Economic Development Notes
Introducing Economic Development: A Global Perspective
Two contrasting images of the developing world: misery versus dynamism, reflecting extreme poverty and rapid industrialization, urbanization, and economic growth.
Living conditions are improving globally, albeit unevenly, with significant disparities in various regions.
Economic development has led to unprecedented global transformations, yet many challenges remain.
This book provides perspective on what remains to be achieved and lessons from past progress, offering insights into necessary actions.
Introduction to Key Questions
Why do living conditions vary drastically across countries and regions?
Disparities exist in income, wealth, health, education, freedom, environmental quality, access to technology, and social inclusion.
Why is output per worker so different across countries? This is influenced by factors such as human capital, physical capital, technology, and institutional quality.
Job security and formality vary greatly, with most jobs in developing countries being informal and lacking social security benefits.
Population growth rates differ widely due to varying levels of fertility, mortality, and access to family planning services.
Public services vary in efficiency and effectiveness, impacting access to healthcare, education, and infrastructure.
Some countries have made significant progress, while others lag due to factors like governance, conflict, and resource constraints.
Child illness and death rates have fallen, but disparities remain, particularly in sub-Saharan Africa and South Asia.
How can we measure the impact of policies and programs? Using randomized control trials, quasi-experimental methods, and impact evaluations.
How did these divergences arise, and how does history matter? Colonialism, trade policies, and geopolitical dynamics have long-lasting effects.
Core Questions of Development Economics
Development economics seeks to answer fundamental questions about disparities in income growth and well-being, focusing on economic, social, and political factors.
The text examines the historical context of development patterns, incorporating insights from economic history, political science, and sociology.
It provides analytic tools and data to address challenges from poverty to international finance, including economic models, statistical analysis, and case studies.
It focuses on developing economies across the spectrum, from low-income to emerging markets, considering their unique circumstances.
Despite progress, hundreds of millions still haven't benefited from global prosperity, highlighting the need for inclusive and sustainable development strategies.
How Living Levels Differ Around the World
Living conditions vary drastically based on birthplace, determining access to opportunities and quality of life.
Countries are often divided into groups based on income and well-being (e.g., low-income, middle-income, high-income).
Hans Rosling's 4-strata schema of living standards, categorizing people based on daily income and living conditions.
Bottom Stratum: Extreme Poverty
Over one billion people live in extreme income poverty (below 1.90 per day), struggling to meet basic needs.
Many suffer multidimensional deprivations (nutrition, health, education), lacking essential resources and services.
A typical person subsists on about 1.40 per day, far below what is needed for a decent standard of living.
Nearly 1.3 billion people experience acute deprivations (Multidimensional Poverty Index), reflecting multiple overlapping deprivations.
They often live in remote rural areas with limited infrastructure, where access to services is severely constrained.
Subsistence economies prevail, with self-production, relying on agriculture and informal activities for survival.
Limited access to roads, schools, hospitals, electricity, and clean water, hindering social and economic development.
Malnutrition and health issues are common (e.g., kwashiorkor), affecting physical and cognitive development.
Cooking over open fires leads to respiratory problems, contributing to chronic health issues.
Basic housing with potential for leaks and parasite entry, creating unsanitary living conditions.
Second-Lowest Stratum
Not officially classified as extremely poor but still very poor by rich-country standards, facing significant economic hardships.
They live on about 3.80 per day per person, barely above the extreme poverty line.
Close to 3 billion people live in this stratum, highlighting the vast number of people in vulnerable conditions.
Employment is often informal, without worker protections, leading to job insecurity and low wages.
They use bicycles for transportation, reflecting limited access to motorized vehicles.
Improved energy sources like kerosene are used, though still posing health and environmental risks.
Water from taps may be unsafe, requiring treatment to prevent waterborne diseases.
Improved floors, walls, and roofs, but still exposed to the elements, offering limited protection.
Suffer from multidimensional poverty but not enough to be officially classified as such, indicating the limitations of poverty measures.
