ECONOMIC DEVELOPMENT Fifth Edition

ECONOMIC DEVELOPMENT

Fifth Edition

E. Wayne Nafziger analyzes the economic development of Asia, Africa,Latin America, and East-Central Europe. This book is suitable forthose with a background in economics principles. Nafziger explainsthe reasons for the recent fast growth of India, Poland, Brazil, China,and other Pacific Rim countries and the slow, yet essential, growthfor a turnaround of sub-Saharan Africa. The fifth edition of the text,written by a scholar of developing countries, is replete with real-world examples and up-to-date information. Nafziger discussespoverty, income inequality, hunger, unemployment, the environmentand carbon-dioxide emissions, and the widening gap between rich(including middle-income) and poor countries. Other new compo-nents include the rise and fall of models based on Russia, Japan,China/Taiwan/Korea, and North America; randomized experimentsto assess aid; an exploration of whether information technology andmobile phones can provide poor countries with a shortcut to prosper-ity; and a discussion of how worldwide financial crises, debt, and tradeand capital markets affect developing countries.

E. Wayne Nafziger is University Distinguished Professor of Economicsat Kansas State University. He is the author and editor of nine-teen books and numerous journal articles on development economics,income distribution, development theory, the economics of conflict,the Japanese economy, and entrepreneurship. His book Inequality inAfrica: Political Elites, Proletariat, Peasants, and the Poor (CambridgeUniversity Press) was cited by Choice as an Outstanding AcademicBook for 1989–90. Professor Nafziger is also the author of The DebtCrisis in Africa (1993) and the editor (with Frances Stewart and RaimoVayrynen) of the two-volume War, Hunger, and Displacement: TheOrigins of Humanitarian Emergencies (2000). He has held researchpositions at the United Nations University’s World Institute for Devel-opment Economics Research, Helsinki; the University of Cambridge(UK); the International University of Japan; the Institute for Socialand Economic Change (Bangalore, India); the University of Nigeria;the Carter Center; the East–West Center, Honolulu; and the Centerfor Research in Economic Development at the University of Michigan;and received an Indo-American Foundation/National Science Founda-tion grant for research at Andhra University, India. Professor Nafzigeredited the Journal of African Development from 2008 to 2010.

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Cambridge University Press978-0-521-76548-0 - Economic Development: Fifth EditionE. Wayne NafzigerFrontmatterMore information

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Economic DevelopmentFIFTH EDITION

E. Wayne NafzigerKansas State University






www.cambridge.orgInformation on this title: www.cambridge.org/9780521765480

First edition C© Wadsworth Pub. Co. 1984Second edition C© Prentice-Hall, Inc. 1990Third edition C© Prentice-Hall, Inc. 1997Fourth edition C© E. Wayne Nafziger 2006Fifth edition C© E. Wayne Nafziger 2012

This publication is in copyright. Subject to statutory exceptionand to the provisions of relevant collective licensing agreements,no reproduction of any part may take place without the writtenpermission of Cambridge University Press.

First published by Wadsworth Pub. Co. 1984 as The Economics of Developing CountriesSecond edition published by Prentice-Hall, Inc. 1990Third edition published by Prentice-Hall, Inc. 1997Fourth edition published by Cambridge University Press 2006 as Economic DevelopmentFifth edition published by Cambridge University Press 2012Reprinted 2015

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Nafziger, E. Wayne.Economic development / E. Wayne Nafziger. – 5th ed.

p. cm.Includes bibliographical references and index.ISBN 978-0-521-76548-0 (hardback)1. Developing countries – Economic conditions. 2. Income distribution – Developing countries.3. Economic development. I. Title.HC59.7.N23 2012330.9172′4–dc22 2011027730

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To Elfrieda in memoriam






Contents

Preface to the Fifth Edition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii

Abbreviations and Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxiii

PART ONE. PRINCIPLES AND CONCEPTS OF DEVELOPMENT

1. How the Other Two-Thirds Live . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Nature and Scope of the Text, 1 / Organization of the Text, 3 / How thePoorest Two-Thirds Live, 4 / Globalization, Outsourcing, and InformationTechnology, 7 / India’s and Asia’s Golden Age of Development, 9 / WhichIs the Major Motor of Global Economic Growth: America or Asia?,10 / Critical Questions in Development Economics, 11 / Guide toReadings, 12

2. What Is Economic Development? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Scope of the Chapter, 14 / Guide to Readings, 47

3. Economic Development in Historical Perspective . . . . . . . . . . . . . . . . . . . . 49

Scope of the Chapter, 49 / An Evolutionary Biological Approach toDevelopment, 49 / Ancient and Medieval Economic Growth, 50 / WorldLeaders in Gross Domestic Product Per Capita, 1500 to the Present,51 / Beginnings of Sustained Economic Growth, 52 / The West andAfro–Asia: The Nineteenth Century and Today, 53 / Capitalism andModern Western Economic Development, 53 / Economic Modernization inthe Non-Western World, 57 / The Japanese Development Model, 57 / TheKorean–Taiwanese Model, 60 / Lessons from Non-Western Models,70 / Growth in the Last 100 to 150 Years, 71 / The Power of ExponentialGrowth – The United States and Canada: The Late Nineteenth andTwentieth Centuries, 73 / The Golden Age of Growth, 75 / EconomicGrowth in Europe and Japan after World War II, 76 / Recent EconomicGrowth in Developing Countries, 77 / Regions of the World, 82 / TheConvergence Controversy, 84 / Conclusion, 87 / Guide to Readings, 89

4. Characteristics and Institutions of Developing Countries . . . . . . . . . . . . . . 92

Scope of the Chapter, 92 / Varying Income Inequality, 92 / PoliticalFramework, 92 / A Large Proportion of the Labor Force in Agriculture,

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94 / A Large Proportion of Output in Agriculture, 96 / InadequateTechnology and Capital, 99 / Low Saving Rates, 99 / A Dual Economy,99 / Varying Dependence on International Trade, 100 / Rapid PopulationGrowth, 102 / Low Literacy and School Enrollment Rates, 102 / AnUnskilled Labor Force, 103 / Poorly Developed Economic and PoliticalInstitutions, 104 / Insufficient State Tax Collections and Provision of BasicServices, 107 / Conclusion, 115 / Guide to Readings, 116

5. Theories of Economic Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119

Scope of the Chapter, 119 / The Classical Theory of Economic Stagnation,120 / Marx’s Historical Materialism, 122 / Rostow’s Stages of EconomicGrowth, 124 / Vicious Circle Theory, 127 / Balanced versus UnbalancedGrowth, 128 / Coordination Failure: The O-Ring Theory of EconomicDevelopment, 132 / The Lewis–Fei–Ranis Model, 133 / Baran’sNeo-Marxist Thesis, 138 / Dependency Theory, 140 / The NeoclassicalCounterrevoluation, 144 / The Neoclassical Growth Theory, 149 / TheNew (Endogenous) Growth Theory, 151 / A Trial-by-Error Approach:Turning Research into Action, 153 / Conclusion, 153 / Guide to Readings,157 / Appendix to Chapter 5: The Harrod–Domar Model, 158

