MODULE 1 - ECONDEV
DEFINITION OF ECONOMIC DEVELOPMENT
“To achieve economic development”—this has always
been the goal of every government, every nation.
• Throughout history, we have seen how countries
struggle to succeed in providing their citizens a
prosperous and sustainable economy.
• We have also witnessed how, despite massive efforts
and policy reforms, many countries remain poor and
“developing”.
The primary concern of Economics is SCARCITY--how
everyone satisfies the unlimited wants and needs in
a world of limited resources.
SCARCITY
• circumstance in which the amount of something
available is insufficient to satisfy the desire for it.
• a condition where the number people desired to
consume is greater than their capacity to spend or
pay for.
• The problem of scarcity occurs because people and
societies, in general, are unable to satisfy their
unlimited wants and needs given the available
resources.
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Since the central concern in Economics is the scarcity
of resources, there is a need for a systematic and
logical way of allocating them. For instance,
households have limited income to allocate goods
and services.
Moreover, the firm's production is limited by costs of
production and the government agencies' budget is
limited, so goals must be carefully chosen. This is
where the study of economics comes in handy.
Economists study the decisions made by households,
firms, and governments. They also explain how our
economic systems operate, make predictions for the
future and recommend ways to realize favorable
predictions.
➢ Thus, to understand the concept of development
requires a deep understanding of how the economy
works and how the problem of scarcity is addressed
by societies. To achieve development is to overcome,
to a large extent, economic problems of production,
consumption and allocation of resources, as
determined by the choices made by the population,
whether individually or collectively.
DEVELOPMENT
Todaro and Smith (2015) define development as “the
process of improving the quality of all human lives
and capabilities by raising people’s levels of living,
self-esteem, and freedom.”
➢ This means that aside from having increased
income, development also means having improved
quality of life by having more capabilities and
opportunities to realize one’s goals and aspirations in
life. It also means more freedom to make choices,
with the confidence to pursue them given one’s
abilities and resources.
TRADITIONAL
MEASURES
OF
ECONOMIC
DEVELOPMENT
To help us understand how economic growth and
economic development are measured, some important
economic concepts need to be defined. These concepts
may be familiar to you already as you may have
encountered them in your previous Economics courses.
GROSS DOMESTIC PRODUCT (GDP)
• The market value of all final goods and services
produced in a country in a period of time, almost always
one year.
• The expenditure approach of computing GDP has the
following formula:
GDP = C + I + G + (X – M)
where:
C= personal consumption expenditures
I= gross private domestic investment
G= government expenditures
X= exports
M=imports
Gross National Product (GNP):
• Output produced by a nation’s factors of production no
matter where it takes place. Alternatively, this is
measured in terms of income, thus gross national
income (GNI) is more commonly used.
Note
➢ GDP is geographically focused, including only output
produced within a nation’s borders regardless of
whose factors are used.
➢ For example
• Suppose a Japanese firm is operating in the
Philippines. Its production and income will be
included in the computation of the Philippines'
GDP (because the production and operations
take place inside the country) and
•
In the computation of Japan’s GNP or GNI
(because the resources used are Japaneseowned). In the same way, if a Filipino firm
operates in South Korea, the firm’s income will
be part of South Korea’s GDP and the
Philippines’ GNI.
GDP per capita (GDP per person) or income per capita
• The expenditure and income of the average person in
the economy. This is computed as "GDP divided by the
number of the population" and is commonly used as a
measure of a nation’s standard of living.
Economists have traditionally limited the definition of
development to “achieving sustained rates of growth
of income per capita” in order to produce goods and
services at a rate faster than its population growth. Thus,
development usually meant changing the structure of
production and employment from the agricultural sector to
manufacturing and service industries. Agriculture and
rural development often suffer as rapid industrialization is
being promoted. In short, the emphasis is to increase
production, as measured by GDP, and the problems of
poverty, discrimination, unemployment and income
distribution are not of primary focus.
Other concepts that will be useful for future
discussions are:
• Nominal GDP
-values the production of goods and services at
current prices.
• Real GDP
-values the production of goods and services at
constant prices.