Second-Highest Stratum
Live on about 15 per person per day, providing a modest but limited standard of living.
More than two billion people may be thought of as living in this strata, comprising a significant portion of the global population.
Considered middle income by global standards, reflecting a transition from poverty but still far from affluence.
Typically live in urban areas, where opportunities may be greater but living costs are higher.
Jobs are unstable and often informal, lacking benefits and security.
Cook on manufactured burners with kerosene or electricity, reducing exposure to indoor air pollution.
Have a television, providing access to information and entertainment.
Use motorbikes for transportation, increasing mobility and access to services.
Children are likely to survive early childhood and attend some post-primary school, improving human capital.
Mobile phones are common, facilitating communication and access to information.
Water is delivered through a tap to their house, though a majority do not have what people in the rich strata would consider full indoor plumbing, indicating gaps in infrastructure.
High inequality in their city, reflecting disparities in wealth and opportunities.
Highest Stratum: Rich
Close to a billion people live in this stratum, enjoying a high standard of living.
Income of perhaps 75 per person per day, providing access to goods, services, and opportunities.
Formal jobs with protections, ensuring job security and benefits.
Comfortable suburban house with a yard and two cars, reflecting affluence and mobility.
Many comfortable features, including often a separate bedroom for each child, contributing to privacy and well-being.
Central air conditioning and/or central heating, ensuring comfortable living conditions year-round.
Full indoor plumbing, providing access to clean water and sanitation.
Numerous consumer goods, including high-speed internet connections to go with their smartphones, laptops, and home entertainment centres, along with an array of appliances, enhancing convenience and lifestyle.
Access to fresh food year-round, ensuring a nutritious diet.
Good medical care, promoting health and longevity.
Complete secondary education and often post-secondary education, enhancing skills and opportunities.
Variety of careers, offering choices and fulfillment.
Average age of close to 80 years, reflecting improved health and living conditions.
People often remain on the same stratum throughout their lives, indicating limited social mobility.
Those in lower strata are aware of higher strata but see it as unattainable, reinforcing feelings of inequality.
Transformative progress is sometimes visible within a single lifetime, e.g., in China.
*Example of transformative progress:
Couple born in rural Sichuan Province in the 1960s.
Became rice farmers, experienced famine and the Cultural Revolution.
Their daughter, Xiaoling, attended school for ten years.
After reforms in 1980, farmers could sell more of their rice.
Heard about peasants moving to cities for factory work.
Xiaoling moved to a city, found a factory job, and sent money home.
Opened a business selling cosmetics and jewellery.
Sees opportunities for a better life in the city.
*Common Living Conditions Across Four Strata (Box 1.2)
Lowest Stratum:
Cooking: Open fire, smoke exits through hole in the roof
Food and nutrition: Food insecure, majority of food grown by family; often malnourished and among the 800 million people classified as hungry
Clothing: Used, worn, may be inadequate; flip-flops or in many cases still bare feet
Education: Majority now able to attend primary school, but may not complete it
Housing: Self-constructed, natural or found materials, often mud; thatch roof, dirt floors with mats
Furnishings: Any pallet or bed, table, chair, or shelf is self-constructed; no electricity
Water: hand-carried in buckets from public, often unsanitary sources
Sanitation: Pit latrine or open defecation
Transportation: On foot
Second-Lowest Stratum:
Cooking: Basic, but typically use kerosene or some other improved energy source
Food and nutrition: May be food insecure or vulnerable to falling into food insecurity
Clothing: Inexpensive, often used clothing, not well fitting, perhaps inadequate for the weather; worn shoes and rubber-soled shoes
Education: Children finish primary school; on average attend a couple years longer
Housing: Partly and perhaps fully self-constructed; improved floor, corrugated tin roof
Furnishings: Basic tables and seating; fans if electricity; power connection may be illegal and improvised
Water: From a tap, typically outdoors and perhaps a 50-metre-plus walk; needs self-treating with chlorine or boiling
Sanitation: Latrine
Transportation: Bicycle
Second-Highest Stratum:
Cooking: Manufactured burners with improved fuel if not electric plates
Food and nutrition: Usually food secure; but many vulnerable to fall into food insecurity
