EconomicDevelopment

5th Edition

Peter Cramp

© Anforme Ltd 2010ISBN 978-1-905504-47-3

Anforme Ltd, Stocksfield Hall, Stocksfield, Northumberland NE43 7TN.Typeset by George Wishart & Associates, Whitley Bay.

Printed by Potts, Cramlington.

Thanks

Special thanks are due to my father, Dr A.B. Cramp, for reviewing the first draft of the

first edition of this book and making numerous helpful suggestions.

My grateful thanks also to Professor David Elliott of the Energy Research Unit at the

Open University, for pointing out an error in the previous edition.

To Annie, Joseph, Harry and Lucy

Using this book

This book includes a number of shaded boxes. The yellow shaded boxes ( ) contain

case studies or features on areas of interest related to the text. The green shaded boxes

( ) are themed boxes covering a number of different constraints on development.

Section A: An introduction to economic development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Unit 1: Introducing development and the Millennium Development Goals . . . . . . . . . . . . . . . . . . . 1

Unit 2: The classification and measurement of development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Unit 3: Similarities and differences between developing countries . . . . . . . . . . . . . . . . . . . . . . . . . 12

Unit 4: The relevance of history and geography to development . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Section B: Development – theories and strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Unit 5: The economics of growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Unit 6: Economic structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Unit 7: The Rostow and Lewis Models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Unit 8: Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Unit 9: Industrialisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Unit 10: Tourism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Unit 11: The role of markets in development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Unit 12: Relations between developed and developing nations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Section C: Population and the environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

Unit 13: Population growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

Unit 14: Migration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

Unit 15: Sustainable development and the environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

Unit 16: Disease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

Section D: International trade and finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

Unit 17: Trade and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

Unit 18: Balance of payments disequilibria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

Unit 19: Debt relief and foreign aid problem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

Unit 20: Multinational companies and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86

Unit 21: Development and international economic institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

Appendix: Differential development amongst developed nations

Appendix: (with specific reference to the EU and the UK) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

Contents

iii

Section A

An introduction to economic development

1

Unit 1: Introducing development and the Millennium Development Goals

Development and poverty

Levels of economic prosperity differ widely across the world, both within nations and between nations. In

economies which we consider to be ‘developed’, the vast majority of people have access to the resources

required to satisfy basic human material needs. In other words, few live in absolute poverty. However, wide

variations in the distributions of income and wealth might lead us to conclude that many people in such

countries live in relative poverty. Absolute poverty is a problem which affects large sections of the earth’s

population. Using a poverty line of $1.25 a day, Figure 1.1 suggests absolute poverty to be falling globally.

A major reason for this is the growth and development of the Chinese economy.

Figure 1.1: Number of people living on less than $1.25 a day

Source: World Bank Global Monitoring Report 2010

The study of the causes of absolute poverty, and potential solutions to this problem, is central to develop -

ment economics. More generally, the subject is concerned with raising living standards. The economist

Michael Todaro has identified three objectives of development:

1. To increase the availability and widen the distribution of basic life-sustaining goods

Former World Bank President Robert McNamara described absolute poverty as ‘a condition of life so

degraded by disease, illiteracy, malnutrition, and squalor as to deny its victims basic human necessities...

life at the very margin of physical existence’. In doing so, he draws on the fact that human beings have a

number of basic physical needs. Without food, drink, warmth, shelter, clothing and good health, life is

threatened. Consequently, widespread provision of goods such as basic foodstuffs, clean water, housing,

clothing and health care should perhaps be the primary objective of development. To this list we might add

less obvious goods and services such as education, because survival can be threatened by lack of

understanding of basic needs. Todaro’s second and third objectives deal with enhancing the quality of life;

guaranteeing continued survival is clearly a pre-condition for this to be possible.

