ECONOMIC DEVELOPMENT
INTRODUCTION
Economic Growth
Economic growth is a term used to indicate the increase of per capita GDP or other measure of
aggregate income. It is often measured as the rate of change in GDP. Economic growth refers
only to the quantity of goods and services produced. Economic growth can be either positive or
negative. Negative growth can be referred to by saying that the economy is shrinking. Negative
growth is associated with economic recession and economic depression.
Economic growth is the aggregate output that the country resources are able to produce in a
given period of time usually one year, i.e. quantitative changes in the countries economic
development. It is a very necessary condition for economic development in any country. Each
country tries to accelerate the rate of growth of the economy due to the desire to do away with
poverty, human suffering inform of disaster, mutilation, lack of jobs, malnutrition etc. It is the
3rd world countries (less dropped countries) which have to strive most to overcome certain
barriers in economic growth i.e. to break vicious circle of poverty and therefore have to bridge
the gap between East and West.
Therefore, growth entails the sustained increase in the GNP per capita. It does not focus on
objectives like elimination of unemployment, inflation rate, income inequality and income
distribution, poverty in the economy etc. This is because growth model assumes that all these
problems will be solved automatically through what is called trickle down effect through the
process of growth. Therefore growth is not synonymous to development. In development, an
economy has been able to work highly with economic growth but has not been able to solve the
problems thus growth is not equal to development. There is no particular formula for rapid
economic growth for a specific country as each country has a unique historical background in
economy.
Economic development
Economic development is a multi- dimensional concept/process involving major changes in
social structures, popular beliefs/attitudes of the people in national institution in the economy as
well as growth in the economy, eradication of poverty etc.
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With development, there must be an increase in production of goods, and services i.e.
fundamental needs of the poor in the society. The composition of production must be
varied.
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There must be an increase in employment as a mean of production and is a primary
way to income distribution or as factor of production.
•
There must be increase distribution of wealth to the poor from the rich through
political intervention methods e.g. taxes.
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There needs to be an increased production in the rural areas.
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There should aims of promoting local values i.e. local imitative and self reliance.
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There must be structural changes that lead to decline in agricultural sector
contribution to GDP while increasing share of the industrial sectors.
1. There is a shift in the occupation sector of the labor force. Also need to have
increased degree of education and training which is required by the labor force.
2. There ought to be changes in urbanization, changes in technology and the social
attitudes.
Differences between Economic Growth and Development
For a developing country growth is a necessary condition but not sufficient. Thus poor countries
need development for the sustained growth and structural changes. Basic distinction is that you
cannot avoid in development valued judgment (i.e. positive development is seen as a normative
concept, one which is almost synonymous to improvement in the society (Distributive justice).
Growth doesn’t necessarily imply development in economy mainly because of income
(inequality) distribution. Growth is measurable. According to Kuznet, growth is the sustained
increase in population and products per capita which also includes the spread of a system of
production based upon on increased application – of sciences to this definition growth has not
come upon expansion of all factors of production of capital, labor, efficiency it’s in the
production process
In 1960, a traditional mean of development was made. Economic development started to be
viewed as a change or alterations of factors of production and also changes in. employment of
resources such that agricultural contribution declined, whereas industrial share in the GNP
increases i.e. there is the structural change in development.
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Development strategies have focused on rapid in organization, in terms of industrialization etc in
the expenses of agricultural development. Definition of development also include: - non
economic indicators like illiteracy, health conditions etc.
In 1970 there was an new economic view of development after developing countries achieved
certain set of U.N strategies, but still the standard of living remained the same for poor.
Economic development was thus re-defined to incorporate elimination or reduction of poverty,
inequality and unemployment within the context of a growing economy i.e. income in GNP,
investment etc.
