ECONOMIC DEVELOPMENT AND GROWTH

ECON 317

ACADEMIC YEAR 2015/16

FIRST SEMESTER

Instructor: Dr. Emmanuel A. CODJOE

INTRODUCTION AND OVERVIEW

A quick tour of the course outline

Other house-keeping issues

What is to be expected? And what not to expect?

INTRODUCTION AND OVERVIEW

Why a course in development economics or is it rather economic development?

The nature of development of economics

The general problem of development in the developing world

INTRODUCTION AND OVERVIEWHow the Other Half Live

The Haves and Have-Nots!

The challenge of poverty and what to do about it! Majority of the world’s population live in poverty, with a significant proportion living in Absolute Poverty.

Absolute poverty refers to the situation of being unable to meet the minimum levels of income, food, clothing, healthcare, shelter, and other essentials

INTRODUCTION AND OVERVIEW

A world of two halves – rich and poor

What is poverty like? In their own words:

When one is poor, she has no say in public, she feels inferior. She has no food, so there is famine in her house; no clothing, and no progress in her family.

—A poor woman from Uganda

For a poor person everything is terrible—illness, humiliation, shame. We are cripples; we are afraid of everything; we depend on everyone. No one needs us. We are like garbage that everyone wants to get rid of.

—A blind woman from Tiraspol, Moldova

Life in the area is so precarious that the youth and every able person have to migrate to the towns or join the army at the war front in order to escape the hazards of hunger escalating over here.

—Participant in a discussion group in rural Ethiopia

INTRODUCTION AND OVERVIEW

POVERTY AND ITS MANY DIMENSIONS

INCOME, BUT NOT JUST ABOUT INCOME

FOOD AND SHELTER

HEALTH AND EDUCATION

RIGHTS AND PARTICIPATION

FREEDOM AND EMPOWERMENT

A World of Two Halves

A World of Two Halves

INTRODUCTION AND OVERVIEWFIG. 1: WORLD INCOME DISTRIBUTION

INTRODUCTION AND OVERVIEWProgress on World Poverty (World

Bank , 2015)According to the most recent estimates,

in 2011, 17 percent of people in the developing world lived at or below $1.25 a day. That’s down from 43 percent in 1990 and 52 percent in 1981.

This means that, in 2011, just over one billion people lived on less than $1.25 a day, compared with 1.91 billion in 1990, and 1.93 billion in 1981.

INTRODUCTION AND OVERVIEWProgress on World Poverty (World

Bank, 2015)Nevertheless, progress has been slower at

higher poverty lines.

In all, 2.2 billion people lived on less than US $2 a day in 2011, the average poverty line in developing countries and another common measurement of deep deprivation.

That is only a slight decline from 2.59 billion in 1981.

INTRODUCTION AND OVERVIEWProgress on Poverty by Regions (World

Bank, 2015)Despite the picture painted earlier - where

poverty rates have declined in all regions - progress has been uneven.

East Asia saw the most dramatic reduction in extreme poverty, from 78 percent in 1981 to 8 percent in 2011.

In South Asia, the share of the population living in extreme poverty is now the lowest since 1981, dropping from 61 percent in 1981 to 25 percent in 2011.

Sub-Saharan Africa reduced its extreme poverty rate from 53 percent in 1981 to 47 percent in 2011.

INTRODUCTION AND OVERVIEWProgress on Poverty by Regions

(World Bank, 2015)China alone accounted for most of the

decline in extreme poverty over the past three decades. Between 1981 and 2011, 753 million people moved above the $1.25-a-day threshold.

During the same time, the developing world as a whole saw a reduction in poverty of 942 million. 

INTRODUCTION AND OVERVIEWProgress on Poverty by Regions

(World Bank, 2015)In 2011, just over 80 percent of the

extremely poor lived in South Asia (399 million) and Sub-Saharan Africa (415 million).

In addition, 161 million lived in East Asia and Pacific.

Fewer than 50 million of the extremely poor lived in Latin America and the Caribbean, Middle East and North Africa, and Eastern Europe and Central Asia combined.

INTRODUCTION AND OVERVIEW

Regional Indicators for Sub-Saharan Africa

GNI per capita (current US$) $1,559 (2012)   $1,624 (2013)

GDP growth (annual %) 4.3% (2012) 4.2% (2013)

Population, total (millions) 506.9 (1990)   936.1 (2013)

Poverty headcount ratio at $1.25 a day (PPP) (% of population)

56.5% (1990)   48.5% (2010)

INTRODUCTION AND OVERVIEWEconomics and Development Studies

The study of economic development is one of the newest, most exciting, and most challenging branches of the broader disciplines of economics and political economy.

It is concerned with the systematic study of the problems of the developing world – Africa, Asia, Latin America and the Caribbean, and the Pacific region.

Traditional economics is concerned primarily with the efficient, least-cost allocation of scarce productive resources and with the optimal growth of these resources over time so as to produce an ever-expanding range of goods and services.

INTRODUCTION AND OVERVIEWEconomics and Development Studies

Political economy goes beyond traditional economics to study, among other things, the social and institutional processes through which certain groups of economic and political elites influence the allocation of scarce productive resources now and in the future, either for their own benefit exclusively or for that of the larger population as well.

It is therefore concerned with the relationship between politics and economics, with a special emphasis on the role of power in economic decision making.

INTRODUCTION AND OVERVIEWEconomics and Development StudiesBut Development Economics has a much

greater scope. In addition 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, necessary to bring about rapid (at least by historical standards) and large-scale improvements in levels of living for the peoples of Africa, Asia, Latin America, and the formerly socialist transition economies – Eastern European countries.

