Economic Development

What is meant by economic development?

According to Amartya Sen, a development economist, the nature of the concept of development is very subjective and has a wide range of possible explanations.

In Amartya’s view development Is about increasing people’s freedoms, reducing poverty so that people can be adequately fed and sheltered. It is about the public provision of education, health care, and the maintenance of law and order, the guarantee of civil liberties and the opportunity for civic participation

Sources of Economic Growth

1- Natural factors:Anything that increases the quality and quantity of a factor of production should lead to an increase in potential growth. However increasing land for example is quite difficult, although Singapore and Holland have done so by means of land reclamation. This will only have a very small effect upon total land area and thus productive capability, unless the land is very small to start off with, as is the case with Singapore

Using landfill methods Singapore increased its land area from 58.1 square km in 1965, when it gained independence, to 697.2 square km at the present time ( an increase of almost 20%). In comparison to Malaysia, if it was to gain the same increase through landfill, 115.7 square km to add to its existing 329847 square km, it would represent an increase of just 0.03% of land area

Thus countries will generally aim to improve the quality of their natural factors rather than quantity. The quality of land may be improved by using fertilizers, better planning of land usage and improved agricultural methods.

2- Human Capital The quantity of human capital can be increased either by

encouraging population growth or by increasing immigration levels. However, developing countries would not be keen on increasing population size and even if they were, the process is very long term

Thus most emphasis is put on improving the quality of the human capital. This can be done by improving heath care, education for children, vocational training, and re-training for the unemployed. In addition to the provision of fresh water and sanitation can very much improve the heath and thus quality of human capital

3- Physical capital and technology

Economic growth can be achieved by improving the quality and quantity of physical capital. This includes factory buildings, machinery, shops, offices and motor vehicles. The quantity of physical capital is affected by the level of saving, domestic investment, government involvement and foreign investment. The quality of physical capital is improved by higher education, research and development, as well as access to foreign technology and expertise.

Two concepts are:

Capital widening: extra capital is used with an increased amount of labor, but the ratio of capital per worker doesn’t change. In this case total production will rise, but productivity is likely to remain unchanged.

Capital deepening: when there is an increase in the amount of capital for each worker, which will lead to improvement in labor productivity. This often mean that there has been improvements in technology

4- Institutional factors

There are certain institutional factors involved in economic growth and development . These factors are:

Adequate banking system

A structured legal system

A good education system

A reasonable infrastructure

Political stability

Good international relationships

Does Economic Growth Lead to Economic Development

ADAM NORTH

What are the outcomes of higher levels of economic growth in terms of economic development?

We must remember that consequence may be positive or negative but is economic growth guaranteed to lead to economic development?

Positive Outcomes: 1 – Higher incomes:

Higher levels of economic growth lead to higher GDP per capita, this should improve the standard of living. There is no doubt that higher GDP will benefit many, in terms of higher incomes however, it is possible that there will be a significant group that will see little or no improvement.

2 – Improved economic indicators of welfare Historically, it is clear that economic growth has led to higher

average of economic indicators of welfare, for example, life expectancy, average years of schooling and literacy rates. This again may not be the case for all groups of the population.

3 – Higher government revenues: Even if the tax collection system isn’t efficient, increased

GDP will see an increase in government revenue due to tax – this means the government will be in a better situation when it comes to the provision of services such as education, health care, and infrastructure.

Negative Outcomes: 4 – Creation of Inequality:

Some economists have argued that economic growth achieved through market-based initiatives leads to increases in inequality e.g. the rich get richer and the poor get poorer. Furthermore, in developing countries the ‘trickle down effect’ where the rich spend more and some of this goes to the poor does not work.

5 – Negative externalities and lack of sustainability: In both developed and developing nations the search for economic growth and

the growth itself usually leads to pollution, a negative externality.

As incomes rise people drive more, take more flights and buy imported goods, all three of these increase pollution.

Problems of Deforestation, Soil degradation, and reduction in bio-diversity can all be linked to economic growth.

As economies grow, so does the demand for energy.

Factories, Power Plants, and Households all consume energy and to meet this demand there must be huge increase in the burning of fossil fuels.

The effects on humans will be felt the worst in the developing nations, the effects are:

Access to safe water will become even harder

Tropical disease may spread further north.

Droughts will become more frequent and intense

Food production in the tropic and sub-tropics will suffer. (Although it may increase in middle and high latitudes but there is no guarantee this will lessen the risk to food security)

Rising sea levels will effect millions.

Conclusion:

Herman Daly:

“Uneconomic Growth”

“when increase in production come at an expense in resources and well-being that is worth more than the items made”

Economic growth based on current consumption patterns is clearly not sustainable and is really “uneconomic”

Development Economics

Diversity among developing countries

Resource Endowment

Endowment in terms of physical resources can vary greatly

Angola considered a developing country but possesses much oil and diamonds

Chad discovered much oil in 2003

Bangladesh has very few physical resources, synthetically produced products have replaced the one major resource that they did have – jute

A lack of physical resources does not mean that a countries economy is in bad shape – Singapore and Japan both lack physical resources

Historical Background

Whatever developing countries we consider, there will be marked historical differences that will set the countries apart from each other socially, politically and economically.

Singapore and Vietnam were both once part of colonies, Singapore benefitted from this while Vietnam did not

Geographic & Demographic Factors

Developing countries differ hugely in both geographical and population size

E.G. BIG countries: Brazil India

E.G. small countries: Jamaica Nauru

Developing countries come in all types of population size; India has over a billion people, Fiji has less than one million

Ethics & Religious BreakdownDeveloping countries come in a range of ethnicities and religions

High levels of religious and ethnic diversity chances of increases unrest in a country e.g. in Ethiopia

More ethnically & religiously homogenous E.G. Egypt

The structure of industry

Although many developing countries depend on primary goods to export (Angola) some rely on export of manufactured goods (Bangladesh) and others rely on export in the form of tourism (Maldives)

Per capita income levels

Differences do exist for income levels between developing countries.

E.G. Malaysia GDP per capita $13,518

E.G. Sierra Leone GDP per capita $679

Political Structure

Political systems vary throughout developing countries

E.G. Brazil – Democracy

E.G. Tonga – Monarchy

E.G. Pakistan – Military rule

E.G. Cuba – Single party state

E.G. Iran – Theocracy

Common Characteristics of Developing Countries.

1. Low Standards of living characterized by low incomes, poor health, inadequate education and inequality.

2. Low levels of productivity – They are caused by low education standards within the countries, the low levels of health among worker, lack of investment in physical capital, and lack of access to technology.

3. High rates of population growth and dependency burdens.

4. High and rising levels of unemployment and underemployment.

5. Substantial dependence on agricultural production and primary product exports.

6. Prevalence of imperfect markets and limited information.

7. Dominance, dependence, and vulnerability in international relations.

Despite the differences between developing countries attempts are made to set development goals that can be adopted by them all

These are the MDGs - the Millennium Development Goals