2. To raise levels of living

Development strategies also seek to expand consumption possibilities beyond the level needed to

guarantee survival. In other words, they attempt to raise income levels above the poverty line so that (i)

More consumption is possible; (ii) Better quality goods and services become available. For example, clean

water supplied to individual residences rather than a central pump for the community; (iii) A wider range

1981 1984 1987 1990 1993 1996 1999 2002 2005

Pop

ulat

ion,

bill

ions

2.0

0

1.8

1.6

1.4

1.2

1.0

0.8

0.6

0.4

0.2

Sub-Saharan AfricaSouth Asia (excluding India)East Asia and Pacific (excluding China)IndiaChinaOther regions

of goods and services are accessible. These might include luxuries such as consumer durables (electrical

goods, for example) and services such as entertainment.

Rising levels of income are not the only aspect of improved living standards. Todaro stresses that non-material

factors are also important. Among these factors he identifies self-esteem, a person’s sense of his own worth

as a human being. Self-esteem is likely to be promoted by policies that widen the provision of basic necessities

because such policies reflect a belief in the value of human life. However, policies which seek to impose

the values and cultures of the developed world might cause anxiety and lack of self-esteem in developing

countries. This is because an individual’s self-esteem is likely to be rooted in the values of his own culture.

It would therefore be questionable whether progress had been made if incomes rose at the expense of the

destruction of shared values which hold a community together and give individuals a sense of belonging.

3. To expand the range of economic and social choices

This objective links in closely with the previous one. Without freedom to choose, living standards are likely

to be low. A further concern of development is thus creating the conditions under which societies are free

to choose their own economic and cultural direction. It is also about economic freedoms at the individual

level including choices about the goods and services one consumes and the place in which one works.

Individual political rights such as freedom of speech and worship are also important.

The Millennium Development Goals

At a summit organised by the United Nations (UN) in the year 2000, 189 world leaders promised to end

poverty by 2015 when they agreed to meet the Millennium Development Goals (MDGs).

The Millennium Development Goals have since this time provided the major focus for efforts to reduce

absolute poverty and are supported by the key international institutions involved in encouraging

development, namely the World Bank, the International Monetary Fund (IMF), the Organisation for

Economic Cooperation and Development (OECD) and the UN itself.

The Millennium Development Goals

1. Eradicate poverty and hunger. Halve, between 1990 and 2015, the proportion of people

whose income is less than $1.25 a day.

2. Achieve universal primary education. Ensure that, by 2015, children everywhere, boys and

girls alike, will be able to complete a course of primary schooling.

3. Promote gender equality and empower women. Eliminate gender disparity in primary and

secondary education, preferably by 2005, and in all levels of education no later than 2015.

4. Reduce child mortality. Reduce by two-thirds, between 1990 and 2015, the under 5 mortality

rate.

5. Improve maternal health. Reduce by three-quarters, between 1990 and 2015, the maternal

mortality ratio.

6. Combat HIV/AIDS, malaria and other diseases. Have halted by 2015, and begun to reverse,

the spread of HIV/AIDS and incidence of malaria and other diseases.

7. Ensure environmental sustainability. Halve, by 2015, the proportion of people without

sustainable access to safe drinking water.

8. Build a global partnership for development. All international economies work toward

achieving the Millennium Development Goals through increased development assistance, debt

reduction, reduced barriers to trade, and special efforts to address the needs of poorest countries.

Economic Development

2

It is immediately clear that meeting the Millennium Development Goals would help to satisfy Todaro’s three

objectives of development.

Progress towards the Millennium Development Goals

The focus provided by the MDGs has helped to bring about some remarkable development achievements

over the past few years. Examples of achievements include:

� The poverty reduction target is likely to be met by 2015. Around 920 million fewer people will be below

the international poverty line than in 1990.

� Improvements in the control of malaria and HIV have contributed to cutting child deaths from

12.5 million in 1990 to 8.8 million in 2008.

� The enrolment ratio in primary education in developing regions rose from 82% in 1998/99 to 89% in

2007/08.

� The percentage of people with access to safe drinking water in developing regions rose from 71% in

1990 to 84% in 2008.