PART TWO. POVERTY ALLEVIATION AND INCOME DISTRIBUTION

6. Poverty, Malnutrition, and Income Inequality . . . . . . . . . . . . . . . . . . . . . . 161

Information Sparsity, 161 / Scope of the Chapter, 163 / Poverty asMultidimensional, 163 / $1 or $1.25/Day and $2/Day Poverty,166 / Regional Poverty, 169 / Concepts and Measures of Poverty: Sen’sApproach, 170 / Reddy and Pogge’s Critique of the World Bank’sApproach, 173 / The Lorenz Curve and Gini Index (G): Measures of theDistribution of Income, 173 / The World Bank, Milanovic, and TheirCritics: Views of Poverty and Inequality, 175 / Early and Late Stages ofDevelopment, 180 / Low-, Middle-, and High-Income Countries,182 / Slow and Fast Growers, 185 / Women, Poverty, Inequality, andMale Dominance, 185 / Accompaniments of Absolute Poverty,188 / Identifying Poverty Groups, 189 / Case Studies of Countries,190 / Policies to Reduce Poverty and Income Inequality, 195 / IntegratedWar on Poverty, 201 / Income Equality Versus Growth, 203 / Poverty,Inequality, and War, 205 / Conclusion, 207 / Guide to Readings, 210

7. Rural Poverty and Agricultural Transformation . . . . . . . . . . . . . . . . . . . . . 213

Scope of the Chapter, 213 / Agriculture’s Role in Transforming theEconomy, 214 / Major Rural Groups in Poverty, 214 / Rural Poverty byWorld Region, 215 / Rural and Agricultural Development,216 / Rural–Urban Differentials in Nineteenth-Century Europe andContemporary Less-Developed Countries, 217 / Agricultural Productivityin Developed Countries and Less-Developed Countries, 217 /The Evolution of Agriculture in Less-Developed Countries,






Contents ix

217 / Multinational Corporations and Contract Farming, 220 /Growth of Average Food Production in sub-Saharan Africa, OtherLess-Developed Countries, and Developed Countries, 221 / Food in Indiaand China, 225 / Less-Developed Countries’ Food Deficits, 227 / FoodOutput and Demand Growth, 229 / Fish, Meat, and Grains, 230 / FactorsContributing to Low Income and Poverty in Rural Areas, 231 / Policies toIncrease Rural Income and Reduce Poverty, 236 / AgriculturalBiotechnology, 253 / Conclusion, 255 / Guide to Readings, 257

PART THREE. FACTORS OF GROWTH

8. Population and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259

The Production Function, 259 / Scope of the Chapter, 260 / WorldPopulation throughout History, 261 / Population Growth in Developedand Developing Countries, 261 / World Population: Rapid butDecelerating Growth, 262 / The Demographic Transition, 265 / Stage 1:High Fertility and Mortality, 265 / Stage 2: Declining Mortality,267 / Stage 3: Declining Fertility, 270 / Beyond Stage 4: A StationaryPopulation, 272 / Is Population Growth an Obstacle to EconomicDevelopment? 272 / Population and Food, 273 / Urbanization andCongestion, 279 / Rapid Labor Force Growth and IncreasingUnemployment, 279 / The Dependency Ratio, 280 / Strategies forReducing Fertility, 284 / Birth Control Programs, 284 / SocioeconomicDevelopment, 288 / Development or Family Planning? 291 / Conclusion,292 / Guide to Readings, 294

9. Employment, Migration, and Urbanization . . . . . . . . . . . . . . . . . . . . . . . . 296

Employment Problems in Less-Developed Countries, 296 / Scope of theChapter, 297 / Dimensions of Unemployment and Underemployment,297 / Underutilized Labor, 298 / Labor Force Growth, Urbanization, andIndustrial Expansion, 298 / Disguised Unemployment, 301 / Rural–UrbanMigration, 303 / The Harris–Todaro Model, 304 / Criticisms of theHarris–Todaro Model, 305 / The Effect of Other Amenities,306 / Western Approaches to Unemployment, 307 / Causes ofUnemployment in Developing Countries, 308 / Unemployment among theEducated, 311 / Policies for Reducing Unemployment, 312 / Conclusion,318 / Guide to Readings, 320

10. Education, Health, and Human Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 321

Scope of the Chapter, 321 / Investment in Human Capital,321 / Economic Returns to Education, 322 / Noneconomic Benefits ofEducation, 324 / Education as Screening, 324 / Education and Equality,326 / Education and Political Discontent, 327 / Secondary and HigherEducation, 328 / Education via Electronic Media, 330 / Planning forSpecialized Education and Training, 331 / Achieving Consistency inPlanning Educated People, 333 / Vocational and Technical Skills,






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333 / Reducing the Brain Drain, 334 / Socialization and Motivation,337 / Mortality and Disability, 340 / AIDS, 341 / Conclusion,343 / Guide to Readings, 346

11. Capital Formation, Investment Choice, Information Technology, andTechnical Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348

Scope of the Chapter, 348 / Capital Formation and Technical Progress asSources of Growth, 349 / Components of the Residual, 351 / Learning byDoing, 352 / Growth as a Process of Increase in Inputs, 353 / The Cost ofTechnical Knowledge, 354 / Research, Invention, Development, andInnovation, 355 / Computers, Electronics, and Information Technology,357 / Investment Criteria, 368 / Monopoly, 375 / Saving andReinvestment, 376 / Factor Price Distortions, 376 / Conclusion,378 / Guide to Readings, 381

12. Entrepreneurship, Organization, and Innovation . . . . . . . . . . . . . . . . . . . 383

Scope of the Chapter, 384 / Entrepreneur as Innovator,384 / Schumpeter’s Theory, 384 / The Schumpeterian Entrepreneur inDeveloping Countries, 385 / Stages in Innovation, 386 / Family asEntrepreneur, 388 / Achievement Motivation, Self-Assessment, andEntrepreneurship, 390 / Theory of Technological Creativity,390 / Occupational Background, 391 / Religious and Ethnic Origin,393 / Social Origins and Mobility, 395 / Education, 396 / Gender,397 / Technological Mobilization and Entrepreneurship in Socialist andTransitional Economies, 398 / Long-Term Property Rights,399 / Conclusion, 400 / Guide to Readings, 402

13. Is Economic Growth Sustainable? Natural Resources and theEnvironment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 404