Objective of Economic Development
1. To increase economic growth and opportunities in income generation, i.e. high per capita.
The basic features of these objectives are:
o Efficiency in resources
o Innovation and creativity
o Improved design and production process
o Positive attitudes to life and work
o Freedom of choice
2. Elimination of absolute poverty (Poverty eradication)
This is a major goal of economic development. It entails a lot like life sustenance (provision
of all basic needs like cloths, shelter, protection, food etc). Features that arise in the objective
include:
• Provision of basic needs to improve participation in development
• Fair distribution of development gains
• Self-esteem, self-respect, independence, removal of dominance of the economy,
freedom of people from evils i.e. people can shape their destiny and freedom
should go with high variety of choice.
• Reducing the number of people who are below the poverty line.
3. For preservation of environment. Features include:
• Resource maintenance to ensure future availability of production input
• Avoiding of pollution to ensure life sustenance.
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4. To have an upward movement of entire social system. Modernization will lead to;
• social and economic equalization
• Modern knowledge
• Improvement of institutions
• Changes of beliefs and attitudes of people
5. Capital formation or accumulation through industrial development
6. Control population growth and growth of labor force
7. Technological progress
• High technological stock through research which high other field rise agriculture
• Improved methods of doing things.
8. High consumption pattern
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Regional equality in development e.g. DDC
•
Economic diversification
9. Regional equality Economic diversification
10. High employment levels.
ECONOMIC DEVELOPMENT
Within the general perception of development concept we can single out economic development
to mean structural changes in technical and institutional arrangements in a well-coordinated
system that aims to ensure an increase in production. Economic development is also concerned
with the welfare of the society. Society is said to be developing if
1. there are positive changes in individuals freedom of choice
2. Positive change in his adaptability to demand improvement.
3. merit in his purchasing power
4. improvement in his self-esteem
Therefore development is a totality concept integrating diverse aspects of individuals including
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cultural development
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political development
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financially development
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socially development
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Requirement of development to take place
i.
Effective economic and social and physical planning to stimulate changes and evidence
in the right direction.
ii.
Willingness on the part of people to accept changes and to work hard for desirable goals.
iii.
preparedness to save from the current income in order to invest
iv.
Effective political and economic management capable of ensuring that available
resources and technology are efficiently combined in production process.
How to Measure Economic Development
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It’s more demanding to measure quantitatively. This is because is related with welfare. It
has many dimension e.g. measure of supply of basic needs, equality of distribution of
wealth, employment, literacy, health etc. Each of this are measured differently as they are
different unit hence to get a single unit of measure is a problem.
WHY DO WE NEED DEVELOPMENT INDICATORS?
➢ They allow us to use a figure for comparing economic development in different countries.
They may be cause or consequences of the development situation.
➢ Economic and social indicators can illustrate the performance of a country in a way that
income alone cannot, in that they demonstrate development changes over time.
➢ They enable countries to be ranked in an attempt to justify aid payments
➢ Indicators give us a tool to evaluate the progress of a country or region economically,
socially and environmentally and so decide on appropriate policies.
MEASUREMENT OF ELEMENTS OF DEVELOPMENT
GNP
Economic development can be measured in terms of real GNP over a long period of time.
This measure has many flaws:
1. Does not consider population growth
2. It ignores costs to society occasioned by environmental degradation, urbanization and
industrialization
3. It ignores the distribution of income
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4. There are many conceptual problems in the measurement of GNP itself.
GNP cannot therefore be said to be a perfect indicator of economic development.
GNP per Capita
•
Economist use GDP per Capita to compare a given country’s wealth. This is the total
value of all goods and services produced within a country divided by the total population.
I.e. studying the rate of increase in real GNP per capita over a long time.
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It is usually measured in US dollars and calculated per head so that it shows effectively
what the average person earns.
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This makes comparisons between different countries easier.
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GDP per Capita is probably the most widely used indicator.
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Most countries produce GDP figures, and there are internationally recognized methods of
calculation.
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This indicator of economic development implies that economic development occurs only
when increase in real GNP is higher than the growth rate of the population
ADVANTAGES
➢ GDP per capita is a useful figure for comparing countries.
