Key Issues in this Chapter
1. Introduction: Our 2 Contrasting Worlds
2. Why Study Development Economics?
3. Meaning Economic Development (Its
Evolution)
Bono-U2 Lead Singer
Bono's call to action | Video on TED.co
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“…where you live should not determine
whether you live or die early”
One World-as we know it
Two Contrasting Features
The Contrast…
The Contrast…
The Contrast can also be seen
in terms of numbers…
Black Shaded:
15% of the World
Population
50% of the World GDP
White and Dark Grey:
50% of the World
Population
 just 15% of the World
GDP
The Contrast in numbers…
 The average person in a typical family living in those
countries that account for 15% of the world population and
50% of the world income …




Has and/or lives in a comfortable home;
Has enough to eat,
Is well clothed and healthy;
Has financial security and/or a Prosperous Future..
 “
Developed Economies”
The Sharp Contrast…
 On the other hand, the average person from a family in
those countries that account for 50% of the world
Population and 15% of the world income




Is much less fortunate;
Has little or no shelter;
Is illiterate, unemployed;
Has inadequate food supply and uncertain future….
 “
Developing Countries”
The Contrast…
 Implication:
 We live in a world characterized by a
SHARP CONTRAST
 Read Text Book Examples/Stories on Pages 2-5: The
contrast between life in:
 North America and Rural Asia
 Big cities in South America and East Africa
 Where a person is born and lives actually determines
whether that person dies early or lives longer.
The Sharp Contrast…
 ..and most of us know very little about the
other half of the world.
 That is, how the other half lives; why people in the
other half of the world do what they do; why they do it
the way they do, and not in the ways we think they
ought to do)
 This course is designed to expose you to
life looks like in the other half of the
and why it is so; the rationales behind
decisions of people in the other half of
world?
what
world,
the
the
2. Why Study Development
Economics?
The list of 27 issues that development economics
specifically helps you to understand are
provided on pages 9-11
2. Why Study Development
Economics?
1.
It enables us to have a systematic understanding of
the economic problems and issues facing people in the
other half of the world, and formulate our judgment
and conclusion about their activities on the basis of
relevant facts and statistical information.
2. Why Study Development
Economics?
2.
Enables us to NOT make simplistic conclusions (based
on a snapshot of facts) but rather take into account
the interdependence of factors (economic and noneconomic variables such as institutions and social
systems) in building our conclusions…..
2. Why Study Development
Economics?
3.
Enables us to re-evaluate the decisions we make in our
individual quest for success, happiness, and security
by allowing us to challenge the traditional wisdom
3. The Meaning of
Economic Development
(A historical Perspective)
3. The Meaning of
Economic Development
 For it may refer to:
 material wants (Food Shelter, Clothing) and
Nonmaterial Wants ( education, knowledge,
fairness) and the crucial role that values,
attitudes and institutions play in the
decisions that people take,
 economic development may mean different things
for different People
What Do we Mean by
Development?
 Prior to 1970:
 Economic development meant the ability of a
national economy (whose initial condition has
been static for a long time) to grow and sustain
a 5-7% annual increase in the per capita gross
national income.
 a 5-7% increase in the value of all goods and services
produced by national resources of a country
 Growth in per capita income levels was taken as a measure
of economic development status of a country.
 That is, per capita income growth was taken as an
indicator of the ability of a nation to expand its
output at a rate faster than the rate of growth of its
population.
What Do we Mean by
Development?
 Prior to 1970:
 Economic development has also been taken as a planned
alteration of the structure of production and employment
of a country.
 Accordingly, a decline in the employment and output
share of agriculture and a rise in the manufacturing and
service sector share of the economy would indicate
economic development.
What Do we Mean by
Development?
 The premise for both of these approaches was that if the
national output expanded faster than the growth of
population:

1. the benefits would eventually trickle down to the masses.
“Trickle Down Approach”
2. rapid expansion of the manufacturing and service sector
would enables achieving such a goal faster and better than
the expansion of agricultural sector
 In both cases, development was purely seen in economic
terms (rapid growth output (GDP) per person)
What Do we Mean by
Development?
 Thus many countries implemented programs that involved
alternation of their national economies and projects
that led to increased output levels.
 Consequently some were able to achieve the growth
targets (5-7% annual growth); some economies were able
to grow even faster.

For example, there was faster economic growth in the
industrialized countries, particularly in USA, Canada, Europe,
and many other parts of the world (Specifically in some Asian
Countries)
What Do we Mean by
Development?
 However, the levels of living of the masses of people in
many of these and other countries remained for most part
unchanged;
 the living conditions of people particularly those in
Africa, Latin America and South Asia worsened.
 This signaled that some thing is wrong with the
existing “definition of development” where
economic growth was being equated with economic
development
 “It may be that growth is not the same as development”
What Do we Mean by
Development?
 A modified view of development economics ( Late
1970s)
 Increase in per-capita income (i.e., growth) coupled
with reduction or elimination of poverty, inequality
and increased opportunities for employment.
What Do we Mean by
Development?
 In the modified view,
 Economic Development = Growth in PCI + Reduction in
Poverty, Inequality & Unemployment.
 According to this view, in the face of increasing
poverty, inequality and unemployment, it would be
strange to take (equate) even a doubling of per
capita income (resulting from even more than 5-7%
growth of GDP) levels as (to) an economic
development.
What Do we Mean by
Development?
 Even with the modified approach to of viewing economic
development, there were economists who argued that:

Development is not merely a question of economics and/or a
quantitative measurement of income, poverty and inequality.

