Summary Book Economic Development
Chapter 1 Introducing Economic Development: A Global
Perspective
1.1 How the Other Half Live
Others—and these constitute a majority of the earth’s more than 7 billion people—
are much less fortunate. They may have inadequate food and shelter, especially if
they are among the poorest third. Their health is often poor, they may not know
how to read or write, they may be unemployed, and their prospects for a better life
are uncertain at best.
Absolute poverty: a situation of being unable to meet the minimum levels of
income, food, clothing, health care, shelter and other essentials.
The people in small African villages may have little money income as they have a
subsistence economy: production is mainly for personal consumption and the
standard of living yields little more than basic necessities of life (food, shelter,
clothing) The families here may only know about the situation in their village but
when more information about the world outside is given the possibilities of a better
life will be promoted. The development process has set into motion: improving
the quality of all human lives and capabilities by raising people’s levels of living,
self-esteem and freedom.
It is clear that what people living in poverty need and want extend beyond
increased income to health, education, and—especially for women—empowerment.
1.2 Economic and Development Studies
Traditional Economics: An approach to economics that emphasizes utility,
profit maximization, market efciency, and determination of equilibrium.
Political Economy: 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.
It is necessary to recognize from the outset that ethical or
normative value premises about what is or is not desirable are
central features of the economic discipline in general and of
development economics in particular. Economics and economic
systems must be analysed within the context of the overall
social system of a country. By “social system,” we mean the
interdependent relationships between economic and
noneconomic factors and the organizational and institutional
structure of a society (values, attitudes, power structure,
traditions).
1.3 What Do We Mean by Development?
Development has traditionally meant achieving sustained rates of growth of
income per capita to enable a nation to expand its output at a rate faster than the
growth rate of its population. Levels and rates of growth of “real” per capita gross
national income (GNI) (monetary growth of GNI per capita minus the rate of
inflation) or GDP are then used to measure the overall economic well-being of a
population.
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,The new economic view of development sees development 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.
Amartya Sen’s Capability Approach
- The “capability to function” is what really matters for status as a poor or non-
poor person. The expansion of commodity productions...are valued,
ultimately, not for their own sake, but as means to human welfare and
freedom.”
- What matters for well-being is not the characteristic of commodities
consumes but what use the consumer can and does make of commodities.
- Functionings are what people do or can do with the commodities of given
characteristics that they come to possess or control.
o Functionings that people have reason to value can range from being
healthy, being well-nourished, and well-clothed, to being mobile,
having self-esteem, and “taking part in the life of the community.
Sen identifies five sources of disparity between (measured) real incomes and actual
advantages:
1. Personal heterogeneities: those connected with disability, illness, age, or
gender
2. Environmental diversities: heating and clothing requirements in the cold or
infectious diseases in the tropics, or the impact of pollution
3. Variations in social climate: the prevalence of crime and violence, and “social
capital”;
4. Distribution within the family: family—economic statistics measure incomes
received in a family because it is the basic unit of shared consumption.
5. Differences in relational perspectives: some goods are essential because of
local customs and conventions
Looking at real income levels or even the levels of consumption of specific
commodities cannot sufce as a measure of well-being;
- A lot of commodities of little value
- Income but essential commodities unavailable
- Frame consumption in personal and social context
o “Social conventions in force in the society in which the person lives
o The position of the person in the family and in the society,
o The presence or absence of festivities such as marriages, festivals or
funerals
o The physical distance from the homes of friends and relatives
A functioning is thus diferent both from (1) having goods (and the corresponding
characteristics), to which it is posterior, and (2) having utility (in the form of
happiness resulting from that functioning), to which it is, in an important way, prior.
Capabilities are: “the freedom that a person has in terms of the choice of
functionings, given his personal features (conversion of characteristics into
functionings) and his command over commodities.
For Sen, human “well-being” means being well, in the basic sense of being healthy,
well nourished, well clothed, literate, and long-lived, and more broadly, being able
to take part in the life of the community, being mobile, and having freedom of
choice in what one can become and can do.
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,Development and Happiness
Clearly, happiness is part of human well-being, and greater happiness may in itself
expand an individual’s capability to function. The average level of happiness or
satisfaction increases with a country’s average income. Seven factors that surveys
show afect average national happiness:
- Family relationships
- Financial situation
- Work
- Community and friends
- Health
- Personal freedom
- Personal values
The Three Core Values of Development
- Sustenance: The Ability to meet basic needs: Goods and services such
as food, clothing and shelter for bare minimum level of living. Rising per
capita incomes, the elimination of absolute poverty, greater employment
opportunities, and lessening income inequalities therefore constitute the
necessary but not the sufcient conditions for development.
- Self-Esteem: To be a Person: 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. Development is legitimized as a goal because it is an
important, perhaps even an indispensable, way of gaining esteem.
- Freedom from Servitude: To be able to Choose: Freedom is 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. The concept of human freedom also encompasses various
components of political freedom, including personal security, the rule of law,
freedom of expression, political participation, and equality of opportunity.
The Central Role of Women
As women are among the poorest, less educated and less healthy but do spend
most of their money on their children and education and health of the children,
societies should empower women.
The Three 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 human
values, all of which will serve not only to enhance material wellbeing 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
Chapter 2 Comparative Economic
Development
2.1 Defining the Developing World
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, The world bank uses the gross national income of a country to determine of they
are low-income countries (GNI less than $1,025), middle-income (GNI between
$1,025-$12,475) and high-income countries (GNI above $12,475).
Newly industrializing countries (NICs) are 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.
2.2 Basic Indicators of Development: Real income, Health, Education
GNI is often used as a summary index of relative economic well-being of people in
diferent nations.
- GNI is the total domestic and foreign output/value added 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.
- GDP measures the total value for final use of output produced by an
economy, by both residents and non-residents.
- Thus, GNI comprises GDP plus the diference between the income residents
receive from abroad for factor services (labour and capital) less payments
made to non-residents who contribute to the domestic economy.
GNI comparisons between developing and developed countries are exaggareted by
the use of ofcial foreign-exchange rates to convert national currency figures into
US dollars. This conversion does not measure the relative domestic purchasing
power of diferent currencies. Therefore, purchasing power parity is used to
compare relative GNIs and GDPs.
- PPP is calculated using a common set of international prices for all goods
and services. It is the number of units of a foreign country’s currency
required to purchase the identical quantity of goods and services in the local
developing country market as $1 would buy in the US.
- Generally, prices of nontraded services are much lower in developing
countries because wages are so much lower. Clearly, if domestic prices are
lower, PPP measures of GNI per capita will be higher than estimates using
foreign exchange rates as the conversion factor.
Besides average incomes, average health and educational attainments need to be
reflected as core capabilities.
2.3 Holistic Measures of Living Levels and Capabilities
The Human Development Index (HDI) An index measuring national
socioeconomic development, based on combining measures of education, health,
and adjusted real income per capita. It ranks each country on a scale of 0 to 1
based on:
- A long and healthy life: measured by life expectancy at birth
- Knowledge: measured by a combination of average schooling attained by
adults and expected years of schooling for school-age children.
- Decent standard of living: measured by per capita GDP adjusted for PPP. This
to reflect cost of living and for the assumption of diminishing marginal utility
of income.
Each dimension index is calculated as a ratio that basically is given by the percent
of the distance above the minimum to the maximum levels that a country has
attained.
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