Clothing: Inexpensive, though new when purchased, and worn or less-expensive shoes and sneakers; expensive clothes as social expectations rise
Education: Children finish primary school; some finish secondary school
Housing: Modest but better constructed, if not comfortable
Furnishings: Electricity, purchased tables, chairs, beds; fans or even a room AC, space heater, a television
Water: Piped directly to house site; may need treating
Sanitation: Toilets, but many lack what the top stratum considers full indoor plumbing
Transportation: Motor bike
Highest ("Rich") Stratum:
Cooking: Modern appliances including modern range, microwave, dishwasher
Food and nutrition: Rich and diverse diet, though obesity may bring other health risks
Clothing: Well-fitting, perhaps designer clothing; multiple, relatively new, comfortable dress and sports shoes
Education: Children complete high school; on average attend at least one year of post-secondary education
Housing: Modern, manufactured, professionally constructed
Furnishings: House filled with consumer goods and durables, wifi, home entertainment centres
Water: Safe water at taps throughout the house
Sanitation: Hygienic, modern bathroom plumbing
Transportation: A car per each adult; or in high density each person is assured reliable transportation alternatives
How Countries Are Classified by Their Average Levels of Development: A First Look
Countries are classified by income, human development, poverty, and governance, providing a multidimensional view of development.
Income is a common but inadequate measure of well-being, as it doesn't capture non-monetary aspects.
The World Bank classifies countries into Low, Lower-Middle, Upper-Middle, and High income, based on GNI per capita.
Many low-income countries have been reclassified as middle-income, reflecting economic growth and development progress.
Income levels can vary greatly within a country, highlighting the importance of income distribution.
In 2018, 16% of the world's population lived in high-income countries (HICs), enjoying a high standard of living.
HICs have a GNI per capita of at least 12,056, reflecting their economic prosperity.
Over 60% of the world's people live in middle-income countries due to growth in China, India, and Indonesia, indicating their significant role in the global economy.
Upper-middle income countries (UMCs) have GNI per capita between 3,896–12,055, representing a transition towards higher income status.
Lower-middle income countries (LMCs) have annual per capita GNI between 996–3,895, facing challenges in poverty reduction and development.
About 10% of the world's population lives in LICs, with GNI per capita below 1,0
Introducing Economic Development: A Global Perspective
Two contrasting images of the developing world: misery versus dynamism, reflecting extreme poverty and rapid industrialization, urbanization, and economic growth.
Living conditions are improving globally, albeit unevenly, with significant disparities in various regions.
Economic development has led to unprecedented global transformations, yet many challenges remain.
This book provides perspective on what remains to be achieved and lessons from past progress, offering insights into necessary actions.
Introduction to Key Questions
Why do living conditions vary drastically across countries and regions?
Disparities exist in income, wealth, health, education, freedom, environmental quality, access to technology, and social inclusion.
Why is output per worker so different across countries? This is influenced by factors such as human capital, physical capital, technology, and institutional quality.
Job security and formality vary greatly, with most jobs in developing countries being informal and lacking social security benefits.
Population growth rates differ widely due to varying levels of fertility, mortality, and access to family planning services.
Public services vary in efficiency and effectiveness, impacting access to healthcare, education, and infrastructure.
Some countries have made significant progress, while others lag due to factors like governance, conflict, and resource constraints.
Child illness and death rates have fallen, but disparities remain, particularly in sub-Saharan Africa and South Asia.
How can we measure the impact of policies and programs? Using randomized control trials, quasi-experimental methods, and impact evaluations.
How did these divergences arise, and how does history matter? Colonialism, trade policies, and geopolitical dynamics have long-lasting effects.
Core Questions of Development Economics
Development economics seeks to answer fundamental questions about disparities in income growth and well-being, focusing on economic, social, and political factors.
The text examines the historical context of development patterns, incorporating insights from economic history, political science, and sociology.
