1. Economics of Development ASHESI UNIVERSITY COLLEGE , FALL 2011
Stephen E Armah

2. Growth Measurement: Growth Rate of an Economy
The growth Rate of an economy simply is a measure of movements in both a positive or negative direction from any given time period, e.g. GDP was 100 in year one, now its 105 in year two.
Mathematically growth rate of X is the change in X from the first year to the second year, divided by the value of X in the first year.
Let t designate the first year and t+1 the second year.
Mathematically we can call the observations
X t and Xt+1 ,
This gives us an equation of:
How does growth correlate to some development indicators (illustrate graphically on Blackboard):
Life expectancy and per capita Income
Literacy rate and per capita income
See programs like the Global Fund and America's emergency AIDS plan are providing life-saving AIDS drugs to 1.3 million people around the world, most of them in Africa.
The US government $1.2 billion initiative targeting malaria in Africa
These amounts were spent to improve education and health services delivery, speed up rural electrification, HIV/AIDS programs, enhance rural agriculture, feeder roads construction and rehabilitation, rural water and sanitation, among others

3. Growth Measurement: Growth Rate of an Economy
growth rate (g) = (Xt+1 – X t )/ X t
IN-CLASS-EXERCISE
Using our example of year 1= 100 and year 2 = 105 calculate
The annual growth rate!= [( ) /100 ]*100 = 0.05* 100 = 5%
if year 1= 120 and year 2 = 135 calculate
The annual growth rate!
= [( ) /120 ]*100 = 0.125* 100 = 12.55%
How does growth correlate to some development indicators (illustrate graphically on Blackboard):
Life expectancy and per capita Income
Literacy rate and per capita income
See programs like the Global Fund and America's emergency AIDS plan are providing life-saving AIDS drugs to 1.3 million people around the world, most of them in Africa.
The US government $1.2 billion initiative targeting malaria in Africa
These amounts were spent to improve education and health services delivery, speed up rural electrification, HIV/AIDS programs, enhance rural agriculture, feeder roads construction and rehabilitation, rural water and sanitation, among others

4. Growth Measurement: Growth Rate of an Economy
Compounding growth Rate:
This helps us to determine that is an economy is growing at a certain average growth rate, then how long will it take that economy to double its growth.
The mathematical approximation for dealing with growth rates is the RULE OF 72.
THE RULE IS A FORMULA FOR ESTIMATING THE AMOUNT OF TIME IT TAKES SOMETHING TO GROWING AT A GIVEN RATE TO DOUBLE.
FORMULA = doubling time = 72/g,
Where g is the percentage annual growth rate.
EXERCISE
E.g. if an economy is growing at an annual rate of 2% it will double in approx. 36 years!
What is Ghana’s current PPP adjusted GDP? Ghana’s growth rate from was roughly 5.5%. Assuming Ghana is growing at 5.5% now, how long will it take for GDP to double
How does growth correlate to some development indicators (illustrate graphically on Blackboard):
Life expectancy and per capita Income
Literacy rate and per capita income
See programs like the Global Fund and America's emergency AIDS plan are providing life-saving AIDS drugs to 1.3 million people around the world, most of them in Africa.
The US government $1.2 billion initiative targeting malaria in Africa
These amounts were spent to improve education and health services delivery, speed up rural electrification, HIV/AIDS programs, enhance rural agriculture, feeder roads construction and rehabilitation, rural water and sanitation, among others

5. The Theories of Economic Development
Here we would historicize the concept of development and explore the various theories propounded to explain how and why development does or does not take place
There are 4 major competing theories:
The Linear-stages of Growth theories
Theories and patterns of structural change
International dependency theory
The Neoclassical, free market theory

6. The Linear-stages of Growth theories
During the 1950’s and early 1960’s, Theorist viewed the process of development as a series of successive stages of economic growth through which all countries must pass
This approach followed an economic theory of development where the right quantity and mixture of saving, investment, and foreign Aid were all that was needed to enable countries proceed along a growth path historically followed by the more developed economies
Development is here synonymous with rapid aggregate economic growth!!!!

7. Economic Growth and Economic Development
If growth benefits a small number of people within the economy it cannot be regarded as Development
World Development Report: The challenge of Development is to improve the quality of life. A better quality of life encompasses as ends in themselves better education, higher standards of health and nutrition, less poverty, cleaner environment, more equality of opportunity (gender balance).
Can there be development without growth? NO!
Economic Growth is a necessary but not sufficient condition for development (improvement in welfare of people)
Development Economics is therefore a unique branch of the broader discipline of Economics, with a broader scope.
This includes being concerned with the efficient allocation of scarce resources as well as dealing with the economic, social, political and institutional mechanisms necessary to bring about rapid and large scale improvements in the levels of people

8. Theories and patterns of structural change
This linear stages approach was strongly challenged in the 1970’s by structural change thinking
This involved the use of modern economic theory and quantitative techniques to explain the internal processes of structural change that a typical developing country must undergo to sustain a process of rapid economic growth

9. The structural change model focuses on the mechanism by which underdeveloped economies transform their domestic economic structures from a heavy emphasis on traditional subsistence Agric to a more modern , urbanized and diversified economy
Here the accumulation of capital both human and physical are deemed as important to the development process
This approach was championed by Lewis, Chenery et al.

10. International dependency theory
Another strong but highly ‘controversial’ theory of development which also evolved in the 1970’s was the Dependency Theory
The theory is political in orientation and views development in terms of domestic and international power relationships, institutional and structural rigidities.
Dependency theorist emphasized on external and internal institutional and political constraints on economic development
Emphasis was placed on the need for new policies to provide for egalitarian objectives, e.g. employment for all, importantly economic growth is not given the exalted status as in the linear theory

11. In this theoretical conception the relationship between the developed countries (Centre) and the developing countries (periphery) is assigned as the main basis for underdevelopment
In Ghana this still enjoys an unfavourably high air time (couched in the whole colonialism debate)
Whilst not discounting this theory, it’s a dangerous way of explaining development since externalizes cause and effect
Champions include A. Gunder Frank, Cardozo

12. The Neoclassical, free market theory
In the 1980’s and the 1990’s the neoclassical/neoliberal thinking prevailed and reigned supreme
Their ethos was rooted in free markets, open economies, the privatization of inefficient public enterprises
Here slow or the lack of development is not due to exploitative external and internal forces but rather a case of excessive government intervention in the economic growth process
Focus is to minimize the role of government in the economic process!!!

13. A middle Ground?
It is important to note that to a certain degree there is some inherent wisdom in all theories discussed, however Analyzing contemporary economies of developing countries, one can find strands or elements of each theory in these countries