Sustainable Development, 404 / Natural and Environmental Resources andResource Flows, 404 / Crude Oil, 405 / Dutch Disease, 407 / ResourceCurse, 409 / Poverty and Environmental Stress, 410 / GrassrootsEnvironmental Action, 411 / Market Imperfections and Policy Failures asDeterminants of Environmental Degradation, 412 / Pollution, 417 / Aridand Semiarid Lands, 420 / Tropical Climates, 421 / Global Public Goods:Climate and Biodiversity, 422 / Limits to Growth, 438 / Natural AssetDeterioration and the Measurement of National Income, 442 / Conclusion,445 / Guide to Readings, 448

PART FOUR. THE MACROECONOMICS AND INTERNATIONALECONOMICS OF DEVELOPMENT

14. Monetary, Fiscal, and Incomes Policies and Inflation . . . . . . . . . . . . . . . . . 451

Scope of the Chapter, 452 / Limitations of Monetary Policy, 452 / TaxRatios and Gross National Product per Capita, 453 / Goals of Tax Policy,454 / Political Constraints to Tax Policy, 462 / Expenditure Policy,






Contents xi

463 / Inflation, 465 / Financial Repression and Liberalization, 475 / ACapital Market and Financial System, 478 / Financial Instability,479 / Islamic Banking, 480 / Conclusion, 481 / Guide to Readings, 484

15. Balance of Payments, Aid, and Foreign Investment . . . . . . . . . . . . . . . . . 486

Globalization and Its Contented and Discontented, 486 / North–SouthInterdependence, 488 / Capital Inflows, 489 / Massive Capital Inflows tothe United States, 527 / Conclusion, 528 / Guide to Readings, 530

16. The External Debt and Financial Crises . . . . . . . . . . . . . . . . . . . . . . . . . . . 532

Scope of the Chapter, 532 / Sovereign Wealth Funds, 533 / Definitions ofExternal Debt and Debt Service, 533 / Origins of Debt Crises,534 / Capital Flight, 537 / The Crisis from the U.S. Banking Perspective,540 / Spreads and Risk Premiums, 541 / The Crisis from theLess-Developed Countries’ Perspective, 542 / Debt Indicators, 544 / NetTransfers, 545 / Major Less-Developed Countries’ Debtors,546 / Financial and Currency Crises, 548 / World Bank and InternationalMonetary Fund Lending and Adjustment Programs, 550 / Fundamentalistsversus the Columbia School (Stiglitz-Sachs), 551 / Changing theInternational Monetary Fund and the International Financial Architecture,552 / International Monetary Fund Failed Proposals to Reduce FinancialCrises, 555 / Debt Cancellation, 555 / Concerted Action, 557 / TheInternational Monetary Fund’s Sovereign Debt Restructuring Mechanism,558 / Resolving the Debt Crises, 559 / Brady Plan, 560 / The PolicyCartel, 567 / Conclusion, 567 / Guide to Readings, 569

17. International Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 571

Scope of the Chapter, 571 / Does Trade Cause Growth?, 571 / Argumentsfor Trade: Comparative Advantage, 572 / Arguments for Tariffs,576 / Path Dependence of Comparative Advantage, 583 / The Applicationof Arguments for and against Free Trade to Developed Countries,583 / Shifts in the Terms of Trade, 587 / Import Substitution and ExportExpansion in Industry, 591 / Global Production Sharing and BorderlessEconomies, 593 / Developed Countries’ Import Policies, 600 / ExpandingPrimary Export Earnings, 604 / Agricultural Protection, 606 / Trade inServices, 608 / The Mankiw Debate, 609 / Intellectual Property Rights,610 / Foreign-Exchange Rates, 611 / Domestic Currency Overvaluation,611 / Avoiding Bias against Exports, 612 / Domestic CurrencyDevaluation, 613 / The Real Exchange Rate, 613 / Dual Exchange Rates,615 / Exchange-Rate Adjustment and Other Prices, 615 / The ImpossibleTrinity: Exchange-Rate Stability, Free Capital Movement, and MonetaryAutonomy, 616 / Currency Crises, 617 / Managed Floating Plus,618 / Regional Integration, 620 / Promotion and Protection of InfantEntrepreneurship, 623 / Black Markets and Illegal Transactions,625 / Conclusion, 625 / Guide to Readings, 628






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PART FIVE. DEVELOPMENT STRATEGIES

18. The Transition to Liberalization and Economic Reform: EasternEurope, the Former Soviet Union, and China . . . . . . . . . . . . . . . . . . . . . . 631

The Collapse of State Socialism and Problems with Subsequent EconomicReform in Russia, 635 / Enterprise Monopolies, 641 / The Transition to aMarket Economy in China, 650 / Banking Reform, 661 / Lessons forLDCs from the Russian, Polish, and Chinese Transitions to the Market,663 / Guide to Readings, 666 / Appendix, 666 / State Planning asIdeology for New States, 668 / Afro-Asian Socialism, 668 / DirigisteDebate, 669 / Scope of the Appendix, 670 / Soviet Planning, 670 / IndianPlanning, 671 / The Market versus Detailed Centralized Planning,673 / Indicative Plans, 677 / Planning Goals and Instruments, 677 / TheDuration of Plans, 678 / Planning Models and Their Limitations,678 / Input–Output Tables and Other Economic Data, 680 / PublicPolicies toward the Private Sector, 684 / Public Expenditures,685 / Performance of Private and Public Enterprises, 685 / Conclusion,693 / Guide to Readings, 696

19. Stabilization, Adjustment, and Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . 698

Internal and External Balance, 698 / The Universality of Adjustment inDeveloping and Transitional Economies, 700 / The World Bank,700 / International Monetary Fund, 701 / Critique of the World Bank andInternational Monetary Fund Adjustment Programs, 702 / A PoliticalEconomy of Stabilization and Adjustment, 704 / Empirical Evidence,706 / The Sequence of Trade, Exchange Rate, and Capital Market Reform,709

Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 711

Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 735

Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 807






Preface to the Fifth Edition

I wrote this text to increase readers’ understanding of the economics of the devel-oping world of Asia, Africa, Latin America, and East-Central Europe, where about85 percent of the world’s population lives. The book is suitable for students whohave taken a course in principles of economics.

The growth in real income per person in the Third World nations of Latin America,Asia, and Africa, about threefold since 1950, is a mixed record. For some economies,the growth warrants optimism, particularly in Taiwan, South Korea, Singapore,Malaysia, Thailand, Indonesia, China, other fast-growing Pacific Rim countries,Brazil, and, more recently, India. The tragedy, however, is that sub-Saharan Africa,encountering growing misery and degradation from 1965 to 2010, has not shared inthese gains. The sub-Sahara is not only vulnerable to the external price shocks anddebt crises that destabilized the global economy in the late twentieth century but alsois plagued by increasing food deficits, growing rural poverty, urban congestion, andfalling real wages; difficulties that represent an inadequate response to adjustment,reform, and liberalization, often imposed by the International Monetary Fund (IMF)or World Bank as a last resort. The problems of Nepal, Afghanistan, Myanmar(Burma), Cambodia, and Haiti are as severe as those of Africa.