It provides analytic tools and data to address challenges from poverty to international finance, including economic models, statistical analysis, and case studies.
It focuses on developing economies across the spectrum, from low-income to emerging markets, considering their unique circumstances.
Despite progress, hundreds of millions still haven't benefited from global prosperity, highlighting the need for inclusive and sustainable development strategies.
How Living Levels Differ Around the World
Living conditions vary drastically based on birthplace, determining access to opportunities and quality of life.
Countries are often divided into groups based on income and well-being (e.g., low-income, middle-income, high-income).
Hans Rosling's 4-strata schema of living standards, categorizing people based on daily income and living conditions.
Bottom Stratum: Extreme Poverty
Over one billion people live in extreme income poverty (below 1.90 per day), struggling to meet basic needs.
Many suffer multidimensional deprivations (nutrition, health, education), lacking essential resources and services.
A typical person subsists on about 1.40 per day, far below what is needed for a decent standard of living.
Nearly 1.3 billion people experience acute deprivations (Multidimensional Poverty Index), reflecting multiple overlapping deprivations.
They often live in remote rural areas with limited infrastructure, where access to services is severely constrained.
Subsistence economies prevail, with self-production, relying on agriculture and informal activities for survival.
Limited access to roads, schools, hospitals, electricity, and clean water, hindering social and economic development.
Malnutrition and health issues are common (e.g., kwashiorkor), affecting physical and cognitive development.
Cooking over open fires leads to respiratory problems, contributing to chronic health issues.
Basic housing with potential for leaks and parasite entry, creating unsanitary living conditions.
Second-Lowest Stratum
Not officially classified as extremely poor but still very poor by rich-country standards, facing significant economic hardships.
They live on about 3.80 per day per person, barely above the extreme poverty line.
Close to 3 billion people live in this stratum, highlighting the vast number of people in vulnerable conditions.
Employment is often informal, without worker protections, leading to job insecurity and low wages.
They use bicycles for transportation, reflecting limited access to motorized vehicles.
Improved energy sources like kerosene are used, though still posing health and environmental risks.
Water from taps may be unsafe, requiring treatment to prevent waterborne diseases.
Improved floors, walls, and roofs, but still exposed to the elements, offering limited protection.
Suffer from multidimensional poverty but not enough to be officially classified as such, indicating the limitations of poverty measures.
Second-Highest Stratum
Live on about 15 per person per day, providing a modest but limited standard of living.
More than two billion people may be thought of as living in this strata, comprising a significant portion of the global population.
Considered middle income by global standards, reflecting a transition from poverty but still far from affluence.
Typically live in urban areas, where opportunities may be greater but living costs are higher.
Jobs are unstable and often informal, lacking benefits and security.
Cook on manufactured burners with kerosene or electricity, reducing exposure to indoor air pollution.
Have a television, providing access to information and entertainment.
Use motorbikes for transportation, increasing mobility and access to services.
Children are likely to survive early childhood and attend some post-primary school, improving human capital.
Mobile phones are common, facilitating communication and access to information.
Water is delivered through a tap to their house, though a majority do not have what people in the rich strata would consider full indoor plumbing, indicating gaps in infrastructure.
High inequality in their city, reflecting disparities in wealth and opportunities.
Highest Stratum: Rich
Close to a billion people live in this stratum, enjoying a high standard of living.
Income of perhaps 75 per person per day, providing access to goods, services, and opportunities.
Formal jobs with protections, ensuring job security and benefits.
Comfortable suburban house with a yard and two cars, reflecting affluence and mobility.
Many comfortable features, including often a separate bedroom for each child, contributing to privacy and well-being.
Central air conditioning and/or central heating, ensuring comfortable living conditions year-round.
Full indoor plumbing, providing access to clean water and sanitation.
Numerous consumer goods, including high-speed internet connections to go with their smartphones, laptops, and home entertainment centres, along with an array of appliances, enhancing convenience and lifestyle.
Access to fresh food year-round, ensuring a nutritious diet.
Good medical care, promoting health and longevity.
