New Zealand.

• The Third World was divided into five regions:




• These were:

–East Asia and the Pacific

– South Asia

–Middle East and North Africa

– Sub-Saharan Africa

– Latin America and the Caribbean




• The distinction of the world into First and Third World, implied a Second World, which referred to the group of countries that formed part of the Soviet Bloc (the Soviet Union and its allies in Eastern Europe).

• Other terminologies used by the United Nations include, “least developed countries”, ….




• … “small island developing states”, “landlocked

developing countries”.

• Unlike the World Bank and IMF, the United

Nations notes that “there is no commonly agreed

definition of developing countries”.


Introduction to Economic DevelopmentClassifying Nations by GNI per capita








Introduction to Economic DevelopmentClassifying Nations by Human Development Index








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