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Development Economics
1. Traditional economicsconcerned
primarily with the efficient, least-costallocation of scarce productive resources
and with the optimal growth of these
resources overtime so as to produce an ever-
expanding range of goods and services.
Traditional neoclassical economics dealswith an advanced capitalist world of perfect
markets; consumer sovereignty; automatic
price
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p
adjustments; decisions made on basis
of marginal, private-profit, and utility
calculations and equilibrium outcomes
in all product and resource markets. It
economic rationality and a purelymaterialistic, individualistic, self
interested orientation towardeconomic decision making.
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2. Political economy - goes beyond
traditional economics to study,
among other things, the social and
institutional processes through which
certain groups of economic andpolitical elites influence the
allocation of scarce productiveresources now and in the future,
either exclusively
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for their own benefit or for that
of the larger population aswell. It is concerned with the
relationship between politicsand economics, with a special
emphasis on the role of powerin economic decision making.
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3. Development economicsconcerned with
the efficient allocation of existing scarce (or
idle) productive resources and their sustainedgrowth over time, it must also deal with the
economic, social, political, and institutional
mechanisms, both public and private,necessary to bring about rapid and large scale
improvements in the levels of living for the
masses of poverty stricken, malnourished, andilliterate peoples of Africa and Asia, and Latin
America.
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It must be concerned also with the cultural,
and political requirements for effecting rapid
structural and institutional transformation ofentire societies in a manner that will most
efficiently bring the fruits of economic
progress to the broadest segments of the
populations.
It must focus on the mechanisms that keep
families, regions and the entire nations in
poverty traps, and on the most effective
strategies for breaking out of these traps.
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A larger government role and
some degree of coordinatedeconomic decision making
directed toward transforming theeconomy are usually viewed as
essential components of
development economics.
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Economies as social systems: The need
to go beyond simple economics
Economics and economic systemsespecially in the developing world, must
be viewed in broader perspective than thatpostulated by traditional economics.
They must be analyzed within the context
of the overall social system of a countryand within an international global context
as well.
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Social system means the
interdependence relationships between so
called economic and non-economic
factors. The latter include attitudes
toward life, work, and authority; publicand private bureaucratic, legal, and
administrative structures; patterns of
kinship, and religion; cultural traditions;systems of land tenure; the authority and
integrity of government agencies;
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the degree of popular participation in
development decisions and activities; and the
flexibility or rigidity of economic and socialclasses.
The factors stated above vary widely from one
region of the world to another and from oneculture and social setting to another.
At the international level, considerations mustalso be on organization and rules of conduct of
the global economy.
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What is development?
1. Traditional economic measures
development has traditionally meant thecapacity of a national economy, whose
initial economic condition has been more or
less static for a long time, to generate and
sustain an annual increase in its GNP at
rates of perhaps 5% to 7% or more. Acommon alternative economic index of
development has been the use of rates of
growth of
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income per capita or per capita GNP to take
into account the ability of a nation to expand
its output at a rate faster than the growth of itspopulation. Levels and rates of growth of
real per capita GNP (monetary growth of
GNP per capita minus the rate of inflation) arenormally used to measure the overall
economic well-being of a populationhow
much of real goods and services is available tothe average citizen for consumption and
investment.
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Economic development in the past has also
been typically seen in terms of the planned
alteration of the structure of production andemployment so that agricultures shares of
both declines and that of the manufacturing
and service industries increases.
Development strategies have therefore
usually focused on rapid industrialization,often at the expense of agriculture and rural
development.
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2. The new economic view of
developmentdevelopment must be
conceived of as a multidimensionalprocess involving major changes in social
structures, popular attitudes, and nationalinstitutions, as well as the acceleration of
economic growth, the reduction of
inequality, and the eradication of poverty.Development must represent the whole
gamut (scope) of change
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by which an entire social system,
tuned to the diverse basic needs and
desires of individuals and social
groups within that system, moves
away from a condition of life widelyperceived as unsatisfactory toward a
situation or condition of life regardedas materially and spiritually better.
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Three core values of development
1. Sustenance: the ability to meet basic human
needs such as food, shelter, health and protection.Without sustained continuous economic progress
at the individual as well as the societal level, the
realization of the human potential would not bepossible. Rising per capita incomes, the
elimination of absolute poverty, greater
employment opportunities, and lessening incomeinequalities constitute the necessary but not the
sufficient conditions for development.
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2. Self-esteem: to be a persona second
universal component of the good life is self-
esteem, a sense of worth and self-respect, ofnot being used as a tool by others for their own
ends. The nature and form of this self esteem
may vary from society to society and fromculture to culture. However, with the
proliferation of the modernizing values of
developed nations, many societies indeveloping countries that have had a profound
sense of their own worth suffer from
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cultural confusion when they come in
contact with economically and
technologically advanced societies. This isbecause national prosperity has become an
almost universal measure of worth. Due to
the significance attached to material in
developed nations, worthiness and esteem
are nowadays increasingly conferred onlyon countries that posses economic wealth
and technological power.