➢ It is a good indicator of the state of the economy
➢ It includes all economic activities and it can be broken down into sectors
➢ It is easy to calculate from official government figures
➢ It measures economic growth effectively, although the connection with economic
development is complex.
DISADVANTAGES
➢ GDP per capita hides inequalities as it does not show the distribution of income or wealth
➢ It can be manipulated by governments that want to appear poor to collect more aid.
➢ It does not take into account subsistence production or informal economies which have a
significant impact on living standards in less developed countries.
➢ By comparing all the figures to dollars, misalignment exchange rates can distort values.
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➢ Does not consider population growth, it ignores costs to society occasioned by
environmental degradation, urbanization and industrialization, it ignores the distribution
of income, there are many conceptual problems in the measurement of GNP itself.
➢ The GNP/GDP per capita is not a true indicator of development due to complexity in
definition of development since qualitative attributes are not catered for by GDP per
capita. E.g. std of living, political participation, education, efficient institutions and all
social aspects which are difficult to measure
WELFARE:
Economic development is also measured in terms of economic welfare. Economists define
economic development as substantial, improvement in material wellbeing, which we may
consider to be reflected in an increasing flow of goods and services. Limitations of the welfare
Indicator:➢ Difficulty in the determination of the weights to be attached to consumption, because
consumption of goods and services depends on the tastes and preferences of individual. It
is wrong to use same weight in improving welfare index.
➢ There is difficulty in the valuation of output. Output may be valued at the market prices
while welfare is measured by an increase in real national income. For there to be an
improvement in welfare, the increase in output should not have social costs, such as
deterioration of the working conditions of the labor force.
Welfare therefore, can only stand as a measure of development if it is accompanied by the value
judgments regarding income distribution, composition of output, tastes, real costs and other
particular changes associated with the overall increase in the real sense
SOCIAL INDICATOR
This measure emphasize on the quality of the development process. The social indicators used
include health, food and nutrition, education and training, employment, conditions of work,
consumption of the basic necessities and social security, etc. This measure has the following
limitations
➢ It is difficult to construct a common index of development relating to the said social
indicators. A number of reasons explain this situation.
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➢ There is no agreement among economists as to the number and type of items to be
included in such an index. For example while Hagen uses 11-18 items, Morris uses only
three to construct what he calls Physical Quality of Life Index (life expectancy at birth,
infant mortality and literacy rate).
➢ There is a problem of assigning weights to the various items. This creates room for
subjectivity, which in turn undermines the strength of the index.
➢ Social indicators only reflect current welfare, nothing about the future
➢ Like the welfare index, social indicator involve a lot of value judgment
➢ Most of the indicators are actually the inputs and not outputs. E.g. education, health etc.
NB: The most widely used measure of economic development is the GNP per capita.
OBSTACLES TO GROWTH AND DEVELOPMENT
There are various hindrances to growth and development observed in different economies.
Widespread poverty in developing countries has been associated with
1. Vicious Cycle of Poverty.
It is one of the widely known theories on growth and development and is based on notion that
capital plays a vital role in growth and development process. It explains economic strategies of
every low levels of per-capita output, it was developed in 1950’s and its explanation of under
development from both the supply and demand sides. It attaches much of its weight to capital as
a key factor to stimulate economic development.
The vicious cycle stems from the fact in LDCs, total productivity is low due to the deficiency of
capital, market imperfections, economic backwardness and underdevelopment. This circle has
both a demand and supply sides.
Demand side
Low income implies low purchasing power of the society thus creating the disincentive to invest.
Accordingly, little capital in use in production results to low productivity and therefore lowincome levels. This theory has been criticized by some economists who pointed that the theory
confuses low level of development with low rates of changes in output. Equally, it confuses
levels with rates of savings. It is the rate that matters.
Absolute levels of savings may be low but raise in saving rate will have positive the effect on
economic growth. In some developing countries, low saving rates may not be wholly attributed
to poverty (low income) but to social, political and other institutional factors what may be absent
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is the incentives to save even where potential exists. Some economies have rigid social structures
which inhibit channeling of savings in the production investment. Improvement in technology
may have no direct benefit to the landless.