Complete secondary education and often post-secondary education, enhancing skills and opportunities.
Variety of careers, offering choices and fulfillment.
Average age of close to 80 years, reflecting improved health and living conditions.
People often remain on the same stratum throughout their lives, indicating limited social mobility.
Those in lower strata are aware of higher strata but see it as unattainable, reinforcing feelings of inequality.
Transformative progress is sometimes visible within a single lifetime, e.g., in China.
*Example of transformative progress:
Couple born in rural Sichuan Province in the 1960s.
Became rice farmers, experienced famine and the Cultural Revolution.
Their daughter, Xiaoling, attended school for ten years.
After reforms in 1980, farmers could sell more of their rice.
Heard about peasants moving to cities for factory work.
Xiaoling moved to a city, found a factory job, and sent money home.
Opened a business selling cosmetics and jewellery.
Sees opportunities for a better life in the city.
*Common Living Conditions Across Four Strata (Box 1.2)Lowest Stratum:
Cooking: Open fire, smoke exits through hole in the roof
Food and nutrition: Food insecure, majority of food grown by family; often malnourished and among the 800 million people classified as hungry
Clothing: Used, worn, may be inadequate; flip-flops or in many cases still bare feet
Education: Majority now able to attend primary school, but may not complete it
Housing: Self-constructed, natural or found materials, often mud; thatch roof, dirt floors with mats
Furnishings: Any pallet or bed, table, chair, or shelf is self-constructed; no electricity
Water: hand-carried in buckets from public, often unsanitary sources
Sanitation: Pit latrine or open defecation
Transportation: On foot
Second-Lowest Stratum:
Cooking: Basic, but typically use kerosene or some other improved energy source
Food and nutrition: May be food insecure or vulnerable to falling into food insecurity
Clothing: Inexpensive, often used clothing, not well fitting, perhaps inadequate for the weather; worn shoes and rubber-soled shoes
Education: Children finish primary school; on average attend a couple years longer
Housing: Partly and perhaps fully self-constructed; improved floor, corrugated tin roof
Furnishings: Basic tables and seating; fans if electricity; power connection may be illegal and improvised
Water: From a tap, typically outdoors and perhaps a 50-metre-plus walk; needs self-treating with chlorine or boiling
Sanitation: Latrine
Transportation: Bicycle
Second-Highest Stratum:
Cooking: Manufactured burners with improved fuel if not electric plates
Food and nutrition: Usually food secure; but many vulnerable to fall into food insecurity
Clothing: Inexpensive, though new when purchased, and worn or less-expensive shoes and sneakers; expensive clothes as social expectations rise
Education: Children finish primary school; some finish secondary school
Housing: Modest but better constructed, if not comfortable
Furnishings: Electricity, purchased tables, chairs, beds; fans or even a room AC, space heater, a television
Water: Piped directly to house site; may need treating
Sanitation: Toilets, but many lack what the top stratum considers full indoor plumbing
Transportation: Motor bike
Highest ("Rich") Stratum:
Cooking: Modern appliances including modern range, microwave, dishwasher
Food and nutrition: Rich and diverse diet, though obesity may bring other health risks
Clothing: Well-fitting, perhaps designer clothing; multiple, relatively new, comfortable dress and sports shoes
Education: Children complete high school; on average attend at least one year of post-secondary education
Housing: Modern, manufactured, professionally constructed
Furnishings: House filled with consumer goods and durables, wifi, home entertainment centres
Water: Safe water at taps throughout the house
Sanitation: Hygienic, modern bathroom plumbing
Transportation: A car per each adult; or in high density each person is assured reliable transportation alternatives
How Countries Are Classified by Their Average Levels of Development: A First Look
Countries are classified by income, human development, poverty, and governance, providing a multidimensional view of development.
Income is a common but inadequate measure of well-being, as it doesn't capture non-monetary aspects.
The World Bank classifies countries into Low, Lower-Middle, Upper-Middle, and High income, based on GNI per capita.
Many low-income countries have been reclassified as middle-income, reflecting economic growth and development progress.
