Summary
Summary Developmental Economics
- Course
- ECO2003 Microeconomics II
- Institution
- University Of Cape Town (UCT)
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👨🏾⚕️Economic Development
Week 8: Approaches to development
Economic Development 1
, Questions:
1. Examine the different classical and radical heterodox theories of
development
2. Identify and compare what they respectively identify as the main
characteristics and drivers of development and underdevelopment
3. Through the critical application of the theories, we will then examine
debates around the drivers or barriers to Africa’s development. m
Commonalities in development thinking
1. Inspired by Keynesian economics
2. Focus on unemployment and state intervention, developing country’s
economies were institutionally and structurally different to those
Keynes theory was developed for, mainly HIC.
3. Focus on unemployment, but developing country’s economies were
institutionally and structurally different to the HIC countries Keynes theory
was developed for.
Main difference between of LIC and MICs:
1. Surplus labour in rural areas vs unemployment in urban informal
sectors
2. In HIC productive structures were in place, but market failures caused
unemployment
3. Developing countries had no productive structures in place and also
suffered from
different market failures including
4. Macro economic approach, Concerned with aggregate variables (
savings, investments) and impact on GDP growth. Concerned with
factors that drive aggregate demand.
Interested in the role of the state in development planning and
industrialisation or as an agency for development
Economic Development 2
, State planning seen as necessary on at the initial phases of
development to
complement the market mechanism
Advocated for interventions to remedy the market failures or structural
economic defects found in LIC/LMICs such as missing information,
discontinuities, high risk, rigidities (low supply elasticities), bottlenecks
(lack
of social and physical infrastructure) and externalities
5. Also known as structuralist:
Centrality of industrialisation
Benefits to the theory of industrialisation
Positive externalities, entering the production process embodies
technological change
Pecuniary externalities reflected in the reduction of production costs
due to
economies of scale and lowering costs for other industries
Increase in exports as a result of decrease in the cost of production. •
Skills formation and transfer, Cumulative improvements in technology,
diversification of the economy, reduced transaction costs, increased
r&D
and enhanced innovation..
All would lead to improved living standards with higher labour
productivity
and falling prices and more employment opportunities for the poor •
Increases in FDI
Theory of the state not developed
Theory of the state not developed
The theory of the state not developed refers to the absence or limited
understanding of the role and functions of the state in the context of
economic development. It suggests that there is a lack of comprehensive
theories or frameworks that specifically address the role of the state in
Economic Development 3
, promoting and facilitating economic growth, industrialization, and
development planning. This gap in theory may result in a limited
understanding of how the state can effectively intervene and address
market failures, structural economic defects, and other barriers to
development in low-income and middle-income countries.
Thinkers and theorists
Rosenstein-Rodan
Rosenstein-Rodan, born in 1902 in Poland, was an influential economist
known for his contributions to the field of development economics. He
worked extensively on the theory of economic development and
industrialization.
Rosenstein-Rodan's most famous work is the concept of the "Big Push"
theory. According to this theory, developing countries face a coordination
problem, where individual investments in infrastructure and
industrialization may not be profitable unless a sufficient number of
investments are made simultaneously. He argued that a coordinated and
simultaneous effort in multiple sectors could lead to a self-sustaining
process of economic growth.
His ideas were influential in shaping thinking about development planning
and the role of the state in promoting industrialization. Rosenstein-Rodan
emphasized the importance of state intervention and planning to overcome
market failures and promote economic development in low-income and
middle-income countries.
Rosenstein-Rodan's work continues to be studied and debated in the field
of development economics, and his ideas have had a lasting impact on the
understanding of economic development and industrialization processes in
developing countries.
Economic Development 4
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