This edition expands on previous material analyzing China and other countriesthat were socialist during most of the post–World War II period. The major upheavalin the field since early 1989 has been the collapse of state socialism in East-CentralEurope and the former Soviet Union and economists’ downward revision of estimatesof their average economic welfare. Since the late 1980s and early 1990s, postsocialistEuropean countries, like other low- and middle-income countries, have undertakenstructural adjustment and market reforms, generally under IMF or World Bankauspices. Yet a substantial proportion of these liberalizing postsocialist economiesdid not attain their pre-1989 peak in economic welfare by the end of the century.This edition reflects this reality by examples from such countries as Russia, low orlower middle-income Ukraine, and upper middle-income Poland, Hungary, and theCzech Republic and by drawing lessons from their adjustment, stabilization, andliberalization for other middle-income and low-income countries.

Yet I have not allowed the problems of East-Central Europe and the formerSoviet Union, important as they are, to overshadow the primary emphasis of thebook on Asia, Africa, and Latin America. The major focus is on their real-worldproblems – from those of newly industrializing countries, such as Taiwan, South

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Korea, Singapore, Malaysia, and Indonesia, to those of the slow-growing sub-Sahara – rather than abstract growth models.

I am gratified by the response of reviewers, instructors, students, and practition-ers in the United States, Canada, Europe, Japan, Australia, New Zealand, and thedeveloping world to the emphases in the book’s fourth edition. This revision con-tinues previous themes – such as the origins of modern growth, problems measuringgrowth, and the origin and resolution of the debt crisis – and integrates social, polit-ical, and economic issues and emphasizes poverty, inequality, and unemployment inthe discussion of economic policies throughout the book.

As in the fourth edition, this edition takes advantage of the explosion of Inter-net resources in development economics. For each chapter, I provide an Inter-net assignment that instructors can use for students to analyze data or writereaction papers by accessing Nafziger, Internet Assignments, at http://www.k-state.edu/economics/nafwayne/. The same Web site lists development journals andInternet sites. Moreover, a college’s library may provide access to online journals,expanding the options for assignments accessible at the students’ desktops.

The text incorporates substantial new material to reflect the rapidly changing fieldof development economics. I have updated tables, figures, and chapters with themost recent data and have revised chapter-end questions to discuss and guides toreadings. Finally, the text, which is more user friendly, includes a bibliography andglossary at the end.

The book’s other major features reflect recent literature or readers’ suggestions.Chapter 1, “How the Other Two-Thirds Live,” reminds students of the extent towhich only a fraction of the world’s population enjoys the material levels of living ofNorth Americans, Europeans, Japanese, South Koreans, Australians, New Zealan-ders, and the few affluent in the developing world. Chapter 1 includes sections onglobalization, outsourcing, and information technology and Asia’s and India’s recentgolden age of development, with its expansion of the middle class, to the comparisonof living standards between rich and poor countries. I pose the question: “Whichis the major motor of global economic growth: America or Asia?,” with empha-sis on highly populated and fast growing China. Chapter 2, on the meaning andmeasurement of development, examines whether United Nations (UN) MilleniumDevelopment Goals for 2015 on “targets for reducing poverty, hunger, disease, illit-eracy, environmental degradation, and discrimination against women” are likely tobe met.

Chapter 3’s historical perspective includes Jared Diamond’s evolutionary biolog-ical approach to development, a sketch of economic development in ancient andmedieval times, world leaders in gross domestic product (GDP) per capita duringthe modern period, why growth was largely confined to the West before the twenti-eth century, non-Western growth models in the last 100 to 150 years, and whetherincome levels between rich and poor countries (or between rich and poor individuals)are converging or diverging. Included are sections explaining China’s market social-ism and the end of Japan’s economic miracle and the inadequacy of the United Statesas a development model. The same chapter assesses Ha-Joon Chang’s argument that






Preface to the Fifth Edition xv

rich countries used protection and state intervention in their early industrializationbut “kicked away the ladder” for poor countries. The chapter is enriched by materialfrom the late Angus Maddison and others about economic growth since the ancientperiod, the transfer in GDP per capita world leadership from one nation to anotherduring the modern period, the dates when China surrendered the world’s lead inGDP and when it is projected to gain it back, and identification of the golden age ofcapitalist development.

Chapter 4’s profile analyzes the high proportion of output and the labor forcein services in rich countries, the role of institutions in economic development, andthe controversy about social capital and growth. In Chapter 5, on developmenttheories, the Murphy–Shleifer–Vishny model helps in understanding the balancedand unbalanced growth discussion and Michael Kremer’s O-ring theory aids inexplaining coordination failure.

Chapter 6 expands the discussion of weaknesses of poverty and hunger data, pointsout the multidimensional nature of poverty, provides data for global and regionalpoverty rates, looks at how poverty and inequality affect war and political violence,and explains the concepts of $1/day and $2/day poverty. The chapter also critiquesthe contrasting views of the World Bank, Institute for International Economics, andSala-i-Martin on how to measure poverty and Sanjay Reddy and Thomas Pogge’scritique of the standard approach to estimating poverty.

Chapter 7 on rural poverty and agricultural transformation, discusses how agri-culture affects overall economic growth; examines off-farm sources of rural income;looks at multinational corporations and contract farming in developing countries;provides time-series data on the growth of average food production in rich andpoor countries; provides new data on food deficits and food insecurity in developingcountries; and scrutinizes the relative importance of fish, meat, and grains in devel-oping countries. The same chapter reworks the section on how poor agriculturalpolicies and institutional failures hamper sub-Saharan African agriculture and com-pares India and China’s growth in average food output. Other sections include theHayami–Ruttan induced-innovation model of agricultural development, the benefitsand costs of agricultural biotechnology, and the role of multinational corporationsand contract farming in developing countries.

Chapters 8 through 13 discuss factors of growth. Chapter 8 on population,includes several new tables and figures and also adds population growth decel-eration since 1960 to the emphasis on rapid population growth from 1950 to thepresent. Chapter 9 updates material on employment and labor-force growth, womenin the labor force, and urbanization. Chapter 10 on human capital, expands anal-yses of how health affects economic development; updates the section on the eco-nomic impact of human immunodeficiency virus (HIV)/acquired immunodeficiencysyndrome (AIDS), tuberculosis, and malaria on developing countries; and includes asection on mortality and disability, including comparative data on disability-adjustedlife years.