Supply
The supply side is that low level of real income leads to low savings which in turn leads to low
investment. Low investment leads to capital deficiency, which leads back to low income.
Countries with low income will thus have low capacities to save, resulting to little investments
(capital formation) which affect production negatively.
Low Productivity
Capital deficiency
Low Income
Low Investment
Low Savings
2. Low Rate of Capital Formation.
Capital formation is a major determinant for economic growth; it is both a cause and
consequence of poverty. Marginal productivity of the masses in LDCs is low. This leads to low
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savings, low investment and therefore low rate of capital formation. Labor is more productive if
combined with machinery and equipment. In economies of mechanized agricultural and where
computer serviced industries have been established, production levels have been high. To
achieve significant levels of capital formation and development, it is necessary to have
education, research extension development together with managerial skills.
Developing countries need to fasten their rates of capital formation in order to stimulate growth
and development. It is noted however that indiscriminate importation of capital goods without
efficient combination with other factors which may lead to wastage.
Reasons for the lack of incentive to save and invest in developing countries include: ➢ Imperfect maintenance of law and order, political instability and inadequate macroeconomic framework.
➢ Poor banking facilities in rural areas where majority of the people in developing countries
live has also adversely affected capital formation.
➢ Habits, small domestic markets, difficulties in securing funds for investment, inadequate
skilled labor and factor immobility, inadequacy of basic infrastructure, scarcity of
entrepreneurial ability in most developing countries.
All these factors work to inhibit growth of capital in developing countries. It is also necessary to
maintain these capital goods. Increased production will occur if capital goods are effectively
combined with skilled labour with high degrees of resources management. In order for
developing countries to raise their capital formation, it is recommended that policies that are
geared towards raising net domestic savings are instituted in order to supplement any amount of
capital imported. New capital should be geared towards investments which are employment and
income generating. Human resources development proceeds in any economic development to be
undertaken in any country.
3. Social cultural constraints
Economic development heavily depends on human endowments, social attitudes, political
conditions and historical accidents.
➢ According to the UN report on process and problems of industrialization in
underdeveloped countries, there are elements of social resistance to economic change.
▪
Rigid stratification of occupation
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▪
Social factionalism (caste, class, ethnicity, religion, kinship, etc).
These factors
inhibit social and geographical mobility and reduce the impact of innovations. These
hinder progresses.
➢ Social relations in developing countries are heavily influenced by kinship, clan or creed.
These considerations affect adversely the efficiency of public administration as a lot of
people with great potential are denied chance to contribute to production, while mediocre
ones end up in the positions of influence.
➢ The family being the basic economic and social unit, its attitudes influence economic
development in a number of ways:
▪
Influence population growth rate
▪
They limit the range of individual freedom in making economic decision
▪
Family progress leads to ostentations expenditure to meet social obligations – this
inhibits savings and investment
➢ Developing countries in general and Africa in particular have social attitudes towards
education that are inimical to economic development. Most people prefer purely
academic education that leads to them to white color jobs, at the expense of technical
training. This has led to technological backwardness.
➢ Some religions are also a major hindrance to economic progress. They teach people not
to believe that progress is possible through human efforts. Such religion dogmas hinder
economic growth by inhibiting the transformation of economic, social and political
institutions into viable vehicles for economic development.
The political structure of a society may also discourage new investment from both domestic and
foreign sources. In traditional society where social structures are rigid and changes regarded with
suspicion, development of entrepreneurship will be slow. In countries where political instability
exists resources for development may be diverted to economically non productive uses such as
financing war – defenses.
Fiscal and monetary policies work well in politically stable economy. Transfer of technology
from development to developing countries needs a stable political set up together with well
efficient managers of economic policies and administration.
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4. Agricultural Constraint.
The majority of the LDCs are predominantly agricultural. Agricultural products form a major
part of their GDP as well as their total exports. Agriculture however, faces many constraints in
LDCs:
➢ The availability of technology
➢ Incentive for production and investment
➢ Availability and price of inputs etc.
