Economic development

• Development?


  A multi-dimensional process that involves significant qualitative and quantitative improvements overtime in human welfare including expanding choices to give peoples lives value and meaning.
• Tradtional vs new view?

  Traditionally- economic growth, structural change, improvement in social indicators

  New- reduction or elimination of poverty, inequality and unemployment within a growing economy
• Key development objectives?


  Sustenance- ability to meet basic needs, above international poverty line

  Self-esteem- raising standards of living, self worth, dignity

  Freedom from servitude- political and relgious freedoms
• Millenium development goals?


  Now the sustainable development goals which began in the 1990s.

  Includes ending of poverty, education, gender equality, protecting ecosystems
• Diverse nature of developing economies?

  Size (population, income, area)- climate, control problems, resource endownment

  Historical background- former colonial powers

  Physical and human resource endownments- landlocked, cliamte conditions, mountains or desert

  Ethnic and religious composition- conflict

  Importance of public and private sector

  Industiral structure

  External dependence

  Political structure and interest groups
• Sectoral balance?


  shows the proportion of employment and output in each industrial sector changes as an economy develops

  Primary sector- extractive

  Secondary sector- manufacturing and construction

  Teritary sector- services such as financial services
• Changes in sectoral balance?

  Primary dominace- small surplus in food creates leisure time, tech advancement creates demand for agricultural machinery allowing further surpluds and income from trade. Aspirations increase and the demand for consumer goods grow, increasing the growth of the secondary sector.

  Secondary dominance- tech progress release rural workforce, comparative advantage becomes secondary as the products can be traded for higher values. Higher living standards allow for demand for services and tertiary grows
• Features of economy developing?

  Primary sector is in contintual relative decline, share of tertiary sector continutally ruses

  Manufacturing initially rises then declines

  The rise in dominance of each sector is supported by its preceding sector
• Causes of sectoral change?

  Changes in income levels- more spent on secondary and tertiary products than primary

  Demographic change

  Education

  Applying new tchnology

  Government action
• Problems of sectoral change?

  Factor immobility

  Structural unemployment

  Rural to urban migration- falling productivity from unemployment, overcrowding

  Neglect of agriculture
• Classify LEDCs?

  Low income- GNI less than $1145

  Lower-middle income- GNI less than $4515

  Upper-middle income- GNI less than $14005

  Higher income- greater than $14005

  Used to eradicate poverty, aid, common problems and policy
• common characteristics of developing nations?

  Low levels of living, low levels of factor productivity, high rates of population growth and dependency burdens, high levels of underemployment/ informal economy, dependence upon agriculture and primary exports, imperfect markets/ limited information, vulnerable in international relations
• Measurements of development?


  Living standards- clean water, calorie intake

  Growth

  Health

  education

  poverty

  Development diamonds- composite measure portraying relationships among four socioeconomic indacators

  HDI
• Development diamonds?


  Uses life expectancy, gross primary school (or secondary) enrolement, access to safe water, GNP per capita

  A polygon is formwed with the size and shape portraying development.

  another country is overlapped and any point outside the referenced diamond shows a value better than average
• HDI?


  Includes health, education and standards of living

  0 represents the worst while 1 represents the best

  Measures relative not absolute development

  Can be disaggregated to show difference social classes, or regions etc

  Highest is Switzrland with 0.967

  Lowest is Somalia with 0.380
• Benefits of national income statistics?

  Money value to real values- using the GDP/GNP deflator

  Per capita measures

  Cost of living differences
• Issues measuring economic welfare?

  Composition of output- military expenditure

  Distribution of income

  Issue of accuracy

  Problems of ommission- informal economy, non-marketted (subsistence farming)

  Other qualitative factors eg political freedoms, leisure, social environment
• Obstacles to development?


  The resource curse- the Dutch disease, volatile commodity prices, enclave effects, neglect of human resources, political effects

  Low levels of health, life expectancy and education

  Poor infrastructure

  Low levels of technology and capital

  MEDC protectionsm policies

  Poor governance

  Public sector debt

  Rapid population growth
• Resource curve?


  the abundance of natural resources tends to cause less economic growth, less democracy, lower development outcomes

  The dutch disease- high export demand causes currency appreciation making industries less competitive

  Volatile commodity prices- difficult for government planning

  Enclave effects- temporary high profits reduce diversification and over reliance, prevents sectoral change

  Neglect of human resources

  Political effects- collusion, lower democracy
• MEDC protectionsim trade policies?

  Impose tariffs, quotas and other protectionisms either individually or in trading blocks. Difficult for LEDCs to industralise.

  MEDCs are losing their comparative advantage in manufacturing so are using protectionism to maintain low costs
• poor governance?


  Failure to protect property rights

  Forced labour, discrimination

  Power elites controlling an economy

  Stateless areas

  Public goods- lacking education, healthcare, transport
• World Happiness Report?


  A poll asks people to rank between 0-10 (10 being the best) on their view of their lives based on questions focussed on their own freedom, health and other factors which they view as important for affecting their life quality. This differs from national income measures as the questions are not based on weaith. More qualitative as specific standards aren't needed to be classed as a particular ranking
• Savings gap?


  Occurs in lower income countries, where high levels of extreme poverty make it difficult to generate sufficent savings to provide funds needed for investment projects. This increases reliance on aid or borrowing from overseas
• Public sector debt?


  Opportunity cost of spending on education, clean water and healthcare

  Slower growth- negative mulitplier effect due to money leaving circular flow of income

  Capital flight- large scale withdrawal of investment funds to a less risky economy.
• Rapid population growth?


  Decling GDP per capita

  High dependency burdens

  Increases poverty and inequality

  Restricts education

  Negative impact on health

  Environmental degradation

  Continuous cycle which worsens overtime