Chapter 11 on capital formation, investment choice, information technology, andtechnical progress includes a substantial section on computers, electronics, and






xvi Preface to the Fifth Edition

information technology, with a critical analysis of the productivity paradox stat-ing that computers do not show up in measures of total factor productivity. Thesection’s microeconomic and macroeconomic data give examples of the impact ofinformation technology and growth and compare the lag between computer innova-tion and growth with those of previous major innovations. Figures and tables showthe decomposition of GDP growth, the growth effects of information and communi-cations technology, and the number of mobile phones, Internet users, and personalcomputers by country or world region.

Chapter 12 on entrepreneurship and organization examines the relationshipbetween long-term property rights and entrepreneurship, the alternative cost of edu-cation for entrepreneurs, how liberalization affects returns to entrepreneurship, andthe relative income of entrepreneurship and paid employment.

Chapter 13 on natural resources analyzes the literature on resource curse andincludes discussion of a revised Nordhaus–Boyer model and its implications forglobal climate change.

Chapters 14 through 17 integrate macroeconomics and the international eco-nomics of development. Chapter 14 on monetary, fiscal, and incomes policy, hassections on how international and domestic capital markets affect the financial systemand how adverse selection, moral hazard, and external shocks contributed to finan-cial crises such as those in Mexico (1994), Asia (1997–9), Russia (1998), Argentina(2001–3), and the world’s 2008–9 great recession. Chapter 15 on balance of pay-ments, aid, and foreign investment, has a section on the perverse capital flow frompoor to rich countries, including an explanation of massive capital inflows to theUnited States.

Chapter 16 on external debt and financial crises, has a section on spreads andrisk premiums and a detailed analysis of financial and currency crises. These crisesrelate to sections on World Bank and IMF lending and adjustment programs, thefundamentalists and their critics, reasons for the IMF’s failure to reduce financialcrises, the IMF’s sovereign debt restructuring proposal, and new approaches toresolving the debt crises.

Chapter 17 on international trade, has sections on path dependence and com-parative advantage and arguments for rich-country tariffs based on income dis-tribution, Third World child labor, and the environment. The discussion ofglobal production networks examines how low-income countries with reducedprotection moved up the value-added ladder to expand their low-technologyexports. Other topics include trade in services, offshore outsourcing, current intel-lectual property rights’ rules, currency crises, managed floating exchange ratesin countries open to international capital flows, the proliferation of free tradeareas, and the euro versus the U.S. dollar as reserve currencies for developingeconomies.

Chapter 18 analyzes the collapse of state socialism and the transition to liberaliza-tion and economic reform in East-Central Europe and the former Soviet Union andthe transition to a market economy in China. Their policies contributing to collapseand transition have parallels in the low- and middle-income countries of Africa, Asia,and Latin America. The last section discusses lessons for developing countries from






Preface to the Fifth Edition xvii

the Russian, Polish, and Chinese transitions. The appendix analyzes state planningand the role of the market.

Chapter 19 on stabilization, adjustment, and reform, investigates attaining bothinternal and external balances, the universality of adjustment in developing and tran-sitional countries, the roles of the World Bank and IMF in balance-of-payments anddomestic macroeconomic adjustment, sequencing trade, exchange rate, and capitalmarket reforms.

I am indebted to numerous colleagues and students in both the developed anddeveloping world for helping shape my ideas about development economics, includ-ing comments and criticisms of John Adams, Edgar S. Bagley, Maurice Ballabon,Thomas W. Bonsor, Antonio Bos, Martin Bronfenbrenner, Robert L. Curry, Jr.,Wayne Davis, Lloyd Dumas, David Edmonds, Patrick J. Gormely, Roy Grohs, Mar-garet Grosh, Ichirou Inukai, Philip G. King, Paul Koch, Bertram Levin, L. Naiken,Elliott Parker, Harvey Paul, James Ragan, James Rhodes, Alan Richards, GordonSmith, Howard Stein, Shanti Tangri, Roger Trenary, Rodney Wilson, and MahmoodYousefi; and Scott Parris, Simina Calin, Peggy Rote, and the editorial staff at Cam-bridge University Press. Fjorentina Angjellari, Gregory Dressman, Jared Dressman,Akram Esanov, Ramesh Mohan, Boaz Nandwa, Abhinav Alakshendra, Mercy Pala-muleni, Narayan Chapagain, and Jessica Boulware assisted in graphing, computerwork, and critical analysis. Although I am grateful to all, I am solely responsible forany errors.

I am also grateful to the following for permission to reproduce copyrighted mate-rials: Elizabeth Asiedu and Mohamed El-Hodiri, for Figure 3-3, material fromthe World Development Indicators, first published in Nafziger, “African EconomicDevelopment: An Overview,” Journal of African Development, Fall 2010, volume12, no. 2; Boydell and Brewer for materials from Peter D. Little, Somalia: Economywithout State, Oxford: James Currey; the Peterson Institute for International Eco-nomics; for Figure 1-1 from Surjit S. Bhalla, 2002, Imagine There’s No Country:Poverty, Inequality, and Growth in the Era of Globalization, Washington, D.C.,p. 192; Figure 6-8 indicating the share of each region in the world’s middle classfrom ibid., p. 188; and Figure 17-12 indicating Western Hemisphere trade agree-ments from Jeffrey A. Frankel, 1997, Regional Trading Blocs in the World Sys-tem, Washington, D.C., p. 10; the Organisation for Economic Co-operation andDevelopment (OECD), 2010, Development Co-operation Report 2010, Report byEckhard Deutscher, Chair of the Development Assistance Committee, Paris, for Fig-ure 15-3, indicating gross bilateral official development assistance (ODA), 2007–8average, p. 101; Figure 15-4, from ibid., p. 130; Figure 15-5, from ibid., p. 175;the IMF for 2003c, World Economic Outlook April 2003, Washington, D.C.,p. 97; Vito Tanzi and Howell H. Zee, 2000, Tax Policy for Emerging Markets –Developing Countries, IMF Working Paper 00/35, Washington, D.C. March, atwww.imf.org/external/pubs/cat/longres.cfm?sk&sk=3471.0; for Table 14-1 indicat-ing comparative levels of tax revenue, 1985–97, from p. 8, and Table 14-2 indicatingcomparative composition of tax revenue, 1985–7, from ibid., p. 13, and a quotein Chapter 14 from ibid., pp. 14–15; the opening extract for Chapter 12, fromMaurice Dobb, 1926, Capitalist Enterprise and Social Progress, London: George