➢ The poor tropical soil considered with other factors such as heat and torrential rain may
lead to low protein content which in turn may affect human resources development
negatively. The drought, pests and diseases commonly found in tropical areas do reduce
both quality and quantity of agricultural production. (These problems could be
overcomed by combing such factors such as, human skills, capital and advanced
technology as in the cases of irrigation schemes.
The failure to grow by the agricultural sector in the face of rapidly growing population implies that
agricultural output per capital and food output per capital is declining. As a result of this many
LDCs food imports account for over 25% of their imports, which is a major drain on their
foreign exchange. The drop in a agricultural output also implies drop in total exports and hence
foreign earnings. The poor performance of the agricultural sector is therefore a major handicap
facing economic growth.
5. Human Resource Development
This is a major obstacle to economic development in LDCs
➢ Underdeveloped human resources lead to low labor productivity factor immobility and
outmoded methods of production.
➢ Underdeveloped human resources also lead to lack of skills and knowledge necessary to
effectively exploit the available natural resources that bring about economic growth.
➢ Without adequately developed human capital, the physical capital remains underutilized
and/improperly utilized leading to machine breakdown, row material wastage, poor
quality output and high costs of production.
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6. Foreign Exchange Constraints
Involvement of LDCs in foreign trade is characterized by various unfavorable situations. The
development of the export sector has been at the total expense of the other sectors. Their
dependency on primary exports has exposed them (LDCs) to international fluctuations in the
demand for and prices of their products. This is because they export mainly agricultural products
and minerals, they unable to gain from the changes in prices of their products due to the inelastic
supply of these products.
They face market imperfections, inadequate overhead capital and structural dysfunctional, which
hinders the growth in output and employment that should accompany any improvement in the
terms of trade. LDCs face ever deteriorating terms of trade and hence balance of payments
difficulties. This in turn, has led to the need for larger inflows of foreign aid and direct
investment.
Increasing servicing of debt and the related interest plus payment of dividends and profits on
foreign private investment worsen LDCs foreign exchange situation. Shortage of foreign
exchange reserves severely limits the development programmes of LDCs –they need the reserves
to import capital goods.
7. Lack of Industrial Raw Materials
Shortages of raw materials such as coal, copper, petroleum etc, has been cited as a major
obstacle to economic development. Shortages can be overcome with ease through importation
and further processing of the local available raw materials (resources). In short run shortages of
industrial raw materials may significantly affect growth and development level of a country.
However as UK and Japan demonstrated, it may be in the long-run an insignificant factor to
growth and development. The simple existence of industrial raw materials is not a guarantee to
growth and development as indicated by Liberia, China and Bolivia A country with abundant
raw material especially oil stands at an advantageous level to stimulate development. Other
complimentary factors will have to be combined with these natural industrial resources in order
to increase production.
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Under Development
This means economic backwardness of a country or of a nation. Also implies the existence of an
economic potentials that could be realized but it is not exploited. The economy cannot be able to
develop the potential. These economies are the ones that should be ear marked for development.
Underdevelopment can be indicated by the industrialization ratio of industrial output to the total
output. Underdevelopment is failure to utilize fully the productive potentials, given the existing
state of technical knowledge due to certain resistance which includes; Politics, Economic, Social
resistance. It also means backwardness, retardation of economy when compared with other
economy. Also means poverty–failure to assure economy supply of basic needs. All implies low
productivity rate because of capacity under utilization in economy.
Economic transformation.
This entails development from under-development state to developed state. From tradition to
modern ways of doing things. It entails structural changes in all the sectors, institutions and
aspects in economic. From low per-capita to high per capita income, low to high growth rate.
Economy undergoes some transitions. There exist a close correlation between economic growth
and structural changes though the causality is not definite sure what counts the other. The view
that its economic development that causes structural changes is held by one group.
