Development Economics Semester VI - ECON 3204

9/12/20152 What is development economics? Development economics is a branch of economics which deals with economic aspects of the development process. Development economics is a branch of economics which deals with economic aspects of the development process. Economic Development means study of the transformation of an economy from that of a low per capita income to a high income ensuring decent living standard for all its citizens. Economic Development means study of the transformation of an economy from that of a low per capita income to a high income ensuring decent living standard for all its citizens. Development is a long term process, where several changes in social customs, on attitudes towards life, in rules/regulations and institutions take place. Development is a long term process, where several changes in social customs, on attitudes towards life, in rules/regulations and institutions take place.

9/12/20153 In a nut shell, … Development = Growth + Structural and institutional changes. Development = Growth + Structural and institutional changes. The task of development economists is to understand the processes of long term economic growth on one side, and the accompanying structural and institutional changes in the economy on the other. This second part may be unique to a country and usually it is context specific. The task of development economists is to understand the processes of long term economic growth on one side, and the accompanying structural and institutional changes in the economy on the other. This second part may be unique to a country and usually it is context specific.

9/12/20154 Need of Multidisciplinary Approach in development economics Unlike in other fields of economics, approaches in development economics may incorporate social, political and other factors to understand the complexity of economic and social phenomena. Unlike in other fields of economics, approaches in development economics may incorporate social, political and other factors to understand the complexity of economic and social phenomena. Why? Why?

9/12/20155 Traditional meaning of economic development Economic Development has traditionally meant the increase in capacity of a national economy, whose initial economic condition has been more or less static for a long time, to generate and sustain an annual increase of 5 to 7% or more in its GNP or GDP. Economic Development has traditionally meant the increase in capacity of a national economy, whose initial economic condition has been more or less static for a long time, to generate and sustain an annual increase of 5 to 7% or more in its GNP or GDP. Real Per capita GDP or Per capita GNP are even better measures as they neutralize the inflation and population size. Real Per capita GDP or Per capita GNP are even better measures as they neutralize the inflation and population size. Prior to 1970s, at least, development was nearly always seen as an economic phenomenon where increase in per capita income was seen as central concern, and problems of inequality in income distribution, poverty, unemployment were of secondary importance. Prior to 1970s, at least, development was nearly always seen as an economic phenomenon where increase in per capita income was seen as central concern, and problems of inequality in income distribution, poverty, unemployment were of secondary importance.

9/12/20156 The new economic view of development The experience of the 1950s and 1960s, when many developing nations did realize their growth targets but the levels of living of the masses remained mostly unchanged. This signaled that there was something wrong with the ‘old definition’ of development. The experience of the 1950s and 1960s, when many developing nations did realize their growth targets but the levels of living of the masses remained mostly unchanged. This signaled that there was something wrong with the ‘old definition’ of development. This led to ‘dethronement of GNP’. This led to ‘dethronement of GNP’. During 1970s, economic development was redefined in terms of reduction of poverty, inequality and unemployment within the context of a growing economy. Redistribution from growth became a common slogan. During 1970s, economic development was redefined in terms of reduction of poverty, inequality and unemployment within the context of a growing economy. Redistribution from growth became a common slogan.

9/12/20157 Dudley Seers (an economist) raised the basic question on the meanings of development: Dudley Seers (an economist) raised the basic question on the meanings of development: “the questions to ask about a country’s development are: what has been happening to poverty? What has been happening to unemployment? What has been happening to inequality? If all three of these have declined from high levels, then beyond doubt this has been a period of development. If one or two of these problems have been growing worse, especially if all three have, it would be strange to call the result ‘development’ even if per capita income doubled.” (Dudely Seers, The meaning of development 1969) The new economic view of development (contd….)

9/12/20158 The World Bank, which during the 1980s championed economic growth as the goal of development, joined the chorus of observers taking a broader perspective when in its 1991 World Development report it asserted: The World Bank, which during the 1980s championed economic growth as the goal of development, joined the chorus of observers taking a broader perspective when in its 1991 World Development report it asserted: “the challenge of development …. is to improve the quality of life. ….. It encompasses as ends in themselves better education, more equality of opportunity, greater individual freedom, and a richer cultural life.” The new economic view of development (contd….)

9/12/20159 Amartya Sen’s ‘Capabilities’ Approach Amartya Sen, the 1998 Nobel laureate in economics, argues that the ‘capability to function’ is what really matters for status as a poor or non- poor person. Amartya Sen, the 1998 Nobel laureate in economics, argues that the ‘capability to function’ is what really matters for status as a poor or non- poor person. “economic growth can not be sensibly treated as an end in itself. Development has to be more concerned with enhancing the lives we lead and the freedoms we enjoy.” “economic growth can not be sensibly treated as an end in itself. Development has to be more concerned with enhancing the lives we lead and the freedoms we enjoy.” In effect, Sen argues that poverty cannot be properly measured by income or even by utility as conventionally understood; what matters is not the things a person has – but what a person is, or can be, and does, or can do. In effect, Sen argues that poverty cannot be properly measured by income or even by utility as conventionally understood; what matters is not the things a person has – but what a person is, or can be, and does, or can do.

9/12/ Three core values of development What do we mean by ‘development as sustained elevation of an entire society and social system toward a ‘better’ or more humane life?’ At least three basic components or core values should serve as a conceptual basis and practical guideline for understanding the inner meanings of development; Sustenance: the ability to meet basic needs, Sustenance: the ability to meet basic needs, Self-esteem: to be a dignified person, Self-esteem: to be a dignified person, Freedom from servitude: emancipation from misery, chronic poverty, dogmatic beliefs etc. Freedom from servitude: emancipation from misery, chronic poverty, dogmatic beliefs etc.

9/12/ Three objectives of development i- to increase the availability and widen the distribution of basic life-sustaining goods such as food, shelter, health, and protection. ii- to raise level of living, including the better jobs, better education, better health, and less vulnerability. iii- to expand the range of economic and social choices available to individual – with least inequality.

World Bank classification As of 2014, the World Bank income classifications by GNI per capita are as follows: As of 2014, the World Bank income classifications by GNI per capita are as follows: Low income: $1,045 or less Low income: $1,045 or less Lower middle income: $1,046 to $4,125 Lower middle income: $1,046 to $4,125 Upper middle income: $4,126 to $12,745 Upper middle income: $4,126 to $12,745 High income: $12,746 or more High income: $12,746 or more Low- and middle-income economies are sometimes referred to as developing economies. The term is used for convenience; it is not intended to imply that all economies in the group are experiencing similar development or that other economies have reached a preferred or final stage of development. 9/12/201512

United Nations Development Program (UNDP) Country classifications based on HDI quartiles. A country is in the very high group if its HDI is in the top quartile ( > 76), A country is in the very high group if its HDI is in the top quartile ( > 76), In the high group if its HDI is in between 51–75, In the high group if its HDI is in between 51–75, In the medium group if its HDI is in between 26–50 and In the medium group if its HDI is in between 26–50 and In the low group if its HDI is in the bottom quartile. In the low group if its HDI is in the bottom quartile. Countries in the very high HDI category are referred to as developed, and countries not in this group are referred to as developing. HDR 2013 p. 140 HDR 2013 p /12/201513