TOPIC 1: Introducing Economic Development: A Global Perspective
Introducing Economic Development: A Global Perspective
Core Philosophical Perspectives on Development
Amartya Sen (Nobel laureate in economics): Development is fundamentally "a process of expanding the real freedoms that people enjoy."
High-Level Panel on the Post-2015 Development Agenda (2013): Envisions and aims to end extreme poverty in all its forms within the context of sustainable development, establishing the foundations for sustained prosperity for all.
Adam Smith (The Wealth of Nations): "Necessaries" extend beyond mere natural requirements to include those things deemed essential by "the established rules of decency" for even the lowest ranks of people.
Jim Yong Kim (World Bank President, 2013): Highlights a historic opportunity, fostered by past successes and a favorable economic outlook, for developing countries to eradicate extreme poverty within a generation, creating a world defined by opportunities rather than inequities—a sustainable world with clean energy access for all, sufficient food, no deaths from preventable diseases, and freedom from poverty.
Prologue: An Extraordinary Moment in Global Development
Competing Images of the Developing World
Media portrays two distinct pictures:
Misery: Depicted in areas like rural Africa or unsanitary, overcrowded urban slums in South Asia.
Dynamism: Evident in regions such as coastal China.
Both perspectives are crucial for understanding the "great development drama."
Overall Trend: Living conditions are improving significantly in most, though not all, parts of the globe, albeit often slowly and unevenly.
Cumulative Effect: Economic development is driving unprecedented global transformations.
The World in 1992 vs. Today
Global Landscape in 1992:
Divide: The gap between rich developed nations and low-income developing nations appeared to be widening.
Growth: Rich countries were growing faster than poor countries.
Dominance: High-income industrialized nations held clear dominance in the global order.
Geopolitical Context:
The United States had recently triumphed in the Cold War; the Soviet Union disintegrated in late 1991.
The European Union was ascending, confident with its high-profile 'Europe 92' Single Market project.
Japan's real estate and stock market bubble was just beginning to deflate, with few foreseeing its subsequent prolonged stagnation after a long period of high economic growth.
Developing Nations in 1992 (Including BRICS):
Many, including Brazil, Russia, India, China, and South Africa (now sometimes grouped as "BRICS"), were in precarious conditions or full-scale crisis.
Brazil: Still grappling with the 1980s' debt crisis, similar to much of Latin America.
Russia: Descending into depression following the collapse of its Soviet economy.
India: Recovering from its most severe economic crisis since independence.
China: Had initiated a period of rapid growth, but the 1989 Tiananmen Square massacre was a recent memory, casting uncertainty over future reforms and growth.
South Africa: Negotiating the end of apartheid; the African continent was entering its second consecutive "lost decade" of slow economic growth, marked by widespread pessimism.
Development Assistance Concerns: There were fears that wealthy nations would lose interest in development aid after the Cold War.
Climate Change Awareness: At the 1992 Earth Summit, initial steps were taken to address global warming, but virtually no one predicted that two decades later, China and India would be among the top three greenhouse gas emitters.
Post-1992 Transformations
Shift from Dualism: The world moved from a stark divide between a rich "Center" and a backward "Global South periphery" to more dynamic and complex relationships.
Asia's Growth: Has experienced an average growth rate nearly triple that of high-income Western countries.
Africa's Resurgence: Growth has returned to Africa, signaling the potential for an era of global economic convergence.
Scale of Transformation is Immense:
Health Improvements: Significant gains, including dramatic declines in child mortality.
Education: The goal of universal primary education is approaching realization.
Poverty Reduction:
In 1990, approximately rac{2}{5} of the global population lived in extreme poverty.
Today, this fraction has fallen to about rac{1}{5}.
China: The number of people living in extreme poverty (on less than 1.25 per day) drastically fell from approximately 743 million in 1992 to 157 million in 2009.
India: Has achieved substantial, though less dramatic, reductions in poverty.
Brazil: Social programs like Bolsa Familia have significantly helped alleviate the country's once intractable poverty issues.