Some of the Main Changes a Country is Likely to Experience
1. Tends to be a shift in production and in employment in favor of industries from
agriculture.
2. The traditional sector tends to diminish as the monetary sector (economy) increase and
agriculture becomes more modernized.
3. There is an increase in complex network of inter-sectoral flow and backward and
forward linkages.
4. There is also an increase in investment hence high rate of capital formation
5. There is also an increase in international trade and its diversification of trade and
trade partner.
6. Changes in ownership of economic resources which increases indigenousition
ofeconomic enterprise, investment, man power etc.
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7. There is relative growth in public sector – revenue, infrastructure etc.
8. Increase in education and skill formation in general
Side Effects of Growth and Development.
1. Can lead to exaggerated consumption and hatred of economy ( people have no interestin
economy and the former is wasteful styles of living)
2. Increases military budget which is un necessary expenditure
3. Due to industrialization vices which includes
o Pollution
o Crimes
o Prostitutions.
4.To achieve high growth rate more effort is used at the expenses of leisure to achieveadditional
output.
Characteristics of Less Developed Countries
There are key features, both in terms of economic and social aspects generally observed in most
developing countries. The extent of these features may however differ across these countries.
1. High population growth rate
Some even exceed 3% rate of growth per annum. This high population growth rate has continued
to increase despite increase in medical wisdom on family planning and other methods of
population control. Education and urbanization have resulted to significant decline in average
family size in urban center but not in rural areas. In some countries more than 50% of population
is between economically productive age group resulting to high dependant ration. The high
population means constraining the economy in provision of adequate food, health and shelter.
Few have achieved self sufficient position in foodstuff and heavily rely on importation. This
diverts the little foreign exchange from development projects. The high population size has also
resulted to high population density and fragmentation of land to uneconomical sizes/units, which
has had negative impact on production of agriculture. These developing countries have as a
result of high population growth rate and low productivity been observed to have low income per
capita. High rates of unemployment both in rural and urban area is also a key feature observed in
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this developing economy. This high rate of unemployment may also be attributed to high rate of
growth rate. This is worsened by this economies incapability to create new jobs.
2. Dominance agriculture sectors
Agricultural sector provides means of livelihood of majority of people in developing country.
Production methods in agricultural sector are usually traditional with low ratios of capital to
labour leading to low levels of output. The agricultural sector in some of the countries is highly
of subsistence with no formal market. The emerging manufactures sector is still in development
stage using little mechanization and capital equipment. The countries have low levels of
technology due to low income level. Domestic savings is absent affecting new investment
establishment negatively. The low capital fragmentation has inhibited development of modern
equipments and machinery
The share of GNP set aside as savings, is very low. The economy also portrays significance size
of primary production specializing in production of a few products mainly agriculture and
unprocessed product. In some, more than 70% of population is indirectly or directly employed in
this primary sector, particularly in construction, fishing and forestry. They mainly export one or
two of these raw as unprocessed products.
3. Highly unequal distribution of income
Significant percentage of output and resources usually concentrate in a relatively small group in
the society. In some more than 70% of the arable land is owned by less than 10% of the
population. Unequal distribution of resources is so due to several factors:
➢ Ownership of resources which is a extreme where only few managed, after
colonialism to secure physical materials
➢ Also due to political structures of the country e.g. Family and tribe (nepotism and
tribalism
4. The Dualistic economy.
Most developing countries depict dualistic pattern of economy. On one hand there is the market
structure which uses the producible capital and wages labor for profit making. On the other hand,
there is non-capitalistic i.e. agricultural oriented. Dualism is also characterized by existence of
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advanced industrial system and indigenous background rural sector. In midst of trade,
agriculture, trade and services though exist a modernization increase consisting of agriculture,
process, mineral extraction and a relatively small manufactures sectors geared towards export
market. In many of these economies such enterprises are owned and run by foreign investors.
There is a relatively small section of the society dealing in monetary and capital sector market in
additional to the large subsistence especially in rural areas.