Despite these successes, the UN’s Millennium Development Goals Report of 2010 suggested that a number

of the goals would not be met by 2015 without agreement of new strategies to accelerate progress. It is

particularly useful to note that:

� Even where impressive progress has been made, such as in the control of disease and in enrolment rates

for universal primary education, the relevant target may not be met.

� Some goals, perhaps notably that of gender equality, are proving very difficult indeed to achieve.

� Progress varies from one developing region to another.

� The global financial and economic crisis that began in 2007 has made it more difficult to reach the

MDGs. Ways in which this has occurred include (i) greater difficulty for developing countries in finding

export markets and (ii) reduced aid budgets from governments in developed countries.

Economic Development

3

One of the Millenium Development Goals is to eradicate poverty and hunger.

Figure 1.2 shows progress towards the Millennium Development Goals made by 2010 and highlights the

extent to which progress on some goals was insufficient to allow the relevant target to be met by 2015.

Figure 1.2: Serious shortfalls loom for the Millennium Development Goals

Source: World Bank, Global Monitoring Report 2010

A case study of the mixed progress suggested above is provided by the example of malnutrition. The

percentage of undernourished people in developing regions fell sharply between 1990 and 2002, but little

further progress was made from this time until 2007 (see Figure 1.3). In fact, the number of undernourished

people rose (due to rising populations) despite the fact that the percentage remained unchanged. UN

estimates made in 2010 suggested that the number of undernourished people in 2009 might have risen to

as many as 1 billion due to high food prices combined with the impact of the global economic crisis.

Figure 1.3: Malnutrition in developing regions

Source: United Nations Millennium Development Goals Report 2010

Economic Development

4

MDG 1.aExtremePoverty

100

80

60

40

20

0

Distance to goal to be on track to achieve the target by 2015Distance to goal achieved

%

MDG 1.cHunger

MDG 2Primary

CompletionRate

MDG 3GenderParity

(Primary)

MDG 3GenderParity

(Secondary)

MDG 4Child

Mortalityunder five

MDG 5MaternalMortality

MDG 7.cAccess toSafe Water

MDG7.cAccess toSanitation

1990-1992

1500

1200

900

600

300

0

Number of undernourished peoplePercentage of undernourished people

Mill

ions

Per

cent

age

25

20

15

10

0

5

1995-1997

2000-2002

2005-2007

817 797 805 830

Unit 2: The classification and measurement of development

Classification of development

A number of different terms are used in classifying the economies of the world. Perhaps the simplest

system of classification is to divide the world into three categories. A small group of rich, industrialised

countries are known as developed or First World countries. These are contrasted with a large group of

poorer countries known as developing or Third World countries.

Figure 2.1: The classification of development

Source: United Nations Millennium Development Goals Report 2010

The other category consists of former economies of the Soviet Union (USSR), which have grouped together

to form the Commonwealth of Independent States (CIS). They are known as transitional economies because

they are in the process of changing from a planned to a free-market economic system. They are occasionally

termed Second World countries.

From a geographical perspective, most developed countries lie in the western side of the northern

hemisphere. The exceptions to this rule are Australia, New Zealand and Japan. The vast majority of the

southern hemisphere countries are developing nations. It is clear, therefore, that something of a divide

exists between northern and southern countries of the world.

The economies comprising the developed world are broadly similar to one another. Stark contrasts, on the

other hand, exist amongst developing nations. For this reason, Third World countries are often divided into

low income and middle income countries. Some of the middle income countries are termed emerging

economies because of their fast growth. If they have already developed a western style economy they are

known as newly industrialised countries. A number of East Asian economies fall into this category. Following

industrialisation, countries such as Singapore, Malaysia, Hong Kong and South Korea have achieved rapid

economic growth.

5

Developed regions

Countries of the Commonwealthof Independent States (CIS)

Northern Africa

Sub-Saharan Africa

South Eastern Asia

Oceania

Eastern Asia

Southern Asia

Western Asia

Latin America & the Caribbean

DevelopingRegions

TransitionalEconomies