Innovation and Optimism: The widespread growth of innovations such as mobile phones and increased availability of credit for small enterprises have generated benefits and fostered a new sense of optimism.
Persistent Challenges and Uncertainties
Fragile Progress: The future of economic development and poverty reduction remains uncertain.
Many who have exited poverty remain vulnerable to falling back into it.
The natural environment is deteriorating.
National economic growth is not always stable; economic development is a process spanning many decades, not just years.
BRICS Volatility (Post-2011): After media celebrations of BRICS growth in 2011, subsequent years provided reminders of the uneven and uncertain nature of development.
Brazil: Economic growth sharply declined from a peak of nearly 7.5\% in 2010 to below 1\% in 2012.
India: Growth, which surpassed 10\% for the first time in 2010, fell to barely a third of that level in 2012.
China: Growth decreased from over 10\% in 2010 to below 8\% in 2012, with projections of a permanently slower pace, possibly around 7\%.
South Africa: Growth was little more than 3\% in 2012.
Per Capita Growth: Growth per person was even slower due to continued population expansion.
Investor Withdrawal: During the summer of 2013, financial market instability led investors to withdraw money from several developing countries, including the BRICS nations.
Africa's Stagnation: A 2013 report disappointed many in the development community by revealing that the number of people living in poverty in Africa had not yet declined, and the average income of the poor had not risen above its long-term level of just 70 cents per day.
Climate Change Inaction: Climate change negotiations, also initiated in 1992, have progressed at a very sluggish pace. Meanwhile, greenhouse gas emissions have reached record levels, and the impacts of climate change are visibly affecting low-income countries, threatening to reverse development progress in South Asia and Africa.
The Need for Realism
While initial optimism about other countries matching China's historically high growth rates has diminished, the potential for dramatic catch-up remains strong.
Neither the "blind optimism" of two years prior nor the "media pessimism" of summer 2013 was entirely warranted.
Conclusion: Realism is essential, acknowledging both the formidable challenges and the exciting opportunities.
Genuine Gains: Recent years have brought genuine, substantial, and sometimes transformative gains to the developing world, with many countries steadily closing the gap with developed nations, particularly in health, education, and often income.
Future Prospects: Prospects remain strong, especially for middle-income countries, but the high volatility of growth underscores the persistent broader development challenges.
Purpose of This Text
To explain the underlying factors behind development patterns and headline numbers.
To provide necessary analytical tools and the most recent, reliable data on challenges from poverty to international finance.
It emphasizes that even today, many of the world's poorest have benefited little, if at all, from new global prosperity.
1.1 How the Other Half Live: Global Disparities in Living Standards
The Stark Reality for Billions
As over 7 billion people awake daily, they face vastly different circumstances.
Majority Are Less Fortunate: Many experience inadequate food and shelter (especially the poorest third), poor health, illiteracy, unemployment, and uncertain prospects.
Absolute Poverty: Approximately rac{2}{5} of the world's population lives on less than 2 per day, a condition defined as absolute poverty.
Absolute Poverty Definition: A situation where individuals or families are unable to meet the minimum levels of income, food, clothing, health care, shelter, and other essential necessities for survival.
Illustrative Examples of Global Disparities
1. A North American Family (Developed Nation)
Income: Annual income over $50,000.
Living Conditions: Comfortable suburban house with a yard, two cars, multiple rooms, separate bedrooms for children, filled with consumer goods, electronics, and imported appliances (e.g., computer hard disks from Malaysia, DVD players from Thailand, garments from Bangladesh, mountain bikes from China).
Food: Three meals daily, abundant processed snacks; many food products imported (e.g., coffee from Brazil/Kenya/Colombia, canned goods from Peru/Australia, tropical fruits from Central America).
Education and Health: Children are healthy, attend school regularly, expected to complete secondary education and likely university, with diverse career choices.
Life Expectancy: Average age of 78 years.
Economic Security: Parents have opportunity, education/training for regular employment, can provide for children, and save for retirement.
Non-Economic Costs: Strong competitive pressures for financial success; mental and physical strain during inflationary or recessionary times to maintain desired living standards. Environmental concerns (risk to clean air/water, natural beauty due to economic progress/decay).
