Economic Development
Todaro & Smith – 12th edition
Inhoud
1. Introducing Economic Development: A global perspective............................................................. 3
1.1 How the other half life ............................................................................................................. 3
1.2 Economics and Development studies ...................................................................................... 3
1.3 What Do We Mean by Development? ..................................................................................... 4
1.4 The Future of the Millennium Development Goals ................................................................. 4
2. Comparative Economic Development ............................................................................................. 4
2.1 Defining the Developing World ................................................................................................ 4
2.2 Basic Indicators of Development: Real Income, Health, and Education ................................. 5
2.3 Holistic Measures of Living Levels and Capabilities ................................................................. 5
2.4 Characteristics of the Developing World: Diversity within Commonality ............................... 5
2.5 How Low-Income Countries Today Differ from Developed Countries in Their Earlier Stages 5
2.6 Are Living Standards of Developing and Developed Nations Converging? ............................. 6
2.7 Long-Run Causes of Comparative Development ..................................................................... 6
2.8 Concluding Observations ......................................................................................................... 6
3. Classis Theories of Economic Growth and Development ................................................................ 7
3.1 Classic Theories of Economic Development: Four Approaches ............................................... 7
3.2 Development as Growth and the Linear-Stages Theories ....................................................... 7
3.3 Structural-Change Models ............................................................................................................. 7
3.4 The International-Dependence Revolution ............................................................................. 8
3.5 The Neoclassical Counterrevolution: Market Fundamentalism .............................................. 9
3.6 Classic Theories of Development: Reconciling the Differences ............................................... 9
4. Contemporary Models of Development and Underdevelopment..................................................... 9
4.1 Underdevelopment as a Coordination Failure ............................................................................ 10
4.2 Multiple Equilibria: A Diagrammatic Approach .......................................................................... 10
4.3 Starting Economic Development: The Big Push .................................................................... 11
4.4 Further Problems of Multiple Equilibria ................................................................................ 12
4.5 Michael Kremer’s O-ring Theory of Economic Development ..................................................... 13
4.6 Economic Development as Self-Discovery ................................................................................... 13
4.7 The Hausmann-rodrik-Velasco growth Diagnostics Framework ........................................... 14
1
, 4.8 Conclusions .................................................................................................................................. 14
5. Poverty, Inequality and Development ............................................................................................... 15
5.1 Measuring Inequality ............................................................................................................. 15
5.2 Measuring Absolute Poverty ........................................................................................................ 16
5.3 Poverty, Inequality, and Social Welfare ....................................................................................... 16
5.4 absolute Poverty: extent and Magnitude .................................................................................... 17
5.5 economic Characteristics of High-Poverty groups ...................................................................... 17
6. Population Growth and Economic Development: Causes, Consequences, and Controversies ....... 18
6.1 The Basic Issue: Population Growth and the Quality of Life ................................................. 18
6.2 Population Growth: Past, Present, and Future ..................................................................... 18
6.3 The Demographic Transition .................................................................................................. 18
6.4 The Causes of High Fertility in Developing Countries: The Malthusian and Household
Models ................................................................................................................................................ 19
6.5 The Consequences of High Fertility: Some Conflicting Perspectives ..................................... 19
6.6 Some Policy Approaches ........................................................................................................ 20
7. Urbanization and Rural-Urban Migration: Theory and Policy ........................................................... 20
7.1 Urbanization: Trends and Living Conditions ................................................................................ 20
7.2 The role of the cities..................................................................................................................... 21
7.3 The Urban Giantism Problem ....................................................................................................... 21
7.4 The Urban Informal Sector .......................................................................................................... 21
7.5 Migration and Development ........................................................................................................ 22
7.6 Toward an Economic Theory of Rural-Urban Migration .............................................................. 22
7.7 Conclusion: A Comprehensive Urbanization, Migration, and Employment Strategy .................. 23
Reading material week 3: Economic Inequality ..................................................................................... 23
Reading material week 3: Global Income Inequality in Numbers: in History and Now – Milanovic ..... 25
Reading material week 4: Inequality and Development: Interconnections .......................................... 26
Reading material week 5: Poverty and Undernutrition ......................................................................... 28
Reading material week 6 ........................................................................................................................ 29
2
, 1. Introducing Economic Development: A global perspective
Since 1992, we have moved from a sharp dualism between a rich Centre and a backward Global South
periphery to more dynamic and complex relationships. Health has improved strongly, the future of
economic development and poverty reduction is far from assured. But while optimism that other
countries could soon match China’s historically high growth rates dimmed, nonetheless the potential
for dramatic catch-up remained as bright as ever.
