Developmental Economics

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Developmental Economics
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Types of Countries

• Industrially Advanced Countries (IACs MDC, 1st
  World)
• Developing Countries (DVCs, LDC/NIC, 2nd/3rd
  World)
• 1) V. diff. abilities to improve (China vs.
  Sudan)
• 2) Absolute income gap widening

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Obstacles to Development

• 1) use resources more efficiently
  un/underemployment, productive allocative
  efficiency
• 2) Expand available resources

4
Natural Resources

• Unequal distribution of resources
• Resource curse
• Climate
• Primary production? greater price variability
  (boom bust carryover effects of recessions)

5
Human Resources

• 1) Overpopulation
• China India underpopulated?
• 2) Un/underemployment rampant
• 3) Labor productivity low
• Standard of living consumer goods (food)
  production / population
• Higher s of l? more population mortality rate
  falls birthrate increases (less infant
  mortality)? lower s of l
• Malthusian
• the rich get richer and the poor get children

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Population Pressures

• 1) Reduced saving and investment
• 2) Productivity lower large pop requires equally
  large capital stock
• 3) Large pop requires food? Resource Overuse (?
  soil erosion/depletion? famine)
• 4) Urban Problems

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Demographic Transition View

• Rising income? fewer kids
• Marginal benefits vs. marginal costs

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Capital Accumulation

• 1) DVCs suffer shortage capital goods
• 2) Capital stock crucial unlikely/impossible
  increase arable land
• 3) Capital accumulation may be cumulative
  capital? productivity? higher real income?
  greater saving investment? more capital

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Domestic Capital Formation Flight

• Poverty? inability to give up current consumption
  for investment even w/high saving rate, large
  of small still small amount
• Lack of investors incentives, infrastructure
  impedes returns on investments
• Instability (pol. econ)? capital flight
• Brain Drain
• Overcome concerted leadership group sacrifice

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Technological Advance

• DVCs can adopt some tech from IACs (crop
  rotation, grain storage bins) at low cost
• Capital accumulation w/o more money transfer
  investment from less to more productive
• Capital-saving tech vs. capital-using tech
  (expensive metal plows, better fertilizers)

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Sociocultural and Institutional Factors

• the will to develop
• Sociocultural impediments 1) Tribal ethnic
  allegiance gt economic self-interest 2) caste
  systems 3) religious beliefs (capricious
  universe view)
• Institutional obstacles 1) corruption,
  educations, etc. 2) Land reform (Guatemala)

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Vicious Circle

• DVC characteristics both causes consequences
  poverty

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Role of Domestic Government

• Positive Roles
• Law Order
• Take up entrepreneurial slack
• Infrastructure
• Forced saving investment
• Social-institution problems
• Negative cronyism, inefficiency, genocide as law
  order, counterproductive showpiece projects
  (Aswan High Dam, Three Gorges Dam)

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Role of Advanced Nations

• Expanding Trade
• Foreign Aid Loans Grants
• World Bank 1) last resort lending, 2) basic
  development projects, 3) technical assistance
• Private Capital Flows
• Microloans, emerging market hunters
• Foreign Harm?
• 1) Dependency aid as welfare
• 2) Bureaucracy Centralized Govt aid to govt?
  create maintain bureaucracies to run aid
  programs? more regulation slower economic
  growth
• 3) Corruption Misuse (Oil-for-Food)

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DVC Policies for Growth

• 1) Establish rule of law
• 2) Free trade
• 3) Control population
• 4) Encourage foreign investment
• 5) Build human capital
• 6) Peace
• 7) Independent central banks
• 8) Realistic exchange-rate policies
• 9) Privatize state industries

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IAC policies

• 1) Direct aid to neediest
• 2) Reduce tariffs, quotas, subsidies
• 3) Provide debt relief
• 4) Allow temp workers but discourage brain drain
• 5) Discourage arm sales