Aspiration: This lifestyle is aspired to by millions globally.
2. An Extended Family in Rural South Asia (Developing Region)
Household Size: Typically eight or more people, including parents, children, grandparents, aunts, and uncles.
Income: Combined real per capita annual income of $300 (money and in-kind consumption of grown food).
Living Conditions: Poorly constructed one- or two-room house as tenant farmers on a large agricultural estate owned by an absentee landlord.
Labor: Father, mother, uncle, and older children work all day on the land.
Education: Adults are illiterate; younger children attend school irregularly and are unlikely to progress beyond basic primary education. Teacher often absent.
Food: Often only two (sometimes one) meals per day; food is monotonous, rarely sufficient, leading to persistent hunger.
Amenities: No electricity, sanitation, or fresh water supply.
Health: Frequent sickness; qualified doctors and medical practitioners are distant, serving wealthier urban families.
Aspirations: Hard work, harsh sun, and aspirations for a better life are continually stifled.
Coping Mechanism: Spiritual traditions provide the only relief from the daily struggle for physical survival.
3. A City in Coastal South America (Extreme Urban Inequality)
Contrast: Striking disparities within the same metropolis: modern high-rises and tree-lined boulevards coexist with squalid shantytowns (favelas) clinging to hillsides.
Wealthy Family (Penthouse):
Living Conditions: Multi-room apartment on the top floor overlooking the sea.
Lifestyle: Servants, expensive imported china, high-quality silverware, fine linen, multi-course dinners (e.g., Russian caviar, French hors d'œuvres, Italian wine).
Education: Eldest son attends university in North America; other children vacation from boarding schools in France and Switzerland.
Profession: Father is a prominent surgeon trained in the United States, serving wealthy local and foreign clients. Owns significant rural land.
Luxury: Annual international vacations, imported luxury automobiles, finest food and clothing are commonplace.
Poor Family (Shantytown):
Living Conditions: Cramped, makeshift, dirt-floored shack on the hillside, also viewing the sea, but the scenery is marred by the "stench of open sewers"; not scenic or relaxing.
Food: Usually too little to eat; no dinner table set.
Children's Activities: Four children often beg, shine shoes, or resort to stealing on the streets.
Family Origin: Father migrated from rural hinterland, followed by the family. Has had only part-time, impermanent jobs.
Assistance & Risks: Government aid helps keep children in school, but lessons from violent drug gangs on the streets are more impactful.
Global Relevance: This sharp contrast is typical of major cities across Latin America, Asia, and Africa, though the degree of inequality may vary.
4. A Remote Rural Area in Eastern Africa (Subsistence Economy)
Setting: Clusters of small huts dotting a dry, barren landscape.
Economy: A
subsistence economy, where production is primarily for personal consumption, with little money income. The standard of living provides little more than basic necessities (food, shelter, clothing).Social Structure: Extended families participate in and share work.
Infrastructure: Few passable roads or schools, no hospitals, electric wires, or water supplies.
Existence: Stark and difficult, similar to the Latin American favela, but perhaps less psychologically troubling due to the absence of direct, luxurious contrasts nearby.
Future Change (Development in Motion):
A new road will bring improved medical care and more information about the outside world, along with modern amenities.
This will promote possibilities for a "better" life and make opportunities feasible, raising aspirations but also frustrations as people become more aware of their deprivations.
Exportable fruits and vegetables may be grown, potentially reaching dinner tables of wealthy families elsewhere.
Modern communication (e.g., radios from Southeast Asia, music from Northern Europe) and mobile phone use are rapidly integrating these villages into modern civilization.
Long-term Outlook: This process of connection and transformation is well underway and will intensify.
5. Booming East Asia (Example from Sichuan Province, China)
Background: A couple born in the 1960s in rural Sichuan Province (zhuangs) received six years of schooling and became rice farmers, enduring famine memories and hardship during the Cultural Revolution.
