2. The Economics and Development Concept Pertemuan 1 Matakuliah: > Tahun: >

3. Bina Nusantara University 3 Our primary goal in development must be to reduce the disparities across and within countries ….. The key development challenge of our time is the challenge inclusion. James D. Wolfensohn. President, WB 1998 Development theory by itself has little value unless it is applied, unless it translates into results, and unless it improves people live. Lewis T. Preston, Former President, WB

4. Bina Nusantara University 4 Material Outline The nature of Development Economics The important Role of values in Development Economics Core values of Development Objectives of Development Theories of Development

5. Bina Nusantara University 5 The Nature of Development Economics Traditional economics is concerned primarily with the efficient, least, cost allocation of scarce productive resources and with the optimal growth of theese resources over time so as to produce an ever expanding range of goods and services. Development economics has an ever greater scope. In additional to being concerned with the efficient allocation of existing scarce (or idle) productive resources and with their sustained growth over time, it must also deal with the economic, social, political, and institutional mechanisms, both public and private.

6. Bina Nusantara University 6 The important Role of values in Development Economics Economics is a social science It is concerned with human beings and the social systems by which they organize their activities to satisfy basic material needs (food, shelter, clothing) and nonmaterial wants (education, knowledge, spiritual full fillment)

7. Bina Nusantara University 7 Three Core Values of Development 1. Sustenance : the ability to meet basic needs -All people have certain basic needs without which life would be impossible theese life – sustaining basic human needs include food, shelter, health and protection

8. Bina Nusantara University 8 Three Core Values of Development 2. Self Esteem : to be a person - A second universal component of the good life is self – esteem – a sense of worth and self – respect, of not being used as a tool by others their own ends - All peoples and societies seek some basic form of self – esteem, although they may call it authenticity, identity, dignity, respect, honor, or recognition.

9. Bina Nusantara University 9 Three Core Values of Development 3. Freedom from Servitude : To be able to choose. - A third universal value that we suggest should constitute the meaning of development is the concept of human freedom. Freedom here is to be understood in the sense of emancipation from alienating material conditions of life and from social servitude to nature, ignorance, other people, misery, institutions, and dogmatic beliefs.

10. Bina Nusantara University 10 Objectives of Development 1. To increase the availability and widen the distribution of basic life–sustaining goods such as food, shelter, health and protection 2. To raise levels of living, including, in addition to higher incomes the provision of more jobs, better education, and greater attention to cultural and humanistic values, all of which will serve not only to enhance material well – being but also to generate greater individual and national self – esteem 3. To expand the range of economic and social choices available to individuals and nations by freeing them from servitude and dependence not only in relation to other people and nation – states but also to the forces of ignorance and human misery.

11. Bina Nusantara University 11 Theories of Development Leading theories of Economic Development : Five Approaches 1. The linear stages of growth model 2. Theories and patterns of structural change 3. The international dependence revolution 4. The neoclassical, free – market counterrevolution 5. The new or endogenous theory of econ - growth

12. Bina Nusantara University 12 The linear stages theory 1) Rostow’s Stages of growth In the Rostow model, the advanced countries it was argued had all passed the stage of “take – off into self sustaining growth”, and the under developed countries that were still in either the traditional society or the “preconditions” stage had only to follow a certain set of rules of development to take of in their turn into self – sustaining economic growth

13. Bina Nusantara University 13 The linear stages theory 2) The Harrod-Domar Growth Model - The economic mechanism by which more investment leads to more growth.

14. Bina Nusantara University 14 Structural change models 1 ) The Lewis Theory of Development In the Lewis model, the underdeveloped economy consists of two sectors: (a) a traditional, overpopulated rural subsistence sector characterized by zero marginal labor productivity, (b) a high productivity modern urban industrial sector into which labor from the subsistence sector is gradually transferred 2) Structural change and Patterns of Development

15. Bina Nusantara University 15 The International Dependence Revolution 1) The Neocolonial Dependence Model - The existence and continuance of under development primarily to the historical evolution of a highly unequal international capitalist system of rich country – poor country relationships. 2) The False – Paradigm Model - Attributes under development to faulty and in appropriate advice provided by well- meaning but often informed, biased, and ethnocentric international “expert” advisers from developed country assistance agencies and multinational donor organizations. 3) The Dualistic – Development Thesis - Dualism is a concept widely discussed in development economics, it represents the existences and persistence of increasing divergences between rich and poor nations and rich and poor peoples on various levels.

16. Bina Nusantara University 16 The Neoclassical Counterrevolution 1) Challenging the Static Model : Free Markets, Public Choice, and Market – Friendly Approaches 2) Traditional (old) Neoclassical Growth Theory - Output growth results from one or more of three factors : increases in labor quantity and quality, increases in capital, and improvements in technology.

17. Bina Nusantara University 17 The New Growth Theory Provides a theoretical frame work for analyzing endogenous growth, persistent GNP growth that is determined by the system governing the production process rather than by forces outside that system.