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. 11-2 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. 11-3 The Nature of Development Planning n Basic concepts n Planning in mixed developing economies

4. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 11-4 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. 11-5 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. 11-6 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. 11-7 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. 11-8 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. 11-9 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. 11-10 Aggregate Growth Models (11.9)

11. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 11-11 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. 11-12 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. 11-13 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. 11-14 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. 11-15 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. 11-16 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. 11-17 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. 11-18 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. 11-19 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. 11-20 Table 11.1

21. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 11-21 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. 11-22 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. 11-23 Figure 11.1

24. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 11-24 Trends in Governance and Reform n Tackling the problem of corruption

25. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 11-25 Figure 11.2

26. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 11-26 Figure 11.3

27. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 11-27 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. 11-28 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. 11-29 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. 11-30 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