Economic Reforms (Post-1980): Farmers gained rights to keep and sell more rice. They grew sufficient rice to meet quotas and surpluses for sale, and raised vegetables for booming cities. Living standards improved initially but then stagnated.
Rural-to-Urban Migration: Peasants began moving to southern cities, then closer cities, for factory work.
Xiaoling's Story (Daughter):
Received ten years of schooling.
At age 17, she moved to a rapidly growing mega-city (initially millions, eventually over 15 million people) to earn more money, inspired by her parents' evicted neighbors (due to a dam project) who moved to cities like Shenzhen, Guangzhou, or Chongqing.
Found a factory job, lived in a dormitory, often under harsh conditions, but was able to send money home and save.
Witnessed double-digit city growth.
Later, opened a small business selling cosmetics and costume jewelry to other migrant women.
Received multiple marriage proposals, with offers of significant wealth, including a large house.
Aware of persistent deep poverty and startling inequality within the city.
Plans to remain in the city due to business opportunities and a life far exceeding what she could have imagined in her village.
The Experience of Poverty: Voices from Around the World (Box 1.1)
Uganda (Poor Woman): "When one is poor, she has no say in public, she feels inferior. She has no food, so there is famine in her house; no clothing, and no progress in her family."
Tiraspol, Moldova (Blind Woman): "For a poor person, everything is terrible—illness, humiliation, shame. We are cripples; we are afraid of everything; we depend on everyone. No one needs us. We are like garbage that everyone wants to get rid of."
Rural Ethiopia (Discussion Group Participant): Life is so precarious that youth and able individuals must "migrate to the towns or join the army at the war front in order to escape the hazards of hunger escalating over here."
Nichimishi, Zambia (Young Man): "When food was in abundance, relatives used to share it. These days of hunger, however, not even relatives would help you by giving you some food."
Mbwadzulu Village, Malawi (Discussion Group Participant): "We have to line up for hours before it is our turn to draw water."
Brazil (Discussion Group Participant): Poverty is "low salaries and lack of jobs. And it's also not having medicine, food, and clothes."
Kenya (Poor Man): "Don't ask me what poverty is because you have met it outside my house. Look at the house and count the number of holes. Look at the utensils and the clothes I am wearing. Look at everything and write what you see. What you see is poverty."
Beyond Income: These voices reveal that people living in poverty need and desire more than just increased income; they seek health, education, and especially empowerment (particularly for women).
Global Goals: These aspirations align with the enhanced capabilities framework and the objectives of the Millennium Development Goals (MDGs) and their successor, the Sustainable Development Goals (SDGs).
Fundamental Questions Raised by Global Disparities
How can affluence and dire poverty coexist, not just across continents, but within the same country or city?
Is it possible to transform traditional, low-productivity, subsistence societies into modern, high-productivity, high-income nations?
To what extent do the economic activities of rich nations help or hinder the development aspirations of poor nations?
What processes and conditions enable rural subsistence farmers to become successful commercial farmers?
What are the implications of the prolonged stagnation in rich countries following financial crises for future development and poverty reduction efforts?
These observations lead to many more questions concerning international and national differences in living standards, including health, nutrition, education, employment, environmental sustainability, population growth, and life expectancies.
Interdependence of Global Futures
The study of development economics helps understand problems and prospects for broad-based economic development, focusing on the majority of the world's population living in low-income conditions.
The development process in developing countries cannot be realistically analyzed without considering the role of economically developed nations, which directly or indirectly promote or retard development.
Increasing Interdependence: As modern transport and communications shrink the world, the futures of all peoples are increasingly interdependent.
The health and economic welfare of poor rural families in Asia, Africa, the Middle East, or Latin America will directly or indirectly affect families in Europe and North America, and vice versa.
Examples: Loss of tropical forests contributes to global warming; increased human mobility accelerates the spread of new diseases; economic interdependence continues to grow.
Context: This shared future in a rapidly shrinking 21st-century world forms the context for studying economic development.
1.2 Economics and Development Studies
The Evolution of Development Economics
A Modern Field: Development economics is one of the newest, most exciting, and challenging branches of economics and political economy.