For example, according to Denis Goulet (1971), it is not
possible to define economic development (and therefore, how it
should be achieved) without understanding “Economic
underdevelopment”
What Do we Mean by
Development?
Denis Goulet (1971):
 Underdevelopment
 …A sense of personal and societal impotence in the
face of disease and death, confusion and ignorance..
 … Hopelessness when faced with hunger and natural
catastrophe
What Do we Mean by
Development?
Denis Goulet (1971):
 Underdevelopment
 …living in a chronic poverty, which is a cruel kind
of hell…one you can’t understand how cruel it is
merely by gazing up on it as an object…
What Do we Mean by
Development?
Denis Goulet (1971):
 Underdevelopment
 …is one you can speak about it objectively ONLY
after undergoing personally or vicariously through
its shock…
 http://www.encyclopedia.com/video/526BTs_DR
oE-poverty.aspx
What Do we Mean by
Development?
 These and related arguments that prevailed in the
1980s led to the rethinking economic development as
something completely different.
 Consequently….
What Do we Mean by
Development?
 A further modified view of development
appeared in the early 90s (1991, World
Bank).
 “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.”
 In this view, the emphasis is not only growth but
also the improvement in the quality of life
What Do we Mean by
Development?
 Quality of life as depicted by better
education, higher standards of health and
nutrition, less poverty, clean environment,
more equality and greater freedom…
 This meant that economic development has to be
understood as a process that involves moving
people from a condition of life perceived as
unsatisfactory to one that is materialistically
and spiritually better…
What Do we Mean by
Development?
 Taking this into account, Amrtya Sen, a leading
thinker of the meaning of economic development,
provided a new definition in 1998
 ..Development is a process that involves improvements
in the “
capability to function”…
 One that enhances the lives we lead and the freedoms
we enjoy….
What Do we Mean by
Development?
 Amrtya Sen (1998),…..
 Growth in income levels is not the end but the means
to an end. Hence, whether a person is poor/non-poor
can’t and should not be measured by his/ her income
or utility
 Whether a person is poor/non-poor should
rather be measured based on the capability of
the person to function:
 What a person is …, What a person can be…,
What a person does…, and What a person can do…
What Do we Mean by
Development?
 The new definition of economic development
emphasized human “well-being”—which is to be
well in the basic sense of:
 being healthy, well nourished, being highly
literate, and having the freedom of choice in
what one can become and can do
What Do we Mean by
Development?
 The new approach of describing development “improving
the capability of individuals” also has implications
for policy formulation:
 Economists and policy makers now place more weight
on:
 Health, education and social inclusion and
empowerment in describing the economic
development status of a country than income
growth.
 Growth without development is possible

—a situation where a country achieves (has) high income
levels, but most of its population has poor health and low
education standards.
What Do we Mean by
Development?
 Adopting Sen’s capability approach, we can take the
following as a working definition of economic
development
 Economic development is a sustained improvement of the entire society
toward a “better” and “more humane” life (a process that involves not
only increased income but also improvement in the capability of
individuals to function (hence, better life and expanded opportunities).
What Do we Mean by
Development?
 What constitutes “good life” may be different
at different times and for different countries.
 However, the following three basic components/values
may serve as a conceptual basis and practical
guideline for understanding the inner meaning of
economic development, and hence better life:
What Do we Mean by
Development?
 These core elements (components of good life) are:
1.
Sustenance:

the ability to meet basic needs (food, shelter, health and
protection). When these are in critically short supply, the
nation is in a condition of “underdevelopment”
2. Self Esteem:

To be a person with dignity, respect, honor and recognition. A
sense of worth and self-respect, of not being used as a tool by
others for their own ends.
3. Freedom from Servitude:

Freedom from ignorance, misery, institutions, and dogmatic
beliefs). I.e., to be able to choose.
What Do we Mean by
Development?
 As a result, in all societies, today economic
development is being conceived as a process
with the following three objectives:
1. Increasing the availability and distribution of basic life
sustaining goods and services
2. Improving the levels of living (jobs, education, better
health, and the cultural and human values)
3. Expanding the range of economic and social choices to
available to individuals
What Do we Mean by
Development?
 To meet these objectives, in September 2000,
about 189 member countries of the United
Nations gathered in New York and adopted: The
MILLENIUM DEVELOPMENT GOALS (MDGs)
 These goals were set to be achieved by 2015.

Read the list of eight MDGS on page 24 and the
progress made to that end on page 25.
Development and Happiness:
Three questions
 The goal of economic development is to make
all people to be well-off. That is, to
improve human well-being. Important
questions, thus arise:

Is happiness part of human well-being?

Does greater happiness expand an individual’s capability to
function? (Can we include happiness in the list of
functioning's that describe how well we are?)
Development and Happiness:
Three questions
Is there a relationship between income and level
of satisfaction (happiness)?


The average level of happiness (satisfaction) increases
with a country’s average income level (per capita
income)
Example: About 4X the percentage of people in
low income countries report that they are not as happy
as those in high income countries.
Development and Happiness:
Three questions
Is there a relationship between income and level
of satisfaction (happiness)?
The positive relationship between income and happiness is,
however, seen only up to certain level of income:


10,000 -$20,000.

Beyond that we do not see a positive correlation between income
levels and happiness
Development and Happiness:
Three questions
3. Is there a relationship between income and level
of satisfaction (happiness)?
Implication:


PCI level of 10,000 -$20,000 is a level at which we can say most
people in a country escape from extreme poverty.

Have
Financial security and hence are happy.