1.1 How the other half life
About two-fifths of the world’s population lives on less than $2 per day, part of a condition of absolute
poverty. Absolute poverty is a situation of being unable to meet the minimum levels of income, food,
clothing, health care, shelter, and other essentials.
In the eastern part of Africa is a subsistence economy. This is 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. The development process has been set in motion, where the development
is the process of improving the quality of all human lives and capabilities by raising people’s levels of
living, self-esteem, and freedom.
The process of developing countries (like countries in Asia, Africa, Latin America etc. with low levels of
living and other development deficits) cannot be analysed realistically without also considering the
role of economically developed nations in directly or indirectly promoting or retarding that
development.
1.2 Economics and Development studies
Traditional economics is concerned primarily with the efficient, least-cost allocation of scarce
productive resources and with the optimal growth of these resources over time so as to produce an
ever-expanding range of goods and services. It is an approach to economics that emphasizes utility,
profit maximization, market efficiency, and determination of equilibrium.
Political economy goes beyond traditional economics to study, among other things, the social and
institutional processes through which certain groups of economic and political elites influence the
allocation of scarce productive resources now and in the future, either for their own benefit exclusively
or for that of the larger population as well. The attempt to merge economic analysis with practical
politics— to view economic activity in its political context.
Development economics is the study of how economies are transformed from stagnation to growth
and from low-income to high-income status, and overcome problems of absolute poverty. In
comparison with the more developed countries (MDCs), in most less developed countries, commodity
and resource markets are typically highly imperfect, consumers and producers have limited
information, major structural changes are taking place in both the society and the economy, the
potential for multiple equilibria rather than a single equilibrium is more common. Development
economics must be concerned with the economic, cultural, and political requirements for effecting
rapid structural and institutional transformations of entire societies. Value premises, however carefully
disguised, are an inherent component of both economic analysis and economic policy.
Economics and economic systems must be analysed within the context of the overall social system of
a country and, indeed, within an international, global context as well. The social system is the
organizational and institutional structure of a society, including its values, attitudes, power structure,
and traditions.
3
, The main focus of this text is on development economics and its usefulness in understanding problems
of economic and social progress in poor nations, we will try always to be mindful of the crucial roles
that values, attitudes, and institutions. Values are principles, standards, or qualities that a society or
groups within it considers worthwhile or desirable. Attitudes are the states of mind or feelings of an
individual, group, or society regarding issues such as material gain, hard work, saving for the future,
and sharing wealth. Institutions are norms, rules of conduct, and generally accepted ways of doing
things. Economics institutions are humanly devised constraints that shape human interactions,
including both informal and formal.
1.3 What Do We Mean by Development?
In strictly economic terms, development has traditionally meant achieving sustained rates of growth
of income per capita to enable a nation to expand its output at a rate faster than the growth rate of
its population. Levels and rates of growth of “real” per capita gross national income (GNI) (monetary
growth of GNI per capita minus the rate of inflation) are then used to measure the overall economic
well-being of a population. But often it is measured with the GDP, the total final output of goods and
services produced by the country’s economy, within the country’s territory.
Development has three core values: sustenance (basis goods and services), self-esteem (feeling of
worthiness, to be a person), and freedom—represent common goals sought by all individuals and
societies.
Whatever the specific components of this better life, development in all societies must have at least
the following three objectives: 1. To increase the availability and widen the distribution of basic life-
sustaining goods such as food. 2. To raise levels of living (jobs, education). 3. To expand the range of
economic and social choices available to individuals and nations.
1.4 The Future of the Millennium Development Goals
Eight goals of the United Nations to making substantial progress toward the eradication of poverty and
achieving other human development goals by 2015, like reduce child mortality & achieve primary
education.
Case study Brazil. Brazil has experienced some economic growth without as much social development
and will have to continue its recent efforts to make social inclusion and human development, as well
as environmental sustainability, top priorities if it is to resume and maintain rapid economic growth.
Government spending goes to the well-off instead of the poor.
2. Comparative Economic Development
The developing world has made substantial economic development progress in recent years. But the
most striking feature of the global economy remains its extreme contrasts.
2.1 Defining the Developing World
The most common way to define the developing world is by per capita income. But the best-known
system is of the International Bank for Reconstruction and Development (IBRD), better known as the
World Bank. These economies are then classified as low-income countries (LICs, GNI below &1,025),
lower-middle-income countries (LMCs), uppermiddle-income countries (UMCs), high-income OECD
countries, and other high-income countries. (Often, LMCs and UMCs are informally grouped as the
middle-income countries GNI between $1,025 and $12,475.)