Historical Roots: While Adam Smith's Wealth of Nations (1776) could be seen as an early treatise, the systematic study of economic development problems in Africa, Asia, and Latin America has only truly emerged over the last five decades.
Distinct Identity: Although it draws on principles from other economic branches, development economics is rapidly developing its own unique analytical and methodological identity.
Defining Key Economic Disciplines
Traditional Economics:
Focus: Primarily concerned with the efficient, least-cost allocation of scarce productive resources and their optimal growth over time to produce an ever-expanding range of goods and services.
Assumptions: Deals with an advanced capitalist world characterized by perfect markets, consumer sovereignty, automatic price adjustments, decisions based on marginal private-profit and utility calculations, and equilibrium outcomes in all product and resource markets.
Behavioral Model: Assumes economic "rationality" and a purely materialistic, individualistic, self-interested orientation in economic decision-making.
Political Economy:
Scope: Extends beyond traditional economics to study the social and institutional processes through which specific economic and political elites influence the allocation of scarce productive resources (present and future), either for their exclusive benefit or for the broader population.
Interplay: Concerned specifically with the relationship between politics and economics, emphasizing the role of power in economic decision-making.
Development Economics:
Broadest Scope: Encompasses traditional concerns of efficient resource allocation and sustained growth, but also addresses the economic, social, political, and institutional mechanisms (both public and private) needed to achieve rapid and large-scale improvements in living standards for people in Africa, Asia, Latin America, and former socialist transition economies.
Context in Developing Countries:
Commodity and resource markets are often highly imperfect.
Consumers and producers typically have limited information.
Major structural changes occur within society and the economy.
The possibility of multiple equilibria, rather than a single one, is more common.
Disequilibrium situations (where prices don't balance supply and demand) frequently prevail.
Economic decisions are heavily influenced by broader political and social priorities (e.g., national unity, local leadership, conflict resolution, cultural preservation).
At the individual level, family, clan, religious, or tribal considerations may take precedence over private, self-interested utility or profit maximization.
Developing Countries Definition: Countries in Asia, Africa, the Middle East, Latin America, Eastern Europe, and the former Soviet Union that are currently characterized by low levels of living and other development deficits; often used synonymously with "less developed countries."
More Developed Countries (MDCs) Definition: The economically advanced capitalist nations of Western Europe, North America, Australia, New Zealand, and Japan.
Core Focus of Development Economics: To understand the economic, cultural, and political requirements for rapid structural and institutional transformations across entire societies, aiming to distribute the benefits of economic progress to the widest segments of the population.
Poverty Traps: It specifically examines mechanisms that perpetuate poverty traps (where past poverty leads to future poverty) and devises effective strategies to overcome them.
Role of Government: A larger government role and some degree of coordinated economic decision-making are usually considered essential, despite governments and markets often functioning less effectively in the developing world.
Nongovernmental Organizations (NGOs): The rapidly growing activities of national and international NGOs are also receiving increased attention (discussed in Chapter 11).
Eclectic Approach: Due to the diverse nature of the developing world and the complexity of development, development economics adopts an eclectic approach, integrating relevant concepts and theories from traditional economic analysis with new models and multidisciplinary perspectives derived from historical and contemporary development experiences.
Dynamic Field: It is a continually evolving field with a constant emergence of new theories and data, sometimes confirming, sometimes challenging traditional views.
Ultimate Goal: To understand developing economies better to improve the material lives of the majority of the global population.
Why Study Development Economics? Critical Questions
This course aims to help students grasp critical issues concerning developing nations, spanning a wide range of topics:
The true meaning of development and its alignment with Millennium Development Goals (MDGs).
Lessons from the historical economic progress of now-developed nations, comparing initial conditions with contemporary developing countries.
The nature and influence of economic institutions on underdevelopment and development prospects.
The reasons for vast disparities between rich and poor (illustrated in Figure 1.1).
Sources and beneficiaries of national and international economic growth.
Factors driving rapid development in some countries versus persistence of poverty in others.
Influential development theories and whether underdevelopment is primarily internally or externally induced.
Constraints hindering accelerated growth, specific to local conditions.
