Page 1 of 104
1 Development economics
What is development
- Development economics seeks to poor vs rich countries
- In underdeveloped regions- how to reduce poverty in poor countries to give
everyone a minimum standard of living and freedom from hunger
- Development economics- about comparison between two different countries
- Dynamic research- explaining changing terms used in development e.g
emerging vs ledc
Research methods
- Neoclassical economics + political economy
- Focus on developmental background
- Understand people in less developed countries- their incentives and motiva-
tions for actions
- Aim for large scale improvements of living based on understanding of peo-
ple’s behaviour
What do we mean by development
- Traditional economic measures- GNI or GDP/per capita
- New economic view: (old ones not sufficient)
- Income doesn’t mean happiness, growth doesn’t mean development
- Development focuses on improvement on wellbeing
- Development is both a physical reality and state of mind
- New measures HDI and MPI- multidimensional poverty index, include other
aspects of happiness e.g education security and freedom
Amartya sen capability approach
- Capability to function is what matters for a person
- Functioning- what a person does given a set of available commodities
- Capability- freedom of choice
- Well being int terms of being well and having freedom of choice
- Happiness- free to choose from many options, not happy- restricted options
, Page 2 of 104
Development and happiness
- Income and happiness positive correlation, but flattens out at a certain level
of happiness. Gets to a point where income can no longer increase happiness
- Easterlin paradox- life satisfactions or happiness rises with income to a point
- After that increased income doesn’t correlated with increased happiness
- Other factors affect happiness instead: family relationship, work, community
health etc
3 core values of development
- The ability to meet basic needs- material
- Ability to be a person- spirit
- Ability to choose- future
3 objectives of development
- Increase availability of life sustaining goods- material
- Raise levels of income- material
- Expand range of economic and social choices- spirit and freedom
Main drivers of recent development
- Tech progress- spillover effect
- Lower learning cost of follower compared to being leader of idea
- Globalisation- opens to trade and financial globalisation e.g FDI
- Central role of women- empowerment and investment in women
17 sustainable goals SDGs
- Compared to 8 goals adopted in 2000 (MDGs)
- Both want to eradicate poverty, improve gender equality, global partnership
- SGGs- highlight sustainability and specify more in the aspects of- quality of
education, environmental sustainability
- SDGs- new goals not pointed in MDGs:
- Lives under water and on land- focus on life cycles
, Page 3 of 104
- Social justice- for freedom of choice
- Decent work- choice
- Responsible consumption- sustainability
Topic 2- comparative economic development
Defining the developing world
- World bank scheme- ranks countries on GNI per
capita
- United Nations development program (UNDP)
- HDI human development index
- MPI- multidimensional poverty index
Income
- Developing LIC, LMC, UMC, other high income economies
- Developed- most high income OECD countries
- Dynamic- definition of developing world- south korea, Portugal etc
Common characteristics
- Lower levels of living, productivity and human capital
- High levels of inequality and absolute poverty
- Higher population growth, larger rural population- rapid migration to cuties
- Lower levels of industrialisation and manufactured exports
- Underdeveloped financial and other market
- Colonial legacies- poor institutions
- These features in common are with great diversity
, Page 4 of 104
Convergence between developing and developed countries
- Convergence- catching up concept- tendency for per capita income to grow
faster in lower income countries than in higher income countries- predicted
by neoclassical theories
- Why do we expect convergence among countries:
- Tech transfer- cheaper to replicate technology than undertake original r&d
- Factor accumulation- higher levels of physical and human capital in devel-
oped countries- marginal product of capital and labour would be lower
given the law of diminishing returns- explaining higher income growth for
developing countries
- Relative country convergence- convergence in growth rate of per capita in-
come
- Absolute country convergence- convergence in absolute level of per capita
income
If not catching up, middle income trap may exist
- When poor countries reach middle income status, they exhaust the potential
for fast growth and lack the capability to make the next step to high income
status
- Insufficient investment in education and tech
- Slow shift from agricultural production to industrialisation production
- Lack of capability to produce higher value added goods
- It is debatable if middle income trap exists
3 Geography and institutions
Differences in levels of development
- Vast differences in income and prosperity across the world:
• Average income levels in worlds richest and poorest nations differ by a fac-
tor of greater than 240
• Income per capita in sub saharan Africa on average 1/20 of US income per
capita
Sources of prosperity
- Physical capital- capital differences, poor don’t save enough
