Economic Development I. Measuring Development II.Understanding Development III. Managing Development

I. Measuring Economic Development 1. Concepts * Growth: an economic phenomenon increase of GNP/GDP, income not necessarily better social welfare * Development: an spatial, social phenomenon relief of poverty, unemployment reduction of income inequality * Modernization: a social phenomenon

2. Measurement Monetary Measures: use the value of product as indicators use the value of product as indicators GNP (Gross National Product): measure production that is owned by measure production that is owned by residents of the country, no matter it takes residents of the country, no matter it takes place within the country or abroad place within the country or abroad

GDP (Gross Domestic Product): measure production that take place within the country regardless of who owns the factories measure production that take place within the country regardless of who owns the factories e.g. USA – GNP > GDP e.g. USA – GNP > GDP Canada – GDP > GNP Canada – GDP > GNP China – GDP > GNP China – GDP > GNP Hong Kong – GNP > GDP Hong Kong – GNP > GDP

GNP = GDP + incomes earned by domestic residents from investment abroad – residents from investment abroad – incomes earned in domestic market incomes earned in domestic market by foreigners. by foreigners.

Problems: - Official exchange rates may not be realistic - Does not reflect unofficial monetary market - Does not reflect equality - Indicate national wealth but no individual disposable income - Foreign own company may not benefit national economy (GDP) - Depends on population census (citizenship)

Figure 10.7 Gross National Income per Capita

Figure 10.8 Purchasing Power Parity

Physical – Economic Measures i. Electricity Consumption ii. Efficiency: labour productivity capital intensity capital intensity iii. Employment in R&D iv. Economic Structure v. Urbanization vi. Unemployment

Figure Labour Force in Agriculture

Social Measures i. Life Expectancy ii. Birth/Death Rate and Growth Rate iii. Education

Figure Economically Active Women, 2004

Figure Gender Empowerment Measure

Physical - Social Measures i. Telephones per capita ii. Nutrition – dietary intake iii. Social Services iv. Crime rates

Combined Measures Rank countries according to individual measures Rank countries according to individual measures

Figure 10.3 Comparative Development Levels

Figure Country rankings by Human Development Index

II. Understanding Economic Development Two schools of thought: - Efficient, quick economic growth concentrated top-down approach - Efficient, quick economic growth concentrated top-down approach - Equality, Basic-needs - Equality, Basic-needs dispersed bottom-up approach dispersed bottom-up approach

Export Base Theory A theory of regional development that suggests that the major stimulus generating development is external demand for regional resources or products. Basic Activities: export goods and services to outside areas Non-basic Activities: provide services to the local economy

Multiplier: A cumulative change in the total regional income/ employment as a result of a change in external oriented production Total employment (basic + non-basic) Employment in basic activities Employment in basic activities e.g. Basic Workers = 2000 e.g. Basic Workers = 2000 Non-basic workers = 2000 Non-basic workers = A new factory hires 2000 workers A new factory hires 2000 workers Δ B = 2000 Δ B = 2000 Total Employment created Δ T Total Employment created Δ T Δ T = Δ B × K = 2000 × 2 = 4000 Δ T = Δ B × K = 2000 × 2 = 4000 K = = 2 K =

Polarized Growth and Core-peripheral Relations The Multiplier Effect

Perroux’s Growth Pole Theory Growth Pole: an economic concept a vector of economic forces from which centrifugal a vector of economic forces from which centrifugal forces emanate and to which centripetal forces are forces emanate and to which centripetal forces are attracted attracted e.g. leading industries, firms e.g. leading industries, firms Polarization: rapid growth of the leading industries which induce the polarization of other economic activities into the pole of growth e.g. flow of resources, capital, migration, etc. e.g. flow of resources, capital, migration, etc.

Boudeville’s Regional Growth Pole: A set of expanding industries located in an urban area and inducing further development of economic activity throughout its zone of influence

Myrdal: Cumulative Upward Causation Backwash Effects: negative effects caused by prosperous regions on less prosperous regions. e.g. concentration of resources in the core at the cost of periphery, growing spatial inequality Spread Effects: beneficial impact of the prosperous regions on less prosperous regions. e.g. increased demand, capital investment, technology transfer

Polarization Backwash Effect Spread Effects Convergence Inequality Time

Hirschman: Polarization/Trickle Down Polarization Effect: growth centers attract or “drain” regional resources Trickle Down Effect: diffusion of growth and innovation from the growth center to the periphery Myrdal VS. Hirschman John Friedmann planner

Reasons for polarization: - High demand in the center - Good facilities & infrastructure - Psychological effect - Tax revenue for further expansion

Reasons for spread effect : - Increased demand for agricultural products & raw materials - Diffusion of advanced technology - Diseconomies of scale in the center (high labour cost, congestion) - Government intervention for political considerations

Core-Periphery/Heartland-Hinterland Core/heartland: centers of innovative changes Common Features: - Favourable physical environment - Accessible to markets - Diversified economy - Urbanized population - Integrated urban system - Capable of innovation - Decision-making at the national level

III. Managing Development: ----Measure to counter spatial polarization - British Approach e.g. London: 13 new towns e.g. London: 13 new towns - French Approach e.g. Paris: 8 regional centers e.g. Paris: 8 regional centers - Taiwan - Korea - Hong Kong

Stage Theories of Economic Development * Marx’s Theory of Revolutionary Social Change * Rostow’s Theory of Evolutionary Economic Growth

Marx: Forces of Production VS. Relation of Production 1. Primitive Communism - Equal relation of production, no class - Common ownership - Simple division of labour: sex division surplus surplus exploitation exploitation common ownership equal relation private ownership unequal relation Domestication 1 st division of labour demand slave class

2. Slavery * Slave-owner exploits slave * Private ownership * Labour more specialized * State emerged * Financial/ legal institutions in-built crisis: growing tension between slave and slave-owner

3. Feudalism * landlord exploits peasant merchant exploits serf merchant exploits serf * landlord owned the land * peasant was tied to the land but had certain freedom as compared with slave * 2 nd division of labour town/city emerged * exchange flourished in-built crisis: growing tension between slave and slave-owner

4. Capitalism * Capitalist exploits worker * Bourgeoisie exploits proletariat * Capitalist own the means and instruments * Workers sell labour for wage * Intensive division of labour * 3 rd division of labour * Monopoly, colonialism, income inequality, urban/ rural disparity rural disparity in-built crisis: growing tension between capitalist and worker; bourgeoisie and proletariat

5. Socialism * Proletariat become master of the society * Public ownership * Centrally planned economy * Participation in decision-making by the general mass

6. Communism * No class struggle, no conflict * Common ownership * High productivity * Equal income distribution * No state, no family, no war

Critiques: * mechanic/ inflexible * Production deterministic * Communist men not realistic utopian utopian

Rostow’s Theory of the stage of Economic Growth Rostow, The Stages of Economic Growth: An non-Communist Manifesto

1. Traditional Society - Low productivity, poor technology - Low urbanization, agriculture - Centralized political power - Conservative society

2. Precondition for take-off - Infrastructure development - Secondary/ tertiary sector - Ready for innovation

3. Take-off - Technology - Saving/investment rate 5~10% of income - “leading industries” create multiplier effect

4. Drive to Maturity - Join the world economy - Leading sector expand to all sectors - High rate of reinvestment 10~20% of income - Technology capable to produce anything

5. High Mass-Consumption - Production of durable goods - High per capita income - Tertiary/ quaternary economies - Welfare - High urbanization, life expectancy Critiques: - Development Continuum - Colonialism as an accelerator