This document contains lecture notes and a summary of the prescribed text from the study book Economic Development (13th edition) for the course Global Development Studies. This course is part of the minor Development Studies at the University of Groningen.
Economic Development, 13th edition by Michael Todaro; Stephen Smith (INSTRUCTORS' MANUAL with TEST BANK).
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Minor Development Studies
Global development Studies
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Lecture 1: introduction to development
China has a leading economy when it comes to absolute numbers, but it’s still a middle-income
country, which is unique.
Approach in this course: economies as social systems: the need to go beyond simple economics:
- Social systems interdependent relationships between economic and non-economic
factors
- Success or failure of development policy importance of taking account of institutional and
structural variables along with more traditional economic variables
Development economics
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 extreme poverty. This incorporates research in
political economy and institutional, behavioural and experimental economics.
So, it goes beyond economic growth and also involves other social-economic outcomes that are
relevant to economic development. It must be concerned with the economic, cultural, and political
requirements for effecting rapid structural and institutional transformations of entire societies in a
manner that brings the fruits of economic transformations to all their populations.
It is possible for a country to experience economic growth, but no development. However, the higher
the economic growth, the more likely you have a higher education and wealth.
Explanatory growth framework:
- Ultimate sources
Global factors
o International economic order
o International aid
o Openness to trade
‘Fixed’ effects
o Ethnic fractionalization
o Geography
o Culture and state ideology
Markets and institutions
o Markets for factor resources and products
o Non-market institutions
Policies
o Economic policies (fiscal, monetary, competition)
o Education and technology
o Social (welfare, health)
, - Proximate sources
Factor resources
o Land
o Labour
o Capital
Productivity
o Structural change
o Technological change
o Terms of trade
- Socio-economic outcomes
Welfare
Health
Education
Consumption
Income distribution
Changes in poverty
Environmental sustainability
Why are some countries rich and other countries poor?
- Internal explanations
Lack of investment and structural change
Social and technological capability
Institutions
o Role of governments
o Informal institutions
- External explanations
International trade
Colonial past
International order
Why do some countries develop faster than other countries?
- Time dimension is important as grouping of rich and poor countries changes
- Relationships between rich and poor countries changes over time
Europe’s growth accelerated after 1800. China is catching up since late 1970s
Problems with GDP per capita as indicator of socio-economic development:
- Measurement issues: GDP measures are internationally harmonised but still suffer from
shortcomings
- Does not account for inequality within countries. GDP per capita is just an average
- Socio-economic development is wider than income increases
,Gross domestic product: 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.
‘De waarde van alle goederen en diensten die in een land worden geproduceerd.’
Gross national income: the total domestic and foreign output claimed by residents of a country,
consisting of GDP + factor incomes earned by foreign residents – income earned in the domestic
economy by non-residents.
‘De waarde van alle goederen en diensten die door inwoners van een land worden geproduceerd. Dit
kan ook in het buitenland zijn.’
Meaning of development
Amartya Sen’s ‘Capability’ approach the capability to function as meaning of poverty:
- Functionings as an achievement: what a person does or can do with what they possess or
control (beings and doings)
- Capabilities: the freedom that a person has in terms of the choice of functionings , given his
personal features and his command over commodities
- Well-being in terms of being well and having freedoms of choice
Five sources of disparity between real incomes and actual advantages:
1. Personal heterogeneities (disability, illness, age, gender)
2. Environmental diversities (heating, clothing requirements in the cold, tropical diseases)
3. Variations in social climate (prevalence of crime and violence)
4. Distribution within the family (might be uneven because of gender)
5. Differences in relational perspectives (some goods are essential because of local customs)
Only real incomes are not sufficient to determine someone’s well-being.
Development is the freedom to choose your own beings and doings:
- Being able to live long
- Being well-nourished
- Being healthy
- Being literate
- Being mobile
- Being able to take part in the life of the community
- Being happy – as a state of being- may be valued as a function
Happiness and Development
- The average level of happiness or satisfaction increases with a country’s average income
- When people are happier, they invest more and are more productive what will lead to more
development in a country
, Classifying levels of national economic development
Income comparisons by levels of GNI (gross national income) by the World Bank:
- Low income (10% of the world population)
- Low middle income
- Upper middle income
- High income (16% of the world population)
Calculation gross national income:
- Total domestic and foreign value added claimed by a country’s residents the portion of a
product’s final value that is added at each stage of production
- Without making deductions for depreciation (waardevermindering) the wearing out of
equipment, buildings, infrastructure, and other forms of capital.
- Of the domestic 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
Purchasing Power Parity (PPP) to calculate the GNI:
- Uses a common set of international prices for all goods and services ( the number of units of
a foreign country’s currency required to purchase the quantity of goods and services in the
local developing country market as $1 would buy in the United States
- Using power parity measures will show a smaller difference between poor and rich countries
compared to exchange rate measures of income levels
Comparing countries by health and education, and the Human
Development Index
Three core values of development:
1. Sustenance: the ability to meet basic needs
2. Self-esteem: to be a person
3. Freedom from servitude: to be able to choose
Holistic measures of living levels and capabilities:
- The Human Development Index (HDI) from 0 to 1
Health
Education
Income (all weight equally)
- Basic problem: how to weight?
- Can be measured for groups and regions in a country (sometimes high inequality)
There is a correlation between the GDP per capita and the Human Development Index (the more
GDP per capita, the higher the HDI). But still, for the same GDP level, you can have a very different
HDI (because of the influence of health and/or education).
Similarities and differences among developing countries:
- Levels of income and productivity
- Human capital attainments
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