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