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The three objectives of development
1. To increase the availability and widen the
distribution of basic life-sustaining goods suchas food, shelter, health and protection.
2. To raise the levels of living, including
higher income, the provision of more jobs,better education, and greater attention to
cultural and human values, all of which will
serve not only to enhance material well-beingbut also to generate greater individual and
national self-esteem.
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Chapter 2Diverse Structures and
Common
Characteristics of Developing NationsAssignment:
1. How does WB define the developedand developing world?
2. List of developed, developing, newly
industrializing countries (NICs)
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The Structural Diversity of Developing
Economies
1. The size of the country (geographicarea, population, and income)size and
income levelThe sheer physical size ofa country, the size of its population, and
its level of income per capita are
important determinants of its economicpotential and major factors differentiating
one developing nation from another.
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2. Historical backgroundmost African
and Asian nations were at one time or n
another colonies of Western Europeancountries, primarily Britain and France
but also Belgium, the Netherlands,Germany, Portugal, and Spain. The
economic structures of these nations, as
well as their educational and socialinstitutions, have typically been modeled
on those of their former colonial rulers.
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3. Physical and Human Resourcesa
countrys potential for economic growth is
greatly influenced by its endowments ofphysical resources (land, minerals, and
raw materials) and human resources(numbers of people and their level of
skills). The extreme case of favourable
physical resources endowment is thePersian Gulf oil states.
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Human resource endowments means
not only number of people and their
skill levels but their cultural
outlooks, attitudes toward work,
access to information, willingness toinnovate, and desire for self-
improvement. The level ofadministrative skills will often
determine the ability of
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the public sector to alter the
structure of production and thetime it takes for such structural
alteration to occur.
Geography and climate can also
play an important role in the
success or failure of developmentefforts.
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4. Ethnic and religious composition
ethnicity and religion often play a vital role in
the success or failure of development efforts.The greater the ethnic and religious diversity
of a country, the more likely it is that there will
be internal strife and political instability.Ethnic and religious composition of a
developing nation and whether or not that
diversity leads to conflict or cooperation canbe important determinants of the success or
failure of development efforts.
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5. Industrial structurethough
rapidly urbanizing, the majority of
developing countries are agrarian in
economic, social, and cultural
outlook. Agriculture, both subsistenceand commercial, is a principal
economic activity in terms of theoccupational distribution of the labor
force.
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6. External dependence: economic, political,
and culturalmost small nations are highly
dependent on foreign investment and tradewith the developed world. Almost all small
nations are dependent on the importation of
foreign and often excessively capital-intensivetechnologies of production. This fact alone
exerts an extraordinary influence on the
character of the growth process in thesedependent nations.
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7. Political structure, power, and
interest groupsit is often not thecorrectness of economic policies
alone that determines the outcome
of national approaches to criticaldevelopment problems. The
political structure and the vestedinterests and allegiances of ruling
elites such as
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the large landowners, urban
industrialists, bankers, foreignmanufacturers, the military, trade
unionists will typically determine
what strategies are possible andwhere the main roadblocks to
effective economic and socialchange may lie.
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Common Characteristics of Developing
Nations
1. Low levels of livingin thedeveloping nations, general levels of
living tend to be very low for the vastmajority of people. This is true not only
in relation to their counterparts in rich
nations but often also in relation to smallelite groups within their own societies.
These low
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levels of living are manifested
quantitatively and qualitatively in the
form of low incomes (poverty),
inadequate housing, poor health,
limited education, high infantmortality, low life and work
expectancies, and in many cases ageneral sense of malaise and
hopelessness.
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2. Per capita national incomeper capita
GNP comparisons between developed
and less developed countries areexaggerated by the use of official foreign
exchange rates to convert the LDCnational currency figures into U.S.
dollars. This conversion does not
measure the relative domestic purchasingpower of different currencies. In an
attempt to rectify this problem,
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researchers have tried to compare relative
GNP and GDPs by using purchasing
power parities (PPPs) instead of exchangerates as conversion factors. PPPs used
common set of international prices for all
goods and services produced, valuing
goods in all countries at U.S. prices. PPP
is defined as the number of units of aforeign countrys currency required to
purchase the identical
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quantity of goods and services in the local
(LDC) market as $1 would buy in the
U.S. Generally, prices of non-tradedservices are much lower in developing
countries because wages are so much
lower. If domestic prices are lower, PPP
measures of GNP per capita will be higher
than estimates using foreign-0exchangerates as the conversion factor.
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