The beneficial impact of improving the role and status of women on development.
Causes of extreme poverty and effective policies to improve the lives of the poorest.
The threat of rapid population growth to developing nations' economic progress and the rationale for large families in poverty.
Causes of unemployment and underemployment in the developing world, particularly in urban areas, and continued rural-urban migration despite limited job prospects.
Conditions enabling cities to serve as engines of economic transformation.
The relationship between wealth, health, and development, and whether better health spurs development.
The impact of poor public health on development prospects and required solutions.
Whether educational systems truly promote development or perpetuate social stratification.
Strategies for promoting agricultural and rural development, including the role of prices versus institutional changes and infrastructure.
The concept of environmentally sustainable development, its economic costs, and who bears primary responsibility for global environmental damage (developed North vs. developing South).
The effectiveness of free markets and economic privatization versus the enduring roles of governments in developing economies.
Reasons for poor development policy choices in many developing countries and how to improve them.
The desirability of expanded international trade for poor nations, and the distribution of gains.
Government policies (foreign-exchange control, tariffs, quotas) for industrialization or balance of payments issues.
Impact of International Monetary Fund (IMF) "stabilization programs" and World Bank "structural adjustment" lending on indebted countries.
The meaning and effects of
globalizationon developing countries.Globalization Definition: The increasing integration of national economies into expanding international markets.
Debate on promoting primary product exports versus rapid industrialization through manufacturing.
Causes and implications of foreign-debt problems and financial crises for economic development.
The impact and conditions for seeking/offering foreign economic aid.
The role and conditions for multinational corporations (MNCs) investing in poor nations, and the influence of the "global factory" and globalized trade/finance on international economic relations.
The role of financial and fiscal policy in promoting development.
The potential and limitations of
microfinancefor poverty reduction and grassroots development.Microfinance Definition: The provision of financial services (such as small loans, savings accounts, and insurance) to low-income individuals or groups who typically lack access to traditional banking services, aimed at reducing poverty and spurring grassroots development.
Conclusion: The answers to these questions are often complex, requiring systematic thinking, analytical principles, and reliable data. Unconventional approaches may be needed for development problems that are unique to the modern world, without ignoring the realities of local conditions in less developed countries.
The Important Role of Values in Development Economics
Social Science Nature: Economics is a social science concerned with human beings and their social systems to satisfy material (food, shelter, clothing) and nonmaterial (education, knowledge, spiritual fulfillment) wants.
Inherent Value Premises: Ethical or normative value judgments about what is desirable or undesirable are fundamental to economics, and especially to development economics.
Development as a Valued Goal: The very concepts of economic development and modernization inherently reflect implicit and explicit value premises about ideal goals, such as Mahatma Gandhi's "realization of the human potential."
Examples of Value-Based Goals: Economic and social equality, elimination of poverty, universal education, rising living standards, national independence, modernization of institutions, rule of law, access to opportunity, political and economic participation, grassroots democracy, self-reliance, and personal fulfillment.
These all stem from subjective value judgments about what is considered good and desirable.
Contrasting Values: Other values, such as the sanctity of private property (regardless of acquisition), unlimited personal wealth accumulation, preservation of traditional hierarchical social institutions/rigid class structures, the male head of household as ultimate authority, and the "natural right" of some to lead, also represent subjective value judgments.
Identifying Problems is a Value Judgment: When issues like poverty, inequality, population growth, rural stagnation, and environmental decay are identified as "problems," it conveys a value judgment that their improvement or elimination is desirable.
From "Is" to "Should Be": Even widespread agreement among diverse groups on these goals does not alter the fact that they arise from subjective, normative value judgments about "what should be," rather than solely from objective, empirical analysis of "what is."
Value Premises in Analysis and Policy: Value premises are an inherent component of both economic analysis and economic policy; economics cannot be value-free in the way physics or chemistry might be.
Evaluating Economic Prescriptions: The validity of economic analysis and policy prescriptions must always be assessed in light of their underlying assumptions or value premises.