xviii Preface to the Fifth Edition

Routledge and Sons, p. 3; the U.S. Census Bureau for Table 8-3 from Joginder S.Uppal, in Economic Development in South Asia, St. Martin’s Press; the Popula-tion Reference Bureau, Inc., for Figure 8-10, indicating population distribution byage and sex, 2005, Austria, the United States, Bolivia, Botswana, and Nigeria; forFigure 8-5 from Merrick, Thomas W., 1986, “World Population in Transition,”Population Bulletin 41 (April): 9, for Figure 8-11, indicating population age pro-file and service requirements: Bangladesh, 1975, from McHale, Magda, and JohnMcHale, 1979, “World of Children,” Population Bulletin 33(6) (January):14; theUnited Nations, for words in Figure 15-1, Table 15-4, and Figure 15-10; the Amer-ican Economic Association for Figure 3-4 indicating simulation of divergence of percapita 1870–1995, from Pritchett, Lant, H., 1997. “Divergence, Big Time,” Journalof Economic Perspectives 11(3) (Summer):10; Figure 3-5 indicating average annualgrowth (1980–2000) on initial level of real GDP per capita, from Fischer, Stan-ley, 2003, “Globalization and Its Challenges,” American Economic Review 93(2)(May):11; Figure 3-6 indicating population-weighted average annual growth (1980–2000) on initial level of real GDP per capita, from ibid., p. 12; Figure 4-4 indicatingreal GDP per capita by political regime from Ndulu, Benno J., and O’Connell,Stephen A., 1999, “Governance and Growth in Sub-Saharan Africa,” Journal ofEconomic Perspective 13(1) (Summer):51; Figure 6-11 from Bourguignon, Fran-cois, and Christian Morrisson, 2002, “Inequality among World Citizens: 1820–1992,” American Economic Review 92(4) (September):741; Figure 16-2 indicatingthe effect of the financial crises on Asian, Latino, Russian, and Turkish real GDPgrowth from Fischer, Stanley, 2003, “Globalization and Its Challenges,” Ameri-can Economic Review 93(2) (May):16; Figure 18-2 on real GDP percentage change(1989 = 100) from Svejnar, January 2002, “Transition Economies: Performanceand Challenges,” Journal of Economic Perspectives 16(1) (Winter):9; and a quotein Chapter 6 on Poverty and Inequality from Pritchett, Lant H., 1997, “Divergence,Big Time,” Journal of Economic Perspectives 11(3) (Summer):8–9; Simon & Schus-ter for Chapter 12 on “The Function of the Entrepreneur” from Peter Kilby, ed.,1971, Entrepreneurship and Economic Development, New York: Free Press; theInternational Bank for Reconstruction and Development/The World Bank, for aquotation from World Bank, 1998, Assessing Aid: What Works, What Doesn’t, andWhy, New York: Oxford University Press, p. 29, for Chapter 1, p. 1; for Table 2-1indicating income equality and growth, from Hollis Chenery, Montek S. Ahluwalia,C. L. G. Bell, John H. Duloy, and Richard Jolly, eds., 1974, Redistribution withGrowth, London: Oxford University Press, p. 42; for Table 4-2 indicating normalvariation in economic development with level of development from Chenery, Hol-lis, and Moises Syrqin, 1975, Patterns of Development, 1950–1970, New York:Oxford University Press, pp. 20–1; for Figure 4-1 indicating economic developmentand structural change from World Bank. 1979, World Development Report 1979,Washington, D.C.: World Bank, p. 44; for Figure 4-2 indicating adjusted net sav-ings tend to be small in low- and middle-income countries from World Bank, 2003,World Development Indicators 2003, Washington, D.C.: World Bank, pp. 119,174–6; for Figure 6-6 indicating that child mortality is substantially higher in






Preface to the Fifth Edition xix

poor households from World Bank, 2004, World Development Report 2004,New York: Oxford University Press, p. 6, for Figure 6-11 indicating different ini-tial conditions: the impact on poverty reduction from World Bank, 1990d, WorldDevelopment Report 1990, New York: Oxford University Press, pp. 47–8; for Figure8-11 indicating dependency ratios on the decline – for a while from World Bank,2003, World Development Report 2003, New York: Oxford University Press, p. 6;for Figure 10-1 indicating that the poor are less likely to start school, more likelyto drop out from World Bank, 2004, World Development Report 2004, New York:Oxford University Press, p. 21; for Table 10-2 indicating public expenditures onelementary and higher education per student, 1976, from World Bank, 1980, WorldDevelopment Report 1980, New York: Oxford University Press, p. 46; for Table10-3 indicating public education spending per household from World Bank, 1980,World Development Report 1980, New York: Oxford University Press, p. 50; forFigure 10-2 indicating that richer people often benefit more from public spending onhealth and education from World Bank, 2004, World Development Report 2004,New York: Oxford University Press, p. 39; for Figure 11A indicating that productiv-ity will contribute more to GDP growth through 2015 than will capital or labor fromWorld Bank, 2004b, Global Economic Prospects 2004: Realizing the DevelopmentPromise of the Doha Agenda, Washington, D.C.: World Bank, p. 44; for Figure 15-6indicating workers’ remittances and other inflows from World Bank, 2003, GlobalDevelopment Finance 2003, Washington, D.C.: World Bank, p. 158; for Figure 15-7indicating top twenty developing-country recipients of workers’ remittances 2001from World Bank, 2003, Global Development Finance 2003, Washington, D.C.:World Bank, p. 159; for Figure 15-8 indicating exports of U.S. affiliates as a share oftotal exports from World Bank, 2003b, Global Economic Prospects and the Develop-ing Countries 2003, Washington, D.C.: World Bank, p. 58; for Figure 15-9 indicatingshare of South-South FDI in total FDI from World Bank, 2003b, Global EconomicProspects and the Developing Countries 2003, Washington, D.C.: World Bank, p.124; for Figure 16-1 indicating secondary-market spreads on emerging markets,1990–2002, from World Bank, 2003, Global Development Finance 2003, Washing-ton, D.C.: World Bank, p. 45, for Figure 17-3 indicating developing countries havebecome important exporters of manufactured products, from World Bank, 2004,Global Economic Prospects 2004: Realizing the Development Promise of the DohaAgenda, Washington, D.C.: World Bank, p. 65; for Figure 17-4 indicating manufac-tures account for a growing share of exports in all developing country regions fromWorld Bank, 2004, Global Economic Prospects 2004: Realizing the DevelopmentPromise of the Doha Agenda, Washington, D.C.: World Bank, p. 67; for Figure 17-5indicating that U.S. cars are produced in many countries from World Bank, 2003b,Global Economic Prospects and the Developing Countries 2003, Washington, D.C.:World Bank; p. 55, for Figure 17-6 indicating that cross-border networks captureincreasing shares of production and trade from World Bank, 2003, Global EconomicProspects and the Developing Countries 2003, Washington, D.C.: World Bank,p. 56; for Figure 17-7 indicating an increase of intrafirm exports in total exports fromWorld Bank, 2003, Global Economic Prospects and the Developing Countries 2003,






