1. HS 202: ECONOMIC DEVELOPMENT:PROBLEMS AND POLICY
Mrinal K. Dutta,
Dept. of Humanities and Social Sciences,
IIT Guwahati, Assam, India.
Indian Institute of Technology Guwahati

2. 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?

3. Economic Development? Traditional economic measures GNP (5%-7%)
PCI (Real)-> economic well being
Planned alteration of structure of production and employment
Casual reference to non-economic social indicators
Belief in “trickle down effect”

4. 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

5. 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

6. 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

7. Defining the Developing World
On the basis of PCI
#The UN’s System
#World Bank’s 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

8. 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 UNDP’s Human Development Index
On the basis of degree of international indebtedness (WB)

11. The Developed and Developing World, 2002
Figure 1.1
The Developed and Developing World, 2002

12. Figure 2.1 The Developed and Developing World, 2002 cont’d

13. The Structural Diversity of Developing Economies
Size and income level
Geographical Area,
Population,
National income per capita

15. The Structural Diversity of Developing Economies
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)
Relative importance of public and private sectors
Industrial structure
-Farming not merely an occupation, but a way of life

17. 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

18. Common Characteristics of Developing Nations
Low levels of living
Manifested both quantitatively and qualitatively
Per capita national income
PPP method

19. Figure 1.2 Per Capita Gross National Product in Selected Countries, 1997 (in U.S. dollars at official exchange rates)

21. Common Characteristics of Developing Nations
Low levels of living
Per capita national income
Relative growth rates of national and per capita income

23. 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

25. 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)

27. 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

28. Figure 1.3 Infant Mortality Rates in Selected Countries, 1998 (per 1,000 live births)

30. 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

31. 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

32. 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

33. 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)

35. 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

37. Figure 1.4 Composition of World Exports (percentages of primary and manufactured products)

38. 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

39. 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 R&D institutions, weak communication system, lack of capital
Technological choice dictated by poverty

40. 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

41. 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

42. 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

43. 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.

44. 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

45. 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

48. 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

49. Concepts for Review, cont’d
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

50. Concepts for Review, cont’d
Production function
Purchasing power parity (PPP)
Resource endowment
World Bank