1 Development economics
What is development
- Development economics seeks to poor vs rich countries
- In underdeveloped regions- how to reduce poverty in poor countries to give
everyone a minimum standard of living and freedom from hunger
- Development economics- about comparison between two different countries
- Dynamic research- explaining changing terms used in development e.g
emerging vs ledc
Research methods
- Neoclassical economics + political economy
- Focus on developmental background
- Understand people in less developed countries- their incentives and motiva-
tions for actions
- Aim for large scale improvements of living based on understanding of peo-
ple’s behaviour
What do we mean by development
- Traditional economic measures- GNI or GDP/per capita
- New economic view: (old ones not sufficient)
- Income doesn’t mean happiness, growth doesn’t mean development
- Development focuses on improvement on wellbeing
- Development is both a physical reality and state of mind
- New measures HDI and MPI- multidimensional poverty index, include other
aspects of happiness e.g education security and freedom
Amartya sen capability approach
- Capability to function is what matters for a person
- Functioning- what a person does given a set of available commodities
- Capability- freedom of choice
- Well being int terms of being well and having freedom of choice
- Happiness- free to choose from many options, not happy- restricted options
, Page 2 of 104
Development and happiness
- Income and happiness positive correlation, but flattens out at a certain level
of happiness. Gets to a point where income can no longer increase happiness
- Easterlin paradox- life satisfactions or happiness rises with income to a point
- After that increased income doesn’t correlated with increased happiness
- Other factors affect happiness instead: family relationship, work, community
health etc
3 core values of development
- The ability to meet basic needs- material
- Ability to be a person- spirit
- Ability to choose- future
3 objectives of development
- Increase availability of life sustaining goods- material
- Raise levels of income- material
- Expand range of economic and social choices- spirit and freedom
Main drivers of recent development
- Tech progress- spillover effect
- Lower learning cost of follower compared to being leader of idea
- Globalisation- opens to trade and financial globalisation e.g FDI
- Central role of women- empowerment and investment in women
17 sustainable goals SDGs
- Compared to 8 goals adopted in 2000 (MDGs)
- Both want to eradicate poverty, improve gender equality, global partnership
- SGGs- highlight sustainability and specify more in the aspects of- quality of
education, environmental sustainability
- SDGs- new goals not pointed in MDGs:
- Lives under water and on land- focus on life cycles
, Page 3 of 104
- Social justice- for freedom of choice
- Decent work- choice
- Responsible consumption- sustainability
Topic 2- comparative economic development
Defining the developing world
- World bank scheme- ranks countries on GNI per
capita
- United Nations development program (UNDP)
- HDI human development index
- MPI- multidimensional poverty index
Income
- Developing LIC, LMC, UMC, other high income economies
- Developed- most high income OECD countries
- Dynamic- definition of developing world- south korea, Portugal etc
Common characteristics
- Lower levels of living, productivity and human capital
- High levels of inequality and absolute poverty
- Higher population growth, larger rural population- rapid migration to cuties
- Lower levels of industrialisation and manufactured exports
- Underdeveloped financial and other market
- Colonial legacies- poor institutions
- These features in common are with great diversity
, Page 4 of 104
Convergence between developing and developed countries
- Convergence- catching up concept- tendency for per capita income to grow
faster in lower income countries than in higher income countries- predicted
by neoclassical theories
- Why do we expect convergence among countries:
- Tech transfer- cheaper to replicate technology than undertake original r&d
- Factor accumulation- higher levels of physical and human capital in devel-
oped countries- marginal product of capital and labour would be lower
given the law of diminishing returns- explaining higher income growth for
developing countries
- Relative country convergence- convergence in growth rate of per capita in-
come
- Absolute country convergence- convergence in absolute level of per capita
income
If not catching up, middle income trap may exist
- When poor countries reach middle income status, they exhaust the potential
for fast growth and lack the capability to make the next step to high income
status
- Insufficient investment in education and tech
- Slow shift from agricultural production to industrialisation production
- Lack of capability to produce higher value added goods
- It is debatable if middle income trap exists
3 Geography and institutions
Differences in levels of development
- Vast differences in income and prosperity across the world:
• Average income levels in worlds richest and poorest nations differ by a fac-
tor of greater than 240
• Income per capita in sub saharan Africa on average 1/20 of US income per
capita
Sources of prosperity
- Physical capital- capital differences, poor don’t save enough
