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Copyright © 2006 Pearson Addison-Wesley. All rights reserved. Chapter 11 Development Policymaking and the Roles of Market, State, and Civil Society.

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Presentation on theme: "Copyright © 2006 Pearson Addison-Wesley. All rights reserved. Chapter 11 Development Policymaking and the Roles of Market, State, and Civil Society."— Presentation transcript:

1 Copyright © 2006 Pearson Addison-Wesley. All rights reserved. Chapter 11 Development Policymaking and the Roles of Market, State, and Civil Society

2 Copyright © 2006 Pearson Addison-Wesley. All rights reserved The Planning Mystique n In the past, few doubted the importance and usefulness of national economic plans n Recently, however, disillusionment has set in

3 Copyright © 2006 Pearson Addison-Wesley. All rights reserved The Nature of Development Planning n Basic concepts n Planning in mixed developing economies

4 Copyright © 2006 Pearson Addison-Wesley. All rights reserved The Rationale for Planning in Developing Economies n Market failure n Resource mobilization and allocation n Attitudinal or psychological impact n Foreign aid

5 Copyright © 2006 Pearson Addison-Wesley. All rights reserved The Planning Process: Some Basic Models n Characteristics of the planning process n Planning in stages: 3 basic models –Aggregate growth models

6 Copyright © 2006 Pearson Addison-Wesley. All rights reserved Aggregate Growth Models Where K(t) is capital stock at time t Y(t) is output at time t k is the average and marginal capital-output ratio (11.1)

7 Copyright © 2006 Pearson Addison-Wesley. All rights reserved Aggregate Growth Models Where I(t) is investment at time t s is the savings rate S is national savings  is the depreciation rate (11.2) If g is the targeted rate of output growth, then (11.3)

8 Copyright © 2006 Pearson Addison-Wesley. All rights reserved Aggregate Growth Models (11.4) (11.5) Where n is the labor force growth rate and p is the growth rate of labor productivity (11.6)

9 Copyright © 2006 Pearson Addison-Wesley. All rights reserved Aggregate Growth Models (11.7) (11.8) Where W and  are wage and profit incomes Where s  and s W are the marginal propensities to save from wage income and profit

10 Copyright © 2006 Pearson Addison-Wesley. All rights reserved Aggregate Growth Models (11.9)

11 Copyright © 2006 Pearson Addison-Wesley. All rights reserved The Planning Process: Some Basic Models n Characteristics of the planning process n Planning in stages: 3 basic models –Aggregate growth models –Multi-sector models and sectoral projections –Project appraisal and social cost-benefit analysis

12 Copyright © 2006 Pearson Addison-Wesley. All rights reserved Project Appraisal and Social Cost- Benefit Analysis n Basic concepts and methodology n Setting objectives n Computing shadow prices and social discount rates

13 Copyright © 2006 Pearson Addison-Wesley. All rights reserved The Social Rate of Discount Net present value, or NPV is given by Where B t is the expected benefit at time t C t is the expected cost at time t r is the government’s social rate of discount (11.10)

14 Copyright © 2006 Pearson Addison-Wesley. All rights reserved Project Appraisal and Social Cost- Benefit Analysis n Basic concepts and methodology n Setting objectives n Computing shadow prices and social discount rates n Choosing projects: some decision criteria n Conclusions: planning models and plan consistency

15 Copyright © 2006 Pearson Addison-Wesley. All rights reserved Problems of Plan Implementation and Plan Failure n Theory versus practice –Factor prices, choice of technique, and employment creation –Rural-urban imbalances –Demand for education –Structure of the economy

16 Copyright © 2006 Pearson Addison-Wesley. All rights reserved The Crisis in Planning: Problems of Implementation and Plan Failures (cont’d) n Reasons for plan failures –Deficiencies in plans and their implementation –Insufficient and unreliable data –Unanticipated economic disturbances –Institutional weaknesses –Lack of political will

17 Copyright © 2006 Pearson Addison-Wesley. All rights reserved Government Failure and the Resurgent Preference for Markets Over Planning n Problems of government intervention in LDCs

18 Copyright © 2006 Pearson Addison-Wesley. All rights reserved The Market Economy n The market economy sociocultural preconditions and economic requirements n Role and limitations of the market in LDCs

19 Copyright © 2006 Pearson Addison-Wesley. All rights reserved The “Washington Consensus” on the State in Development n 1980s and 1990s (see Table 11.1)

20 Copyright © 2006 Pearson Addison-Wesley. All rights reserved Table 11.1

21 Copyright © 2006 Pearson Addison-Wesley. All rights reserved The “Washington Consensus” on the State in Development n 1980s and 1990s n Toward a new consensus

22 Copyright © 2006 Pearson Addison-Wesley. All rights reserved Development and Political Economy n Understanding voting patterns on policy reform n Institutions and path dependency n Democracy versus autocracy: which facilitates faster growth? n Role of NGOs in development and the broader citizen sector (see Figure 11.1)

23 Copyright © 2006 Pearson Addison-Wesley. All rights reserved Figure 11.1

24 Copyright © 2006 Pearson Addison-Wesley. All rights reserved Trends in Governance and Reform n Tackling the problem of corruption

25 Copyright © 2006 Pearson Addison-Wesley. All rights reserved Figure 11.2

26 Copyright © 2006 Pearson Addison-Wesley. All rights reserved Figure 11.3

27 Copyright © 2006 Pearson Addison-Wesley. All rights reserved Trends in Governance and Reform n Tackling the problem of corruption n Decentralization n Development participation- alternate interpretations n Genuine participation and role of NGOs

28 Copyright © 2006 Pearson Addison-Wesley. All rights reserved Developing Planning and the State: Concluding Observations n Pragmatism is needed in dealing with the role and limitations of economic policies in LDCs n Regardless of ideology, governments in LDC have been heavily involved in the economy n LDC governments shouldn’t necessarily do less, but do better

29 Copyright © 2006 Pearson Addison-Wesley. All rights reserved Concepts for Review n Accounting prices n Aggregate growth model n Comprehensive plan n Cost-benefit analysis n Development Participation n Economic infrastructure n Economic plan n Economic planning n Government failure n Input-output model n Interindustry model n Internal rate of return n Market failure n Market prices n Net present value

30 Copyright © 2006 Pearson Addison-Wesley. All rights reserved Concepts for Review (cont’d) n NGOs n Partial plan n Path dependency n Planning process n Political will n Project appraisal n Rent seeking n Shadow prices n Social profit n Social rate of discount


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