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Growth and Development summary
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Summary course Growth and Development RUG . Books: Economic Development (Todaro, Smith) Chapter 1-7
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Summary Global Development Studies / book: ´economic development´
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Chapter 1Absolute poverty: a situation of being unable to meet the minimum levels of income, food,
clothing, health care, shelter, and other essentials.
Subsistence economy: an economy in which production is mainly for personal consumption
and the standard of living yields little more than basic necessities of life – food, shelter, and
clothing.
Development: the process of improving the quality of all human lives and capabilities by
raising people’s levels of living, self-esteem, and freedom.
Developing countries: countries of Asia, Africa, the Middle East, Latin America, eastern
Europe, and the former Soviet Union that are presently characterized by low levels of living
and other development deficits. Used in the development literature as a synonym for less
developed countries.
Traditional economics: an approach to economics that emphasized utility, profit
maximization, market efficiency, and determination of equilibrium.
Political economics: the attempt to merge economic analysis with practical politics – to view
economic activity in its political context.
Development economics: the study of how economies are transformed from stagnation to
growth and from low-income to high-income status, and overcome problems of absolute
poverty.
More developed countries (MDCs): the now economically advanced capitalist countries of
western Europe, North America, Australia, New Zealand, and Japan.
Less developed countries: a synonym for developing countries.
In comparison with the more developed countries, in most less developed coutnries,
commodity and resource markets are typically highly imperfect, consumers and producers
have limited information, major structural changes are taking place in both the society and the
economy, the potential for multiple equilibria rather than a single equilibrium is more
common, and disequilibrium situations often prevail (prices do not equate supply and
demand).
Globalization: the increasing integration of national economies into expanding international
markets.
Social system: the organizational and institutional structure of a society, including its values,
attitudes, power structure, and traditions.
Values: principles, standards, or qualities that a society or groups within it considers
worthwhile or desirable.
Attitudes: the states of mind or feelings of an individual, group, or society regarding issues
such as material gain, hard work, saving for the future, and sharing wealth.
Institutions: norms, rules of conduct, and generally accepted ways of doing things. Economic
institutions are humanly devised constraints that shape human interactions, including both
informal and formal “rules of the game” of economic life in the widely used framework of
Douglass North.
Income per capita: total gross national income of a country divided by its total population.
Gross national income (GNI): the total domestic and foreign output claimed by residents of
a country. It comprises gross domestic product (GDP) plus factor incomes accruing to
residents from abroad, less the income earned in the domestic economy accruing to persons
abroad.
,Gross domestic product (GDP): the total final output of goods and services produced by the
country’s economy, within the country’s territory, by residents and non-residents, regardless
of its allocation between domestic and foreign claims.
Development must be conceived of as a multidimensional process involving major changes in
social structures, popular attitudes, and national institutions, as well as the acceleration of
economic growth, the reduction of inequality, and the eradication of poverty.
The view that income and wealth are not ends in themselves but instruments for other
purposes goes back at least as far as Aristotle. Amartya Sen, the 1998 Nobel laureate in
economics, argues that the “capability to function” is what really matters for status as a poor
or nonpoor person.
Functionings: what people do or can do with the commodities of given characteristics that
they come to possess or control.
Also depends on: 1) social conventions in force in the society in which the person lives, 2) the
position of the person in the family and in the society, 3) the presence or absence of festivities
such as marriages, seasonal festivals and other occasions such as funerals, 4 the physical
distance from the homes of friends and relatives.
5 sources of disparity between (measured) real incomes and actual advantages by Sen:
- Personal heterogeneities
- Environmental diversities
- Variations in social climate
- Distribution within the family (economic statistics measure incomes received in a
family because it is the basic unit of shared consumption, but family resources may be
distributed unevenly)
- Differences in relational perspectives (some goods are essential because of local
customs and conventions).
Capabilities: the freedoms that people have, given their personal features and their command
over commodities.
In recent years, economists have explored the empirical relationship across countries and over
time between subjectively reported satisfaction and happiness and factors such as income.
One of the findings is that the average level of happiness or satisfaction increases with a
country’s average income.
Richard Layard identifies 7 factors that surveys show affect average national happiness:
family relationships, financial situation, work, community and friends, health, personal
freedom, and personal values.
3 core values of development:
1 Sustenance: the basic goods and services, such as food, clothing, and shelter, that are
necessary to sustain an average human being at the bare minimum level of living.
2 Self-esteem: the feeling of worthiness that a society enjoys when its social, political, and
economic systems and institutions promote human values such as respect, dignity, integrity,
and self-determination.
3 Freedom: a situation in which a society has at its disposal a variety of alternatives from
which to satisfy its wants and individuals enjoy real choices according to their preferences.
, Development in all societies must have at least the following 3 objectives:
- To increase the availability and widen the distribution of basic-life sustaining goods
- To raise levels of living
- To expand the range of economic and social choices
Millennium Development Goals (MDGx): a set of 8 goals adopted by the United Nations in
2000: to eradicate extreme poverty and hunger; achieve universal primary education; promote
gender equality and empower women; reduce child mortality; improve maternal health;
combat HIV/AIDS, malaria, and other diseases; ensure environmental sustainability; and
develop a global partnership for development. The goals are assigned specific targets to be
achieved by 2015.
See table 1.1 for the goals and targets.
Sector: a subset (part) of an economy, with four usages in economic development:
technology (modern and traditional sectors); activity (industry or product sectors); trade
(export sector); and sphere (private and public sectors).
Chapter 2
World Bank: an organization known as an “international financial institution” that provides
development funds to developing countries in the form of interest-bearing loans, grants, and
technical assistance.
Low-income countries (LICs): in the World Bank classification, countries with a GNI per
capita of less than $1,025 in 2011.
Middle-income countries: in the World Bank classification, countries with a GNI per capita
between $1,025 and $12,475 in 2011.
Newly industrializing countries (NICs): countries at a relatively advanced level of
economic development with a substantial and dynamic industrial sector and with close links
to the international trade, finance, and investment system.
Least developed countries: a UN designation of countries with low income, low human
capital, and high economic vulnerability.
Human capital: productive investments in people, such as skills, values, and health resulting
from expenditures on education, on-the-job training programs, and medical care.
Basic indicators of 3 facets of development:
- Real income per capita adjusted for purchasing power
- Health as measured by life expectancy, undernourishment, and child mortality
- Educational attainments as measured by literacy and schooling.
Gloss national income (GNI): the total domestic and foreign output claimed by residents of
a country, consisting of gross domestic product (GDP) plus factor incomes earned by foreign
residents, minus income earned in the domestic economy by non-residents.
Value added: the portion of a product’s final value that is added at each stage of production.
Depreciation (of the capital stock): the wearing out of equipment, buildings, infrastructure,
and other forms of capital, reflected in write-offs to the value of the capital stock.
Capital stock: the total amount of physical goods existing at a particular time that have been
produced for use in the production of other goods and services.
Gross domestic product (GDP): the total final output of goods and services produced by the
country’s economy within the country’s territory by residents and non-residents, regardless of
its allocation between domestic and foreign claims.
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