Topics in Economic Development

Domestic factors

• Education & health

• Use of appropriate technology

• Banking, credit, & micro-credit

• Empowerment of women/gender equality

• Income distribution

• Infrastructure

Education and Health

• As key parts of human capital/development, seen as fundamental human rights (UNUDHR)

• Both serve as merit goods with positive consumption externalities (text p. 464)– Lower mortality– Lower unemployment– Increased participation in

labor force (esp. women)– Healthier children– Lower rates of disease

• Investment in education (esp. elementary) has led to productive increases worldwide, including faster growth, end of “brain drain”

• Gov’t intervention often used to appropriate these programs (underprovided by market)– Subsidies– Direct provision– Public works– Immunizations

Appropriate Technology

• New tech spurs growth and development, but must be appropriate—well-suited to the particular conditions in a country

• Labor-intensive technologies—use more labor in relation to capital– In DCs, increases in local

employment/skills/materials, increases in incomes and poverty alleviation; save on use of foreign exchange

• Capital-intensive technologies—use more capital in relation to labor– In DCs with large labor supply,

will displace workers, increase unemployment, require skill levels that are costly/difficult to supply; foreign exchange used for imports

– R & D resources, markets not available in DCs, leading to most innovation from larger, competitive nations

Banking, credit, microcredit• Banking and access to credit

key to growth/development (however, few commercial banks exist in DCs)– Link between incentives for

saving/ investing– Provide credit to firms and

farmers, increasing output; consumer credit to increase AD

– Improved distribution of income through investment and poverty alleviation

• Issue: most commercial banks lend to wealthier groups, loan only larger amounts of money based on collateral (that most poor do not have)

• Microcredit—credit (loans) in small amounts to those who don’t ordinarily have access to credit– Delivered through micro-

finance institutions (MFIs), including credit unions, NGOs, informal savings/loan groups

– Women more likely to benefit from MFIs

• Controversial: (text, p. 469)– May be substitute for

government aid to poor– No real social protection– Interest rates can be high– Will not solve long-term issues

of poverty

Empowerment/gender inequality

• Discrimination against girls/women can have significant impact on growth and development

• Empowerment—elimination of deprivation and allowing for greater equality of opportunity socially, politically, economically

• Positive externalities of empowerment:– Lower child mortality– Improvements in

educational attainment– Quality of human resources– Lower/controlled fertility

• “Missing women”: when incomes are low and necessities scarce, boys are more likely to receive adequate food, care

• Girls tend to be more disadvantaged in years and types of education, as men are more likely to be educated for participation in labor market

• Lower levels of education and skills lead to greater disadvantage for women in labor market, in addition to discrimination– Women more likely to have

unpaid responsibilities (family, subsistence farming)

Income distribution (High Income Inequality, HII)

• Highly unequal distribution of income is barrier to growth & development– Greater equality in income

distribution may lead to more rapid g/d

• HII can lead to lower overall savings– Middle class savings usually

goes to investments abroad, not domestically

– Lower classes save little or none; highest classes spend much of their money on luxuries

– Less credit available to poor

• More equal distribution:– Gov’t merit good spending can

increase human capital– Can lead to greater political

stability– Increases demand for locally-

produced g/s, encouraging local productivity (including employment/investment)

Asian countries that have pursued more equal distribution of wealth have prospered (“Asian Tigers”—S. Korea, Taiwan, Singapore, Malaysia…) with emphasis on development of human capital

Infrastructure• Infrastructure increases

productivity and lowers costs of production

• Facilitates modernization &economic diversification (electricity—increases in worker productivity, new types of production)

• Quantity/quality of infrastructure important for competitiveness, costs, foreign investment

• Also includes public works such as sewage systems, clean drinking water, transportation, and public utilities– Can have impact on gender

equality as well; women and girls are forced to find sources of water, fuel, and food without access to these services

• LDCs issues with infrastructure:– Financing, inadequate

maintenance, poor quality, limited access by poor, misallocation of resources, neglect of environment