• Business cycles (economic fluctuations)
the rise and fall of economic activity relative to the
long-term growth trend of the economy
• Expansion (also known as economic growth)
a period when real GDP is growing
• Recession (or economic contraction)
a fall in the level of real GDP for at least six months,
or two quarters of the year
• Depression
a very severe recession
THE NEW ECONOMIC VIEW OF DEVELOPMENT
• From the previous section you learned that
development has been traditionally narrowly defined
as increases in the nation’s production and income,
as measured by its gross domestic product (GDP).
However, the experiences of many developing
countries in the 1960s and 1970s, which worsened in
the 1980s and 1990s, proved that having increases in
the GDP is not enough to improve the lives of their
citizens. Despite having high GDP, they still have to
deal with the problems of unemployment, inequality
and uneven income distribution. This paved the way
for the reconsideration of how development is
defined.
or two of these central problems have been growing
worse, especially if all three have, it would be strange to
call the result “development” even if per capita income
doubled.”
Based on the above questions, Todaro and Smith
(2015) provide this insight on the definition of
development:
“Development must therefore be conceived of as a
multidimensional process involving major changes in
social structures, popular attitudes, and national
institutions, as well as the acceleration of economic
growth, the reduction of inequality, and the eradication of
poverty. Development, in its essence, must represent the
whole gamut of change by which an entire social system,
tuned to the diverse basic needs and evolving aspirations
of individuals and social groups within that system, moves
away from a condition of life widely perceived as
unsatisfactory toward a situation or condition of life
regarded as materially and spiritually better.”
THREE CORE VALUES AND OBJECTIVES OF
DEVELOPMENT
SOCIETIES AND INDIVIDUALS
• strive to achieve common goals that relate to the
fundamental human needs. These three core values
are sustenance, self-esteem and freedom.
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•
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Dudley Seers (as cited in Todaro and Smith, 2015)
posed this assertion to emphasize this need to
have a better definition of development:
“The questions to ask about a country’s development are
therefore: What has been happening to poverty? What
has been happening to unemployment? What has been
happening to inequality? If all three of these have declined
from high levels, then beyond doubt this has been a
period of development for the country concerned. If one
•
Sustenance: The ability to meet basic needs
The primary purpose of all economic activities of
production and consumption is to provide for the
needs and wants of the people and to help them
overcome the helplessness and suffering that come
from having deficiencies on food, shelter, health and
protection.
This means that increasing per capita incomes,
eliminating absolute poverty, providing employment
opportunities and decreasing income inequalities are
“necessary but not the sufficient conditions for
development.”
Self-Esteem: To Be a Person
Self-esteem refers to the “sense of worth and selfrespect, of not being used as a tool by others for their
own ends.” This may be identified as authenticity,
identity, dignity, respect, honor or recognition and its
nature and form varies across societies and cultures.
As the world puts value on material wealth and gives
recognition to people who have wealth and power,
achieving development is said to be a significant way
of having esteem.
Freedom from Servitude: To Be Able to Choose
According to Amartya Sen, a Nobel laureate in
economics and leading development thinker,
“development is freedom”.
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•
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It involves the ability to free one’s self from social
servitude to nature and other people, oppression,
poverty, among others.
It means having expanded range of choices and the
ability to pursue such choices.
For example, to have development is to be able to
enjoy you wish to enjoy like food, travel, leisure as
well as have good access to services like health,
education and transportation. Human freedom also
covers the components of political freedom such as
“personal security, the rule of law, freedom of
expression, political participation and equality of
opportunity.”
The Three Objectives of Development
➢ At this point you may have learned that development
is achieved through a combination of social,
economic, and institutional processes, all for the
attainment of improving people’s lives. Thus, among
the common development objectives for all societies
should be:
1. To increase the availability and widen the
distribution of basic life-sustaining goods
➢ such as food, shelter, health, and protection
2. To raise levels of living,
➢ including, in addition to higher incomes, the provision
of more jobs, better education, and greater attention
to cultural and human values, all of which will serve
not only to enhance material wellbeing but also to
generate greater individual and national self-esteem
3. To expand the range of economic and social
choices available to individuals and nations
➢ by freeing them from servitude and dependence, not
only in relation to other people and nation-states, but
also to the forces of ignorance and human misery