Development economics
Study unit 1
Notes developed by Leigh-Ann Bailie and Chris Langeveldt
An economy in which production is mainly for personal consumption and the standard of living
yields little more than basic necessities of life – food, shelter, and clothing.
Development
The process of improving the quality of all human lives and capabilities by raising people’s levels
of income, self-esteem and freedom.
Distinguish between: traditional, political and development economics
Traditional economics
An approach to economics that emphasizes utility, profit maximization, market efficiency and
determination of equilibrium.
Political economics
The attempt to merge economic analysis with practical politics-to view economic activity in its
political context. (use of traditional economics to merge political ideologies.
Development economics
The study of how economics are transferred from stagnation to growth and from low income to
high income status, and overcoming problems and absolute poverty. (Combine traditional and
political economics to eradicate poverty).
Less developed countries- a synonym for developing countries
Discuss the important role of values in development economics
Development economics is a social science and is concerned with human beings, the social
systems they use to satisfy basic material needs. Ethical and normative value premises about
what is or not desirable are central features of the economic discipline in general. The
identification of problems and the choice of goals are governed by value premises. Subjective-
variables, opinions, values.
Unlike natural sciences (maths and physics) development economics is not based on universal
truths. In maths 1+1 is 2(fact) but in development economics the importance of education over
equal distribution is not a fact but based on the value system of the society. Objective-facts
What do we mean by development?
Explain the traditional meaning of development and indicate how development was
measured.
In a traditional sense economic development meant achieving sustained rates of growth of
income per capita which was measured by the GNI. Industrialization was the order of the day.
(As population increased the GNI needed to increase with it.)
Amartya Sen’s capability Approach
The capabilities approach is defined by its choice of focus upon the moral significance of
individuals capabilities of achieving the kind of lives they have reason to value. This
1|Page
,distinguishes it from more established approaches to ethical evaluation, such as utilitarianism or
resourcism, which focus exclusively on subjective well-being or the availability of means to the
good life, respectively. A persons capability to live a good life is defined in terms of the set of
valuable “beings and doings” like being in good health or having a loving relationships with
others to which they have real access.
or control.
Five factors that affect national happiness
People are happier when they are:
Not unemployed
Not divorced or separated
Have a high trust in society
Enjoy high government quality
Have religious faith
And financial security
The 3 core values of development as described by the new economic view of
development
Sustenance-the basic goods and services, such as food clothing and shelter that are necessary
to sustain an average human being at the bare minimum of living.
Self Esteem- The feeling of worthiness that a society enjoys when its social, political and
economic systems and institutions promote human values such as respect, dignity, and self-
determination.
Freedom-A situation in which a society has at its disposal a variety of alternatives from which to
satisfy its wants and individuals enjoy real choices.
The eight MDG’s
1. Eradicate extreme poverty and hunger
2. Achieve universal primary education
3. Promote gender equality and empower woman
4. Reduce child mortality
5. Improve maternal health
6. Combat HIV, malaria and other diseases
7. Environmental sustainability
8. Global partnership for development
Discuss the critisms levelled against the 8 MDG’s
1. Not ambitious enough
2. Goals were not prioritirised
3. Setting of 2015 as an end to reach target is discouraging rather than encouraging
4. Poverty measurement of $1 a day is arbitrary
Human Development Index (HDI)
An index measuring national socioeconomic development, based on combining measures of
education, health and adjusted real income per capita.
Explain the 3 components of the HDI
Health-life expectancy
2|Page
, Education-mean years of schooling-expected years of schooling
Living standards-gross national income per capita
Define Purchasing power parity
Calculation of GNI using a common set of international prices for all goods and services to
provide a more accurate comparison of living standards.
Differentiate between the old HDI and the new HDI
1. Gross national income (GNI) per capita replaces GDP per capita. GNI reflects what
citizens can do with income received,
2. Education index has been completely revamped. 2 new components have been added.
2.1 the average actual educational attainment of the whole population (use of actual
attainment-average schooling is unambiguous. Estimates are regularly updated and
the statistics are easily compared)
2.2 the expected attainment of today’s children (expected education attainment is
somewhat ambiguous)
3. The two previous components of the education index, literacy and enrollment have been
dropped. Enrollment is no guarantee that a grade will be completed or that anything is
learned. Literacy has always been badly and infrequently measured.
4. The upper goal post (maximum values) in each dimension has been increased to the
observed maximum rather than a predefined cutoff.
5. The lower goal posts for income has been reduced. This is based on estimates for Zim in
2007, and represents a historic low of recorded income.
6. Another minor difference is instead of using the common logarithm (log) to reflect
diminishing marginal benefit of income, the NHDI now used the natural log. This reflects a
more usual construction of indexes.
7. The NHDI is computed with a geometric mean.
Study unit 2
Economic growth and development
Classic theories of economic development
4 approaches
The four theoretical strands of thought that have dominated the literature on
economics development since world war, Also indicate the decade in which
each rose to prominence.
1. The linear stage of growth model
The linear stage approach was largely replaced in the 1970’s. This stage viewed the
process of development as a series of successive stages of economic growth through
which all countries must pass. It was primarily a theory in which the right quantity of
saving, investment and foreign aid were all that was necessary to enable developing
nations to proceed along a growth path that had historically been followed by more
developed countries.