INTRODUCTION AND OVERVIEWEconomics and Development Studies

But developing countries are a non-homogeneous group. Here are a few characteristics of developing countries:

Non-homogeneous group of countries faced with complex social, political and economic problems

Most commodity and resource markets are highly imperfect

Consumers and producers have limited information

Existence of multiple equilibria, rather than single equilibrium

Disequilibrium situations also prevail (that is, prices do not always equate demand and supply)

Prevalence of social, cultural and political norms and attitudes

INTRODUCTION AND OVERVIEWEconomics and Development

StudiesBecause of the heterogeneity of the

developing world and the complexity of the development process, development economics must be eclectic, attempting to combine relevant concepts and theories from traditional economic analysis with new models and broader multidisciplinary approaches derived from studying the historical and contemporary development experience of Africa, Asia, and Latin America.

INTRODUCTION AND OVERVIEWEconomics and Development Studies

The Important Role of Values:

Because of the nature of the discipline of economics – concerned with human beings and the social systems by which they organize their activities to satisfy basic material needs (e.g., food, shelter, clothing) and nonmaterial wants (e.g., education, knowledge, spiritual fulfillment).

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

INTRODUCTION AND OVERVIEWEconomies as Social Systems: Going

Beyond Simple Economics

We have seen earlier, the need for economics to embrace a broader perspective on development.

This raises the need for development issues to be analyzed within the context of the overall social system of a country and, indeed, within an international, global context as well.

By “social system,” we mean the interdependent relationships between economic and noneconomic factors.

INTRODUCTION AND OVERVIEWEconomies as Social Systems: Going

Beyond Simple EconomicsSocial Systems include:

Attitudes toward life, work, and authority; Public and private bureaucratic, legal, and

administrative structures;Patterns of kinship and religion; Cultural traditions; Systems of land tenure; The authority and integrity of government agencies; The degree of popular participation in development

decisions and activities; andThe flexibility or rigidity of economic and social

classes

INTRODUCTION AND OVERVIEWEconomies as Social Systems: Going

Beyond Simple EconomicsMoreover we need to expand the context

outside that of the country, to include the international/regional context:

Thus, at the international level, we must also consider the organization and rules of conduct of the global economy—how they were formulated, who controls them, and who benefits most from them.

This is especially true today with the spread of market economies and the rapid globalization of trade, finance, corporate boundaries, technology, intellectual property, and labour migration.

INTRODUCTION AND OVERVIEWWhat do We Mean by Development?

This term can mean different things to different people. However, having an acceptable measure allows for a proper measurement of progress (or otherwise).

In strictly economic terms, 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.

Economic development in the past has also been typically seen in terms of the planned alteration of the structure of production and employment so that agriculture’s share of both declines and that of the manufacturing and service industries increases.

INTRODUCTION AND OVERVIEWWhat do We Mean by Development?

Going beyond the narrow definition of development.

The experience of many developing countries in the 1950s, 1960s and 1970s suggested that whilst GDP growth could be attained, poverty, inequality, unemployment and discrimination.

Development must therefore 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.

INTRODUCTION AND OVERVIEWWhat do We Mean by

Development?Sen’s Capabilities Approach.

Nobel Laureate Amartya Sen argued that “economic growth cannot be sensibly treated as an end in itself. Development has to be more concerned with enhancing the lives we lead and the freedoms we enjoy”.

He used the concept of capabilities, which is largely defined as the freedoms that people have, given their personal features and their command over commodities.

INTRODUCTION AND OVERVIEWWhat do We Mean by Development?Sen’s Capabilities Approach.

Amartya Sen himself defines capabilities as “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.”

Functionings, refers to what a person does (or can do) with the commodities of given characteristics that they come to possess or control.

INTRODUCTION AND OVERVIEWSome Key Capabilities

Some Important “Beings” and “Doings” in Capability to Function:

◦Being able to live long◦Being well-nourished◦Being healthy◦Being literate◦Being well-clothed◦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 functioning

INTRODUCTION AND OVERVIEWMillennium Development Goals (MDGs)

◦Eight goals adopted by the United Nations in 2000 to be achieved by 2015.

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 Develop a global partnership for development

INTRODUCTION AND OVERVIEWSustainable Development Goals (SDGs)

The Sustainable Development Goals (SDGs) are a proposed set of targets relating to future international development. They are to replace the MDGs once they

expire at the end of 2015. 17 goals have been proposed:

End poverty in all its forms everywhereEnd hunger, achieve food security and improved nutrition

and promote sustainable agricultureEnsure healthy lives and promote well-being for all at all

agesEnsure inclusive and equitable quality education and

promote lifelong learning opportunities for allAchieve gender equality and empower all women and girlsEnsure availability and sustainable management of water

and sanitation for all

INTRODUCTION AND OVERVIEWSustainable Development Goals (SDGs)

Ensure access to affordable, reliable, sustainable and modern energy for all

Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all

Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation

Reduce inequality within and among countriesMake cities and human settlements inclusive, safe,

resilient and sustainableEnsure sustainable consumption and production

patternsTake urgent action to combat climate change and its

impacts

INTRODUCTION AND OVERVIEWSustainable Development Goals (SDGs)

Conserve and sustainably use the oceans, seas and marine resources for sustainable development

Protect, restore and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss

Promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable and inclusive institutions at all levels

Strengthen the means of implementation and revitalize the global partnership for sustainable development