xx Preface to the Fifth Edition

Washington, D.C.: World Bank, p. 59; for Figure 17-9 indicating that high protec-tion of sugar and wheat has increased domestic production and reduced net importsfrom World Bank, 2003, Global Economic Prospects and the Developing Countries2003, Washington, D.C.: World Bank, p. 128; for Table 17-4 indicating tariffs hurtexports – but less so in the 1990s than in the 1980s from World Bank, 2004, GlobalEconomic Prospects 2004: Realizing the Development Promise of the Doha Agenda,Washington, D.C.: World Bank, p. 77; for Table 17-3 indicating total producer sup-port of farm prices from World Bank, 2004, Global Economic Prospects 2004:Realizing the Development Promise of the Doha Agenda. Washington, D.C.: WorldBank, p. 121; to Harvard University Press for Figure 6-8 indicating ratio of between-nation to within-nation income inequality for 199 nations, 1820–1992, from Fire-baugh, Glenn, 2003, The New Geography of Global Income Inequality. Cambridge,MA; to the American Economic Association for material from Abramovitz, Moses,1956, “Resources and Output Trends in the United States since 1870,” AmericanEconomic Review (AER) 44(2):5–23; Acemoglu, Daron, 2010a, “Institutions, FactorPrices, and Taxation: Virtues of Strong States?" AER 100:115–19; Acemoglu, Daronand Melissa Dell, 2010, “Productivity Differences between and within Countries.”AER: Macroeconomics 2:169–88; Acemoglu, Daron, Simon Johnson, and James A.Robinson, 2001, “The Colonial Origins of Comparative Development: An Empir-ical Investigation,” AER 91(5):1369–401; Acemoglu, Daron, Simon Johnson, andJames Robinson, 2002, “An African Success Story: Botswana,” Centre for EconomicPolicy Research Discussion Paper 3219. London, Acemoglu, Daron, 2010a, “Insti-tutions, Factor Prices, and Taxation: Virtues of Strong States?” AER 100:115–19;Acemoglu, Daron, 2010b, “Theory, General Equilibrium, and Political Economy inDevelopment Economics,” Journal of Economic Perspectives (JEP) 24:3; Antweiler,Werner, Brian R. Copeland, and M. Scott Taylor 2001, “Is Free Trade Good for theEnvironment?” AER 91(4):877–908; Arrow, Kenneth and Robert C. Lind, 1970,“Uncertainty and the Evaluation of Public Investment Decisions.” AER 60(3):364–78; Aturupane, Harsha, Paul Glewwe, and Paul Isenman, 1994, “Poverty, HumanDevelopment, and Growth: An Emerging Consensus,” AER 84(2):244–54; Barro,Robert J., N. Gregory Mankiw, and Xavier Sala-i-Martin, 1995, “Capital Mobilityin Neoclassical Models of Growth,” AER 85(1):103–15; Baumol, William J., 1986,“Productivity Growth, Convergence, and Welfare: What the Long-Run Data Show,”AER 76(5):1072–85; Bloom, Nicholas, Aprajit Mahajan, David McKenzie, and JohnRoberts, 2010, “Why Do Firms in Developing Countries Have Low Productivity?”AER 100(2):619–23; Blum, Bernard S., Sebastian Clark, and Ignatius Horstman,2010, “Facts and Figures on International Trade,” AER 100:410–23; Boissiere, M.,J. B. Knight, and R. H. Sabot, 1985, “Earnings, Schooling, Ability, and Cogni-tive Skills,” AER 75(5):1016–30; Bourguignon, Francois, and Christian Morrisson2002, “Inequality among World Citizens: 1820–1992,” AER 92(4):727–44; Broda,Christian, and David E. Weinstein, 2004, “Variety Growth and World Welfare,”AER 94(2):139–44; Bruhn, Miriam, Dean Karlan, and Antoinette Schoar, 2010,“What Capital Is Missing in Developing Countries?” AER 100(2):629-33; Caselli,Francesco, 1999, “Technological Revolutions,” AER 89(1):78–102; Chenery, Hollis






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B., and Alan Strout, 1966, “Foreign Assistance and Economic Development,” AER56(4):679–733; Cobb, Charles, and Paul Dougla, 1928, “A Theory of Production,”AER (supplement) 18(1):139–65; Cole, William E., and Sanders, Richard D., 1985,“Internal Migration and Urban Employment in the Third World,” AER 75(3):481–94; David, Paul A., 1995, “Clio and the Economics of QWERTY,” AER 75(2):332–7; De Mel, Suresh, David McKenzie, and Christopher Woodruf, 2010, “Wage Sub-sidies for Microenterprises,” AER 100 (2):614–18; De Long, J. Bradford, 1988,“Productivity Growth, Convergence, and Welfare: Comment,” AER 78(5):1138–54;Demsetz, Harold, 1967, “Toward a Theory of Property Rights,” AER 57(2):347–59;Domar, Evsey D., 1947, “The Problem of Capital Accumulation,” AER 37(1):34–55; Eckhaus, R. S., 1955, “The Factor-Proportions Problem in UnderdevelopedAreas,” AER 45(4):539–65; Edwards, Sebastian, 2004, “Financial Openness, SuddenStops, and Current-Account Reversals,” AER 94(2):59–64; Fischer, Stanley, 2003,“Globalization and Its Challenges,” AER 93(2):1–30; Frankel, Jeffrey A., and DavidRomer, 1999, “Does Trade Cause Growth?” AER 89(3):379–99; Goodfriend, Mar-vin, and John McDermott, 1995, “Early Development,” AER 85 (March):116–33;Griliches, Zvi, 1994, “Productivity, R&D, and the Data Constraint,” AER 84(1):1–23; Grubel, Herbert B., and Anthony D. Scott, 1966, “The International Flow ofHuman Capital,” AER 56(2):268–74; Hansen, Bent, 1969, “Employment and Wagesin Rural Egypt,” AER 59(3):298–313; Harris, John R., and Michael P. Todaro,1970, “Migration, Unemployment, and Development: A Two-sector Analysis,” AER60(1):126–42; Heathcote, Jonathan, and Fabrizio Perri, 2003, “Why Has the U.S.Economy Become Less Correlated with the Rest of the World,” AER 93(2):63–9; Javorcik, Beata Smarzynska, 2004, “Does Foreign Direct Investment Increasethe Productivity of Domestic Firms? In Search of Spillovers through Backward Link-ages,” AER 94(3):605–27; Johnston, Bruce F., and John W. Mellor, 1961, “The Roleof Agriculture in Economic Development,” AER 51(4):571–81; Jones, Benjamin F.and Benjamin A. Olken, 2010, “Climate Shocks and Exports,” AER 100(2):454–9;Krueger, Anne O., 1974, “The Political Economy of the Rent-seeking Society,” AER64(3):291–302; Krueger, Anne O., 2003, “Sovereign Debt Restructuring: Messyor Messier?” AER 93(2):70–9; Kuznets, Simon S., 1955a, “Economic Growth andIncome Inequality,” AER 45(1):1–28; Lazear, Edward P., 2004, “Balanced Skillsand Entrepreneurship,” AER 94(2):2082–111; Leibenstein, Harvey, 1966, “Alloca-tive Efficiency vs. “X-Efficiency’,” AER 56(3):392–415; 1968, “Entrepreneurshipand Development,” AER 58(2):72–83; Lucas, Robert E., Jr., 1990, “Why Doesn’tCapital Flow from Rich to Poor Countries?” AER 80(2):92–6; Manne, Alan S.,and Richard G. Richels, 1993, “International Trade in Carbon Emission Rights: ADecomposition Procedure,” AER 81(2):135–9; Marcet, Albert, and Juan P. Nicol-ini, 2003, “Recurrent Hyperinflations and Learning,” AER 93(5):1476–98; Mendel-sohn, Robert, William D. Nordhaus, and Daigee Shaw, 1994, “The Impact of GlobalWarming on Agriculture: A Ricardian Analysis,” AER 84(4):753–71; Morgenstern,Richard D., 1993, “Towards a Comprehensive Approach to Global Climate ChangeMitigation,” AER 81(2):140–5; North, Douglass C., 1994. “Economic PerformanceThrough Time,” AER 84(3):359–68; Papanek, Gustav F., 1962, “The Development






