HS 202: ECONOMIC DEVELOPMENT:PROBLEMS AND POLICY

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HS 202 ECONOMIC DEVELOPMENTPROBLEMS AND POLICY

• Mrinal K. Dutta,
• Dept. of Humanities and Social Sciences,
• IIT Guwahati, Assam, India.

Indian Institute of Technology Guwahati
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Development Economics

• Relatively new branch of economics
• Development - Post World War II Phenomenon
• Broader than traditional economics
• Concerned with developing economies
• Which are the developing countries?

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Economic Development?

• Traditional economic measures
• GNP (5-7)
• PCI (Real)-gt economic well being
• Planned alteration of structure of production and
  employment
• Casual reference to non-economic social
  indicators
• Belief in trickle down effect

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Economic Development?

• The new economic view of development
• Mahbub ul Haq The problem of development must
  be defined as a selective attack on the worst
  forms of poverty. Development goals must be
  defined in terms of progressive reduction and
  eventual elimination of malnutrition, disease,
  illiteracy, squalor, unemployment and
  inequalities
• Dudley Seers
• Redistribution from growth
• underdevelopment is more than just statistics
• development is a multidimensional process

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Economic Development?

• Three core values of development
• sustenance Ability to meet the basic needs
• self-esteem to be a person
• freedom from servitude to be able to choose

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Economic Development?

• The three objectives of development
• To increase availability and improvements in the
  distribution of food, shelter, health,
  protection, etc.
• To improve levels of living, including higher
  incomes, more jobs, better education, etc.
• To expand the range of economic and social
  choices available to individuals and nations

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Defining the Developing World

• On the basis of PCI
• The UNs System
• World Banks System
• -208 economies are ranked by GNI per capita
• -Low-Income countries (LIC), Lower-middle
  income (LMC), Upper-middle income (UMC), high
  income OECD and other high-income countries

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Defining the Developing World

• -LIC (PCGNI in 2000) 755 or less
• LMC (do) 756-2,995
• UMC (do) 2,996-9,265
• High Income (do) 9,266 or more
• The UNDPs Human Development Index
• On the basis of degree of international
  indebtedness (WB)

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• Figure 1.1
• The Developed and Developing World, 2002

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• Figure 2.1 The Developed and Developing World,
  2002 contd

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The Structural Diversity of Developing Economies

• Size and income level
• Geographical Area,
• Population,
• National income per capita

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The Structural Diversity of Developing Economies

• Relative importance of public and private sectors
• Industrial structure
• -Farming not merely an occupation, but a way
  of life

• Size and income level
• Historical background
• -colonial past
• Physical (land, mineral and other raw materials)
  and human resources (no. of people and their
  level of skill)

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The Structural Diversity of Developing Economies

• Industrial structure
• External dependence
• -Economic, political and cultural (related with
  its size, resource and political history)
• Political structure, power, and interest groups
• -Large landowners, urban industrialists,
  bankers, etc.

• Size and income level
• Historical background
• Physical and human resources
• Relative importance of public and private sectors

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Common Characteristics of Developing Nations

• Low levels of living
• Manifested both quantitatively and
  qualitatively
• Per capita national income
• PPP method

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Figure 1.2 Per Capita Gross National Product in
Selected Countries, 1997 (in U.S. dollars at
official exchange rates)
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Common Characteristics of Developing Nations

• Low levels of living
• Per capita national income
• Relative growth rates of national and per capita
  income

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Common Characteristics of Developing Nations

• Low levels of living
• Per capita national income
• Relative growth rates of national and per capita
  income
• Distribution of national income
• Income inequality very high and widening
• Poorest 40 vs. richest 20
• Brazil, Columbia, Kenya, South Africa- High
• China, India Malaysia- Moderate
• Taiwan, Indonesia, South Korea- Low

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Common Characteristics of Developing Nations

• Low levels of living
• Per capita national income
• Relative growth rates of national and per capita
  income
• Distribution of national income
• Extent of poverty
• Absolute poverty
• International Poverty Line (US 370)

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Common Characteristics of Developing Nations

• Low levels of living
• Per capita national income
• Relative growth rates of national and per capita
  income
• Distribution of national income
• Extent of poverty
• Health
• Life expectancy (98) 48 yr. (Least Developed)
• 63 yr.
  (other developing)
• 75 yr.
  (developed)
• Infant Mortality Rate

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Figure 1.3 Infant Mortality Rates in Selected
Countries, 1998 (per 1,000 live births)
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Common Characteristics of Developing Nations