Income levels can vary greatly within a country, highlighting the importance of income distribution.
In 2018, 16% of the world's population lived in high-income countries (HICs), enjoying a high standard of living.
HICs have a GNI per capita of at least 12,056, reflecting their economic prosperity.
Over 60% of the world's people live in middle-income countries due to growth in China, India, and Indonesia, indicating their significant role in the global economy.
Upper-middle income countries (UMCs) have GNI per capita between 3,896–12,055, representing a transition towards higher income status.
Lower-middle income countries (LMCs) have annual per capita GNI between 996–3,895, facing challenges in poverty reduction and development.
About 10% of the world's population lives in LICs, with GNI per capita below 1,0
1.4 Economics and Development Studies
Economics provides a framework for understanding resource allocation, incentives, and market dynamics, which are crucial for analyzing development challenges.
Development studies is an interdisciplinary field that integrates economics with other social sciences, such as sociology, political science, and anthropology, to provide a holistic understanding of development processes.
Development economics applies economic principles and tools to analyze the specific challenges and opportunities faced by developing countries.
It considers the institutional, social, and political context in which economic development takes place, recognizing that development is not just about economic growth but also about improving human well-being.
Development economics examines issues such as poverty, inequality, health, education, and environmental sustainability, seeking to identify policies and strategies that can promote inclusive and sustainable development.
1.5 The Meaning of Development: Amartya Sen’s “Capability” Approach
Amartya Sen's capability approach defines development as the expansion of people's capabilities to live the lives they value.
Capabilities refer to the set of opportunities and freedoms available to individuals, enabling them to achieve various functionings or activities.
Functionings are the actual achievements or activities that people undertake, such as being well-nourished, healthy, educated, and participating in social and political life.
The capability approach emphasizes the importance of individual agency and empowerment, recognizing that people should have the freedom to choose their own goals and pursue their own well-being.
It highlights the multidimensional nature of development, considering not only economic growth but also social, cultural, and political dimensions.
The capability approach provides a framework for assessing development progress based on the extent to which people's capabilities are expanded and their well-being is enhanced.
1.6 Happiness and Development
Happiness research explores the determinants of subjective well-being, examining factors such as income, health, social relationships, and governance.
There is growing recognition that happiness is an important indicator of development progress, complementing traditional measures such as GDP per capita.
Studies have shown that while income is positively correlated with happiness, the relationship is not linear, and other factors play a significant role.
Social connections, trust, and a sense of purpose are also important determinants of happiness, highlighting the importance of social capital and community development.
Policies that promote happiness may include investing in education, health, and social programs, as well as fostering good governance and social inclusion.
1.7 The Sustainable Development Goals: A Shared Development Mission
The Sustainable Development Goals (SDGs), established in 2015 by the United Nations, provide a comprehensive framework for global development efforts.
The SDGs comprise 17 goals and 169 targets, addressing various dimensions of sustainable development, including poverty, hunger, health, education, gender equality, clean water, and climate action.
The SDGs build upon the Millennium Development Goals (MDGs), expanding their scope and ambition to achieve a more inclusive and sustainable future for all.
Achieving the SDGs requires coordinated efforts from governments, civil society, the private sector, and individuals, fostering partnerships and shared responsibility.
Progress towards the SDGs is monitored through a set of indicators, providing a basis for assessing performance and identifying areas for improvement.
The SDGs emphasize the interconnectedness of development challenges, recognizing that progress in one area often depends on progress in others.
The SDGs aim to leave no one behind, prioritizing the needs of the most vulnerable and marginalized populations.
1.8 Some Critical Questions for the Study of Development Economics
What are the key factors that drive economic growth and development?
How can poverty and inequality be reduced?
What are the roles of education, health, and infrastructure in development?
How can sustainable development be achieved, balancing economic, social, and environmental objectives?
What are the impacts of globalization and international trade on development?
How can effective governance and institutions be promoted?
How can conflicts and fragility be addressed to foster development?
What are the ethical considerations in development policymaking?