4
Todaro & Smith – 12th edition
Inhoud
1. Introducing Economic Development: A global perspective............................................................. 3
1.1 How the other half life ............................................................................................................. 3
1.2 Economics and Development studies ...................................................................................... 3
1.3 What Do We Mean by Development? ..................................................................................... 4
1.4 The Future of the Millennium Development Goals ................................................................. 4
2. Comparative Economic Development ............................................................................................. 4
2.1 Defining the Developing World ................................................................................................ 4
2.2 Basic Indicators of Development: Real Income, Health, and Education ................................. 5
2.3 Holistic Measures of Living Levels and Capabilities ................................................................. 5
2.4 Characteristics of the Developing World: Diversity within Commonality ............................... 5
2.5 How Low-Income Countries Today Differ from Developed Countries in Their Earlier Stages 5
2.6 Are Living Standards of Developing and Developed Nations Converging? ............................. 6
2.7 Long-Run Causes of Comparative Development ..................................................................... 6
2.8 Concluding Observations ......................................................................................................... 6
3. Classis Theories of Economic Growth and Development ................................................................ 7
3.1 Classic Theories of Economic Development: Four Approaches ............................................... 7
3.2 Development as Growth and the Linear-Stages Theories ....................................................... 7
3.3 Structural-Change Models ............................................................................................................. 7
3.4 The International-Dependence Revolution ............................................................................. 8
3.5 The Neoclassical Counterrevolution: Market Fundamentalism .............................................. 9
3.6 Classic Theories of Development: Reconciling the Differences ............................................... 9
4. Contemporary Models of Development and Underdevelopment..................................................... 9
4.1 Underdevelopment as a Coordination Failure ............................................................................ 10
4.2 Multiple Equilibria: A Diagrammatic Approach .......................................................................... 10
4.3 Starting Economic Development: The Big Push .................................................................... 11
4.4 Further Problems of Multiple Equilibria ................................................................................ 12
4.5 Michael Kremer’s O-ring Theory of Economic Development ..................................................... 13
4.6 Economic Development as Self-Discovery ................................................................................... 13
4.7 The Hausmann-rodrik-Velasco growth Diagnostics Framework ........................................... 14
1
, 4.8 Conclusions .................................................................................................................................. 14
5. Poverty, Inequality and Development ............................................................................................... 15
5.1 Measuring Inequality ............................................................................................................. 15
5.2 Measuring Absolute Poverty ........................................................................................................ 16
5.3 Poverty, Inequality, and Social Welfare ....................................................................................... 16
5.4 absolute Poverty: extent and Magnitude .................................................................................... 17
5.5 economic Characteristics of High-Poverty groups ...................................................................... 17
6. Population Growth and Economic Development: Causes, Consequences, and Controversies ....... 18
6.1 The Basic Issue: Population Growth and the Quality of Life ................................................. 18
6.2 Population Growth: Past, Present, and Future ..................................................................... 18
6.3 The Demographic Transition .................................................................................................. 18
6.4 The Causes of High Fertility in Developing Countries: The Malthusian and Household
Models ................................................................................................................................................ 19
6.5 The Consequences of High Fertility: Some Conflicting Perspectives ..................................... 19
6.6 Some Policy Approaches ........................................................................................................ 20
7. Urbanization and Rural-Urban Migration: Theory and Policy ........................................................... 20
7.1 Urbanization: Trends and Living Conditions ................................................................................ 20
7.2 The role of the cities..................................................................................................................... 21
7.3 The Urban Giantism Problem ....................................................................................................... 21
7.4 The Urban Informal Sector .......................................................................................................... 21
7.5 Migration and Development ........................................................................................................ 22
7.6 Toward an Economic Theory of Rural-Urban Migration .............................................................. 22
7.7 Conclusion: A Comprehensive Urbanization, Migration, and Employment Strategy .................. 23
Reading material week 3: Economic Inequality ..................................................................................... 23
Reading material week 3: Global Income Inequality in Numbers: in History and Now – Milanovic ..... 25
Reading material week 4: Inequality and Development: Interconnections .......................................... 26
Reading material week 5: Poverty and Undernutrition ......................................................................... 28
Reading material week 6 ........................................................................................................................ 29
2
, 1. Introducing Economic Development: A global perspective
Since 1992, we have moved from a sharp dualism between a rich Centre and a backward Global South
periphery to more dynamic and complex relationships. Health has improved strongly, the future of
economic development and poverty reduction is far from assured. But while optimism that other
countries could soon match China’s historically high growth rates dimmed, nonetheless the potential
for dramatic catch-up remained as bright as ever.