• Low levels of living
• Per capita national income
• Relative growth rates of national and per capita
  income
• Distribution of national income
• Extent of poverty
• Health

• Education
• The Human Development Index

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Common Characteristics of Developing Nations

• Low levels of living
• -Low levels and slow growth rates of national
  income
• -Highly skewed patterns of income distribution.
  Top 20 receiving 5 to 10 times as much of the
  bottom 40
• -Up to 1.3 billion people living on income less
  than 370per year
• -Low life expectancy, Ill health, malnutrition,
  diseases, high infant mortality rates
• -Low levels of literacy, high school dropout rate

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Common Characteristics of Developing Nations

• Low levels of living
• Low levels of productivity
• -Labour productivity
• Law of Diminishing Marginal Productivity
• Lack of complementary factors such as
  physical capital or experienced management
• Mobilisation of domestic savings and foreign
  finance
• Institutional Changes
• Attitude towards work

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Common Characteristics of Developing Nations

• Low levels of living
• Low levels of productivity
• High rates of population growth and dependency
  burdens
• Natural growth and migration
• Birth rate 30-40/1000 (LDC)
• Avge. rate of population growth 1.6 (LDC)

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Common Characteristics of Developing Nations

• Low levels of living
• Low levels of productivity
• High rates of population growth and dependency
  burdens
• Substantial dependence on agricultural production
  and primary exports

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Figure 1.4 Composition of World Exports
(percentages of primary and manufactured products)
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Common Characteristics of Developing Nations

• Low levels of living
• Low levels of productivity
• High rates of population growth and dependency
  burdens

• Substantial dependence on agricultural production
  and primary-product exports

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Common Characteristics of Developing Nations

• Low levels of living
• Low levels of productivity
• High rates of population growth and dependency
  burdens
• Substantial dependence on agricultural production
  and primary-product exports
• Technological Backwardness
• Lack of RD institutions, weak communication
  system, lack of capital
• Technological choice dictated by poverty

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Common Characteristics of Developing Nations

• Low levels of living
• Low levels of productivity
• High rates of population growth and dependency
  burdens
• Substantial dependence on agricultural production
  and primary-product exports

• Technological Backwardness
• Prevalence of imperfect markets

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Prevalence of imperfect markets

• Move towards market economies in 1980s and 90s
• Market economies and market friendly policies
  depend heavily on existence of institutional,
  legal and cultural prerequisites
• Legal system, stable and trustworthy currency,
  infrastructure of roads and utilities, developed
  system of banking and insurance, formal credit
  markets, market information for consumers and
  producers, and norms of behaviour that facilitate
  long term trade

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Common Characteristics of Developing Nations

• Low levels of living
• Low levels of productivity
• High rates of population growth and dependency
  burdens
• Substantial dependence on agricultural production
  and primary-product exports

• Technological Backwardness
• Prevalence of imperfect markets
• Dependence
• Others
• Social life
• Transfer of values,
• Demonstration Effect
• Brain Drain

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Human Development Index (HDI)

• United Nations Development Programme. Initiated
  in 1990
• Range 0 to 1
• Three goals of development
• -Longevity measured by life expectancy at birth
• -knowledge measured by weighted average of
  adult literacy and mean years of schooling,
• -standard of living measured by real per capita
  income adjusted for PPP.

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Human Development Index (HDI)

• HDI- 1/3(Income index) 1/3 (Life expectancy
  index) 1/3 (Education index)
• Education index - 2/3 (adult literacy index) 1/3
  (gross enrolment index)
• HDI reveals that a country can do much better
  than might be expected at a low level of income,
  and that substantial income gains can still
  accomplish relatively little in human development

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Human Development Index (HDI)

• Some criticisms
• Gross enrolment (No dropout)
• Equal weight to all three variables
• Role of quality. Healthy extra year of life
• Quality of schooling

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Concepts for Review

• Absolute poverty
• Brain drain
• Crude birthrate
• Death rate
• Dependency burden
• Developed world
• Foreign exchange
• Gross domestic product (GDP)

• Gross national product (GNP)
• Human Development Index (HDI)
• Imperfect markets
• Income gap
• Income inequality
• Incomplete information

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Concepts for Review, contd

• Infant mortality rate
• International poverty line
• Labor productivity
• Least developed countries (LLDCs)
• Levels of living

• Low income countries (LICs)
• Malnutrition
• Mixed economic systems
• Physical resources

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Concepts for Review, contd

• Production function
• Purchasing power parity (PPP)
• Resource endowment
• World Bank