xxii Preface to the Fifth Edition

of Entrepreneurship,” AER 52(2):46–58; Persson, Torsten and Guido Tabellini,1994, “Is Inequality Harmful for Growth,” AER 84(3):600–21; Ranis, Gustav, andJohn C. H. Fei, 1961, “A Theory of Economic Development,” AER 51(4):533–65; Reinhart, Carmen M., and Kenneth S. Rogoff, 2004, “Capital-account Liberal-ization, Debt Financing, and Financial Crises,” AER 94(2):53–8; Rosenzweig, M.R., and T. P. Schultz, 1982, “Market Opportunities, Genetic Endowments and theIntrafamily Allocation of Resources: Child Survival in Rural India,” AER 72(4):803–15; Schultz, Theodore W., 1961, “Investment in Human Capital,” AER 51(1):1–17;Singer, Hans W., 1950, “The Distribution of Gains between Investing and Borrow-ing Countries,” AER 40(2):473–85; Srinivasan, T. N., 1994c, “Human Develop-ment: A New Paradigm or Reinvention of the Wheel,” AER 84(2):238–43; Stew-art, Francis, 1990, “Are Adjustment Policies in Africa Consistent with Long-runDevelopment Needs?” Paper presented to the AEA, Washington, DC, December30; and Stiglitz, Joseph E., 1989, “Markets, Market Failures, and Development,”AER 79(1):197–210; to the East-West Center for Table 12-1 from Nafziger, Class,Caste, and Entrepreneurship: A Study of Indian Industrialists 1978; to the EconomicRecord for Table 19-3 from M. L. Parker, “An Interindustry Approach to Planningin Papua New Guinea,” September 1974; to the International Fund for AgriculturalDevelopment for Table 7-4 from Idriss Jazairy et al., The State of World RuralPoverty, 1992; to Kluwer Academic Publishers and the authors for a Figure fromDavid Dollar and Aart Kraay, “Growth Is Good for the Poor,” Journal of EconomicGrowth; and Harry Anthony Patrinos for Table 10-1 from “Returns to Education:A Further Update,” 2002.

I have made every effort to trace copyright owners, but in a few cases this wasimpossible. I apologize to any author or publisher on whose rights I may haveunwittingly infringed.

The book is dedicated to my late wife, Elfrieda, a Canadian volunteer whom Imet in Nigeria in 1965 and with whom I shared forty-two years of concern forThird World development. I also wish to thank my sons, Brian and Kevin, anddaughter-in-law, Piadad, for their continuing help.






Abbreviations and Measures

Abbreviations

ASEAN Association of Southeast Asian NationsDCs Developed (high-income) countriesEU European UnionFAO Food and Agriculture Organization of the United NationsFDI Foreign direct investmentG7 Group of Seven, meeting of the seven major DCs: the United States,

Canada, Japan, the United Kingdom, Germany, France, and Italy (Euro-pean Union representative also attends)

G8 Group of Eight, meeting of G7 plus RussiaG20 Group of twenty, which comprises Argentina, Australia, Brazil, Canada,

China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia,Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom,the United States, and the European Union. These countries work withthe International Monetary Fund (IMF), World Bank, and chairs oftheir designated committees. G20 countries represent about 90 percentof global GNP and two-thirds of the world’s population. Source: IMFSurvey, 10.26.2010.

GATT General Agreements on Tariffs and Trade, the predecessor to the WorldTrade Organization

GDP Gross domestic productGNI Gross national income (same as GNP)GNP Gross national productHDI Human Development Index, UNDP’s measure of developmentHIPCs Highly indebted poor countriesILO International Labour OrganizationIMF International Monetary FundLDCs Less-developed (developing) countries, including LICs and MICsLICs Low-income countriesLLDCs Least-developed countriesMDGs Millennium Development Goals (United Nations, 2000)MICs Middle-income countriesMNCs Multinational (transnational) corporations

xxiii






xxiv Abbreviations and Measures

NGOs Nongovernmental (nonprofit) organizationsNICs Newly industrializing countriesNNP Net national productOECD Organisation for Economic Co-operation and Development, compris-

ing high-income countries (including Republic of Korea) plus CzechRepublic, Hungary, Mexico, Poland, Slovak Republic, and Turkey

PQLI Physical quality of life indexPRI Partido Revolucionario Institucional (Institutional Revolutionary

Party), MexicoSARS Severe acute respiratory syndromeSOEs State owned enterprisesUNICEF United Nations Children’s Emergency FundUNCTAD United Nations Conference on Trade and DevelopmentUNDP United Nations Development ProgramURL Uniform Resource Locator, the address of documents and other

resources on the World Wide WebWTO World Trade Organization, established in 1995, to administer rules of

conduct in international trade

Measures

1 hectare = 2.47 acres1.61 kilometer = 1 mile2.59 square kilometers = 1 square mile1 meter = 1.09 yards = 3.3 feet1 kilogram = 2.2 pounds2.54 centimeters = 1 inch28.3 grams = 1 ounce0.028 cubic meters = 1 cubic feet

The World Gross National Product per Capita, 2008






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