2 types of linear stage growth model
3|Page
Study unit 1
Notes developed by Leigh-Ann Bailie and Chris Langeveldt
An economy in which production is mainly for personal consumption and the standard of living
yields little more than basic necessities of life – food, shelter, and clothing.
Development
The process of improving the quality of all human lives and capabilities by raising people’s levels
of income, self-esteem and freedom.
Distinguish between: traditional, political and development economics
Traditional economics
An approach to economics that emphasizes utility, profit maximization, market efficiency and
determination of equilibrium.
Political economics
The attempt to merge economic analysis with practical politics-to view economic activity in its
political context. (use of traditional economics to merge political ideologies.
Development economics
The study of how economics are transferred from stagnation to growth and from low income to
high income status, and overcoming problems and absolute poverty. (Combine traditional and
political economics to eradicate poverty).
Less developed countries- a synonym for developing countries
Discuss the important role of values in development economics
Development economics is a social science and is concerned with human beings, the social
systems they use to satisfy basic material needs. Ethical and normative value premises about
what is or not desirable are central features of the economic discipline in general. The
identification of problems and the choice of goals are governed by value premises. Subjective-
variables, opinions, values.
Unlike natural sciences (maths and physics) development economics is not based on universal
truths. In maths 1+1 is 2(fact) but in development economics the importance of education over
equal distribution is not a fact but based on the value system of the society. Objective-facts
What do we mean by development?
Explain the traditional meaning of development and indicate how development was
measured.
In a traditional sense economic development meant achieving sustained rates of growth of
income per capita which was measured by the GNI. Industrialization was the order of the day.
(As population increased the GNI needed to increase with it.)
Amartya Sen’s capability Approach
The capabilities approach is defined by its choice of focus upon the moral significance of
individuals capabilities of achieving the kind of lives they have reason to value. This
1|Page
,distinguishes it from more established approaches to ethical evaluation, such as utilitarianism or
resourcism, which focus exclusively on subjective well-being or the availability of means to the
good life, respectively. A persons capability to live a good life is defined in terms of the set of
valuable “beings and doings” like being in good health or having a loving relationships with
others to which they have real access.
or control.
Five factors that affect national happiness
People are happier when they are:
Not unemployed
Not divorced or separated
Have a high trust in society
Enjoy high government quality
Have religious faith
And financial security
The 3 core values of development as described by the new economic view of
development
Sustenance-the basic goods and services, such as food clothing and shelter that are necessary
to sustain an average human being at the bare minimum of living.
Self Esteem- The feeling of worthiness that a society enjoys when its social, political and
economic systems and institutions promote human values such as respect, dignity, and self-
determination.
Freedom-A situation in which a society has at its disposal a variety of alternatives from which to
satisfy its wants and individuals enjoy real choices.
The eight MDG’s
1. Eradicate extreme poverty and hunger
2. Achieve universal primary education
3. Promote gender equality and empower woman
4. Reduce child mortality
5. Improve maternal health
6. Combat HIV, malaria and other diseases
7. Environmental sustainability
8. Global partnership for development
Discuss the critisms levelled against the 8 MDG’s
1. Not ambitious enough
2. Goals were not prioritirised
3. Setting of 2015 as an end to reach target is discouraging rather than encouraging
4. Poverty measurement of $1 a day is arbitrary
Human Development Index (HDI)
An index measuring national socioeconomic development, based on combining measures of
education, health and adjusted real income per capita.
Explain the 3 components of the HDI
Health-life expectancy
2|Page
, Education-mean years of schooling-expected years of schooling
Living standards-gross national income per capita
Define Purchasing power parity
Calculation of GNI using a common set of international prices for all goods and services to
provide a more accurate comparison of living standards.
Differentiate between the old HDI and the new HDI
1. Gross national income (GNI) per capita replaces GDP per capita. GNI reflects what
citizens can do with income received,
2. Education index has been completely revamped. 2 new components have been added.
2.1 the average actual educational attainment of the whole population (use of actual
attainment-average schooling is unambiguous. Estimates are regularly updated and
the statistics are easily compared)
2.2 the expected attainment of today’s children (expected education attainment is
somewhat ambiguous)
3. The two previous components of the education index, literacy and enrollment have been
dropped. Enrollment is no guarantee that a grade will be completed or that anything is
learned. Literacy has always been badly and infrequently measured.
4. The upper goal post (maximum values) in each dimension has been increased to the
observed maximum rather than a predefined cutoff.
5. The lower goal posts for income has been reduced. This is based on estimates for Zim in
2007, and represents a historic low of recorded income.
6. Another minor difference is instead of using the common logarithm (log) to reflect
diminishing marginal benefit of income, the NHDI now used the natural log. This reflects a
more usual construction of indexes.
7. The NHDI is computed with a geometric mean.
Study unit 2
Economic growth and development
Classic theories of economic development
4 approaches
The four theoretical strands of thought that have dominated the literature on
economics development since world war, Also indicate the decade in which
each rose to prominence.
1. The linear stage of growth model
The linear stage approach was largely replaced in the 1970’s. This stage viewed the
process of development as a series of successive stages of economic growth through
which all countries must pass. It was primarily a theory in which the right quantity of
saving, investment and foreign aid were all that was necessary to enable developing
nations to proceed along a growth path that had historically been followed by more
developed countries.
2 types of linear stage growth model
3|Page