Consensus on Goals and Policies: If decision-makers agree on subjective values, specific development goals (e.g., greater income equality) and corresponding public policies (e.g., progressive taxation) can be pursued based on "objective" theoretical and quantitative analyses. However, significant value conflicts can diminish the possibility of consensus.
Transparency: In development economics, it is crucial to always articulate one's value premises clearly.
Economies as Social Systems: Beyond Simple Economics
Broader Perspective Needed: Economic systems, particularly in the developing world, must be viewed beyond the confines of traditional economics, within the context of a country's entire social system and the international/global context.
Social System Definition: The organizational and institutional structure of a society, encompassing its values, attitudes, power structure, and traditions.
Interdependence of Factors: Development is shaped by interdependent relationships between economic and non-economic factors.
Non-Economic Factors Include:
Attitudes towards life, work, and authority.
Public and private bureaucratic, legal, and administrative structures.
Patterns of kinship and religion.
Cultural traditions.
Systems of land tenure.
The authority and integrity of government agencies.
The degree of popular participation in development decisions and activities.
The flexibility or rigidity of economic and social classes.
International Context: Critical to consider the organization and rules of the global economy—how they evolved, who controls them, and who benefits most. This is especially true with the spread of market economies and rapid globalization of trade, finance, corporate boundaries, technology, intellectual property, and labor migration.
Complexity of Development: Achieving development (increased national production, higher living standards, widespread employment) is a complex task. It depends as much on local history, expectations, values, incentives, attitudes and beliefs, and institutional and power structures (domestic and global) as it does on the manipulation of economic variables (e.g., savings, investment, product and factor prices, foreign-exchange rates).
Soedjatmoko Quote: The Indonesian intellectual Soedjatmoko observed that development theorists, focused on growth and capital provision, have "paid insufficient attention to institutional and structural problems and to the power of historical, cultural, and religious forces in the development process."
Importance of Non-Economic Variables: These variables are often mistakenly dismissed as "nonquantifiable" and thus of dubious importance, but they frequently play a critical role in the success or failure of development efforts.
Causes of Policy Failures: Many development policy failures have occurred because non-economic variables (e.g., traditional property rights, religious influence on modernization or family planning) were excluded from analysis.
Text's Approach: While focusing on development economics, the text continuously acknowledges the crucial roles of values, attitudes, and institutions (both domestic and international) in the overall development process.
Values Definition: Principles, standards, or qualities that a society or groups within it considers worthwhile or desirable.
Attitudes Definition: 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 Definition: Norms, rules of conduct, and generally accepted ways of doing things.
Economic institutionsare humanly devised constraints that shape human interactions, including both informal and formal "rules of the game" of economic life, as per Douglass North's framework.
1.3 What Do We Mean by Development?
A clear working definition and agreed measurement criteria are essential to determine genuine development.
Traditional Economic Measures of Development
Income Per Capita Definition: The total gross national income (GNI) of a country divided by its total population.
Gross National Income (GNI) Definition: The total domestic and foreign output claimed by residents of a country. It includes gross domestic product (GDP) plus factor incomes accruing to residents from abroad, less the income earned in the domestic economy accruing to persons abroad.
Traditional Meaning: Development has typically meant achieving sustained rates of growth of income per capita, allowing a nation to expand its output faster than its population growth rate.
Measurement: The overall economic well-being of a population—the amount of real goods and services available to the average citizen for consumption and investment—is measured by the levels and rates of growth of "real" per capita GNI (monetary GNI growth minus the rate of inflation, i.e., \text{GNI} \text{ per capita growth rate} \text{ (real)} = \text{GNI} \text{ per capita growth rate} \text{ (monetary)} - \text{inflation rate}).
Structural Transformation: Historically, economic development has also implied a planned alteration in the structure of production and employment.
Agriculture's share of both production and employment declines.
The share of manufacturing and service industries increases.
Development Strategies: Consequently, traditional strategies often prioritized rapid industrialization, frequently at the expense of agricultural and rural development.
Historical View: With few exceptions (e.g., in development policy circles during the 1970s), development was until recently almost exclusively seen as an economic phenomenon.