1.1 How the other half life
About two-fifths of the world’s population lives on less than $2 per day, part of a condition of absolute
poverty. Absolute poverty is a situation of being unable to meet the minimum levels of income, food,
clothing, health care, shelter, and other essentials.
In the eastern part of Africa is a subsistence economy. This is 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. The development process has been set in motion, where the development
is the process of improving the quality of all human lives and capabilities by raising people’s levels of
living, self-esteem, and freedom.
The process of developing countries (like countries in Asia, Africa, Latin America etc. with low levels of
living and other development deficits) cannot be analysed realistically without also considering the
role of economically developed nations in directly or indirectly promoting or retarding that
development.
1.2 Economics and Development studies
Traditional economics is concerned primarily with the efficient, least-cost allocation of scarce
productive resources and with the optimal growth of these resources over time so as to produce an
ever-expanding range of goods and services. It is an approach to economics that emphasizes utility,
profit maximization, market efficiency, and determination of equilibrium.
Political economy goes beyond traditional economics to study, among other things, the social and
institutional processes through which certain groups of economic and political elites influence the
allocation of scarce productive resources now and in the future, either for their own benefit exclusively
or for that of the larger population as well. The attempt to merge economic analysis with practical
politics— to view economic activity in its political context.
Development economics is the study of how economies are transformed from stagnation to growth
and from low-income to high-income status, and overcome problems of absolute poverty. In
comparison with the more developed countries (MDCs), in most less developed countries, commodity
and resource markets are typically highly imperfect, consumers and producers have limited
information, major structural changes are taking place in both the society and the economy, the
potential for multiple equilibria rather than a single equilibrium is more common. Development
economics must be concerned with the economic, cultural, and political requirements for effecting
rapid structural and institutional transformations of entire societies. Value premises, however carefully
disguised, are an inherent component of both economic analysis and economic policy.
Economics and economic systems must be analysed within the context of the overall social system of
a country and, indeed, within an international, global context as well. The social system is the
organizational and institutional structure of a society, including its values, attitudes, power structure,
and traditions.
3
, The main focus of this text is on development economics and its usefulness in understanding problems
of economic and social progress in poor nations, we will try always to be mindful of the crucial roles
that values, attitudes, and institutions. Values are principles, standards, or qualities that a society or
groups within it considers worthwhile or desirable. Attitudes are the states of mind or feelings of an
individual, group, or society regarding issues such as material gain, hard work, saving for the future,
and sharing wealth. Institutions are norms, rules of conduct, and generally accepted ways of doing
things. Economics institutions are humanly devised constraints that shape human interactions,
including both informal and formal.
1.3 What Do We Mean by Development?
In strictly economic terms, development has traditionally meant achieving sustained rates of growth
of income per capita to enable a nation to expand its output at a rate faster than the growth rate of
its population. Levels and rates of growth of “real” per capita gross national income (GNI) (monetary
growth of GNI per capita minus the rate of inflation) are then used to measure the overall economic
well-being of a population. But often it is measured with the GDP, the total final output of goods and
services produced by the country’s economy, within the country’s territory.
Development has three core values: sustenance (basis goods and services), self-esteem (feeling of
worthiness, to be a person), and freedom—represent common goals sought by all individuals and
societies.
Whatever the specific components of this better life, development in all societies must have at least
the following three objectives: 1. To increase the availability and widen the distribution of basic life-
sustaining goods such as food. 2. To raise levels of living (jobs, education). 3. To expand the range of
economic and social choices available to individuals and nations.
1.4 The Future of the Millennium Development Goals
Eight goals of the United Nations to making substantial progress toward the eradication of poverty and
achieving other human development goals by 2015, like reduce child mortality & achieve primary
education.
Case study Brazil. Brazil has experienced some economic growth without as much social development
and will have to continue its recent efforts to make social inclusion and human development, as well
as environmental sustainability, top priorities if it is to resume and maintain rapid economic growth.
Government spending goes to the well-off instead of the poor.
2. Comparative Economic Development
The developing world has made substantial economic development progress in recent years. But the
most striking feature of the global economy remains its extreme contrasts.
2.1 Defining the Developing World
The most common way to define the developing world is by per capita income. But the best-known
system is of the International Bank for Reconstruction and Development (IBRD), better known as the
World Bank. These economies are then classified as low-income countries (LICs, GNI below &1,025),
lower-middle-income countries (LMCs), uppermiddle-income countries (UMCs), high-income OECD
countries, and other high-income countries. (Often, LMCs and UMCs are informally grouped as the
middle-income countries GNI between $1,025 and $12,475.)
4