5. Low levels of social and economic infrastructure.
Transportation, communication and power supply in most of these countries is still undeveloped
which has affected negatively production capacity especially in agriculture sector.
6. Technological backwards
The level of innovation and activities in developing countries is very low but elements of
technological activities though visible there is evidence of shortage of large-scale utilization of
modern technology. Lack of technological development is depicted through high labour outputcapital output ratios, and high average cost in production processes. The dualistic nature of the
countries is both a cause and result of technological backwardness. The modern sector relies on
technological advancement on production of goods for people with high income mostly in urban
areas. There is dominance of traditional methods of farming (production) in rural areas where the
majority of poor people live.
7. Dependence on foreign trade.
There is lack of economic independence both in nature and planning processes of developing
countries. Most of these countries trade on primary product for consumer’s durables and
intermediate goods. This has led to a situation where: ➢ There is no reasonable degree of self sufficiency
➢ There is lack of diversification of sources of destination of important import and
Export
➢ There is lack of freedom of the country to formulate its economic objectives and
policies and to pursue them without undue influence form other countries.
8. Poverty
A large section of people in less developed countries live in a condition of life so degraded by
diseases illiteracy, and malnutrition that denies the people basic human necessities. This
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condition of life is reflected through people’s consumption shelter and sanitary facilities, medical
and education n requirements.
9. High adult illiteracy level.
It is estimated that more than 50% of adult cannot read or write.
Poor housing facilities
This is so with no basic facilities like water, sanitation. This is more felt in rural areas.
Poor medical services
We measure by the number of doctors per thousand people. If you have 1 doctor/ 10,000
people show a problem also the number of hospitals per population.
Deterioration in commodity prices
Africans countries are heavily dependence on few primary commodities for their exports
earning. External factors such as poor prices and unfavorable weather condition have adverse
affect on the performance of the economies that specialize in primary commodities.
10. Poor political and economic management.
This has mostly led to internal upheavals in some parts of Africa e.g. Sudan, Angola. Somalia,
Chad. The social disturbances affect development process since there is no guarantee of
properties security. Administrative infrastructure is usually broken and thus production system is
ineffective.
3. DEVELOPMENT STRATEGIES
A strategy is a plan of action for accomplishing specified objectives, including ideology, policies
and resources required to achieve those objectives.
Strategies for development can be categorized into two broad categories:
(i)
Micro-type strategy – Specific
(ii)
Macro-type strategy –General
Micro-Type Development Strategies
➢ Generally micro-type strategies are based on the assumption that countries are
interdependent
1. High Capital Inflow
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➢ In this strategy, substantial investment is financed by aid, foreign borrowing, or FDIs.
➢ The strategy is characterized by inflow of foreign resources into readily growing sectors
to boost growth of GDP.
➢ There is no concern about the B.O.P. problems that may be caused by such inflows in the
long run
➢ High risk of dependence resulting from discouragement of domestic savings and
investment
2. High Primary Exports Strategy
➢ Development is export-led; but exports are entirely primary products. It is argued that the
only way to pay for imports is by exporting.
➢ Both colonial and non colonial powers believe that LDCs have comparative advantage in
the production of primary products
➢ The problem however, is that an economy cannot sustain growth by continuously
investing in the production of primary goods.
➢ A shift to the industrial sector is necessary.
3. Moderate external Capital Inflow
➢ This is normally employed by small countries which don’t need many imports.
➢ Such economies are involved in light manufacturing industries basically in agricultural
products
➢ This is only a temporary strategy, as it cannot facilitate substantial expansion of the
economy.
➢ Such an economy does not have capacity to import heavy capital equipment.
4. Low External Dependence Strategy
➢ It is also called self-sufficient strategy.
➢ Reliance on domestic savings to finance investment both in agriculture and industry
➢ It works for large countries with vast natural and other resources
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Macro-Type Strategies
1. Technocratic strategy
➢ Objective is to increase output i.e. pursue growth
➢ Ideology is capitalism, where growth is driven by the private sector, without government
interference
➢ Property is privately owned.
Economies that employ the technocratic strategy are generally characterized by the following:
➢ Inequality in income distribution, which is good for capital accumulation and investment
➢ A widening gap between the haves and have-nots
➢ High rates of growth in GDP
➢ Large firms owned by a few people.
2. Reformist Strategy
➢
Objective is to redistribute income and wealth as well as encourage growth
➢
Ideology is nationalist/populist
➢
Economies pursuing this strategy of development have the following
characteristics:
▪
Dualistic development – where income redistribution tends to create two
sectors in the economy
▪
Small family farms
➢ Co-operative farms – this result from the fact that the available land is inadequate to be
given to everyone. People work on one farm jointly and share proceeds.
➢ This strategy of development tends to benefit the following categories:
▪
Middle income farmers
▪
Progressive farmers
▪
Civil servants and those who have retired
▪
High income and influential urban dwellers
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3. Radical Strategy
➢ Objective is to achieve social change through redistribution of political power, wealth
(assets) and income
➢ Ideology is that of socialism
➢ Economies using this strategy have the following characteristics:
▪
Economic equality
▪
Intensive use of local resources
▪
Mass participation in development activities
Note that Kenya employs a mixture of technocratic and reformist strategies of development
4. Basic Needs Strategy
Features of Basic Needs Strategy
1. It identifies the poorest groups in the population and diverts basic goods and services to
those groups.
2. It is concerned with absolute poverty
3. It tries to involve the beneficiaries of basic needs in their supply and management. It
emphasizes access to goods and services which are available
4. Its focus is on the people
5. It also focuses on non-material benefits e.g. freedom of expression, protection of
environment, etc.
Issues in Operational zing Basic Needs Strategy
1. Develop methods of identifying the poor/vulnerable groups in the population. The poor
are those who can’t meet their basic needs. Income or nutrition criterion applies in this
case.
2. Assess the magnitude of the poverty problem
3. Assess the available resources to deal with the problem
4. Determine the type of services to provide and the appropriate delivery systems
5. Determine the incentives to be employed
- Poverty afflicts 40-70% of the total population in LDCs.
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Food poor – 50%
Water poor – 69%
Shelter poor – 67%
- LDCs need to spend about 12-16% of the GDP in order to alleviate poverty
Poverty and Poverty alleviation Programmes in Kenya
1. Construct indices for identifying the poor in Kenya.
(i)
Food poverty line
(ii)
Income poverty line
➢ Food poverty refers to a situation where a household has inadequate resources to buy the
necessary dietary foodstuffs.
➢ Income poverty on the other hand refers to a situation where a household receives an
income less than the required level to enable it afford to buy its basic needs.
Determinants of Poverty
1. Lack of land (inadequate land)
2. Low level of non-farm income
3. Irregular wage income usually in agricultural sector
4. Low levels of education
5. Lack of innovation or entrepreneurship
6. Lack of agricultural credit
7. Inappropriate technology in the marginal areas
8. Lack of access to social services like communication services, etc.
Causes of Landlessness
1. Privatization of land tenure system
2. Land sales to pay fees and personal debts
3. Out migration to urban areas
4. Family instability
5. Land grabbing and violent evictions
6.
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Issues in Land Ownership
1. Land ownership concentration
2. Small Golden innovations
3. Conflict between rural to rural migrants and the pastoralists.
a) Policies to Arrest Land Ownership Concentration
(i)
Intervention in land markets through land taxes, capital gain tax and legislative
restrictions
(ii)
Improve return on alternative assets like bonds and savings
(iii) Income redistribution through progressive taxation
(iv)
Redistribution of land to the landless
b) Policies to Improve Small Holder Innovation
(i)
Improve access to credit
(ii)
Improve access to non-farm income
c) Policies to Reduce Conflict between Rural-Rural Migrants and Pastoralists
(i)
Privatize land tenure system in the marginal areas to minimize migrant conflicts
(ii)
Provide social services and social infrastructure like schools, roads, etc
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