INTRODUCTORY LECTURES IN ECONOMIC DEVELOPMENT RICH VERSUS POOR Often used in relative sense. A “poor” person has less income, wealth, goods, or services than “rich” person. When considering nations, economist often used gross domestic products (GDP) ⁰per capita as an indicator of average well-being within a country. GDP is the total market value, expressed in dollars, of all final goods and services produced in an 1economy in a given year. In i sense, a country’s GDP is like its yearly income. So, dividing a particular country’s GDP by its population is an estimate of how much income, on average, the economy produces per person (per capita) per year. In other words, GDP per capita is a measure of a nation’s “standard of living”. Defining Poverty Poverty is about not having enough money to meet basic needs including food, clothing and shelter. World Bank Organizations: “Poverty is hunger. Poverty is lack of shelter. Poverty is sick and not being able to see a doctor. Poverty is not having access to school and not knowing how to read. Poverty is not having a job, is fear for the future, living one day at a time. A universal theme reflected in these seven quotes is that poverty is more than lack of income – it is inherently multidimensional, as is Economic Development. Comprehensive Data on Global Poverty (2013) ❖ Living Below the International Poverty Line – 719 million people (9.2 percent of world population). ❖ 1.2 billion people in 111 developing countries live in multidimenstional poverty, accounting for 19 percent of the world’s population. ❖ 24 percent of the world’s population, which equates to 1.9 billion people, live in fragile contexts, characterized by improvised conditions and dire circumstances. ❖ Over 37 million people were livings in poverty in the U.S. in 2021. Children account ofr 11.1 of those. Poverty Line. A set amount of income below which it becomes difficult, if not possible, for people to afford essentials like food and shelter. Each country determines its poverty line by calculating the cost of meeting minimum needs. Household with income below this line are considered to be living in poverty. ⮚ The international poverty line, adjusted recently, is $2.15 per person per day. ⮚ In the U.S., the poverty line is $30,000 a year for a family of four. For individual, the poverty line is $14, 580 a year, or about $56 per day. ⮚ In the Philippines, the poverty line (or poverty threshold) is P12, 030 per month, or P79 per day per person to spend on food and non-food requirements. In the first six months of 2023, 164 of 1,000 families, or 16.4% are considered poor in the Philippines. Multidimenstional Poverty. A poverty not solely about income. Even if their income is above the poverty line, their family may still not have basis services such as electricity, access to clean water, sanitation, and education. WHY ARE SOME COUNTRIES RICH AND OTHERS POOR? Ans. Differences in the economic growth rate of nations often come down to differences in inputs (factors of production) and differences in total factors productivity (TFP) – the productivity of labor and capital resources. Higher productivity promotes faster economic growth, and faster growth allows a nation to escape poverty. FACTORS THAT INCREASE PRODUCTIVY (AND GROWTH) 1. 2. 3. Institutions. Provides incentives for innovation and production. Government. Play an important part in the development of nation’s economy. International Trade. Increasing increase to international trade can provide markets for the goods produced by less-developed countries. Also increase productivity by increasing the access to capital resources. Escaping Poverty People Lies in rising levels of income Countries Increasing the amount of output (per person) that their economy produces. In short, economic growth enables countries to escape poverty. How Do Economies Grow? Economic growth is a sustained rise over time in a nation’s production of goods and services. How can a country increase its production? An economy’s production is a function of its inputs, or factors of production (natural resources, labor resources, and capital resources), and the productivity of those factors (specifically the productivity of labor and capital resources), which is called total factor productivity (TFP). How to Increase TFP to Escape Poverty While there are many factors to consider, two stand out: institution and trade. 1. Institution Economists suggest that institution such as property rights, free and open markets, and the rule of the law provide the best incentives and opportunities for individuals to produce goods and services. 2. Trade Poorer nations use trade to access capital goods (advanced technology, equipment, etc.) to increase their TFP, resulting in a higher rate of economic growth. Trade also provides a broader market for a country to sell the goods and services it produces. Removal of trade barriers could close the income gap between the rich and poor countries by 50 percent. WHAT IS ECONOMIC DEVELOPMENT? ECONOMIC + DEVELOPMENT ECONOMICS is a branch of Social Science that deals with the study of the allocation of limited resources for production, distribution, and consumption of goods and services to satisfy the unlimited needs and wants of people. Economics is the study of choice. Because of limited time resources, you are forced to make a decision or choice. Because there is a scarce of time resources, you have to trade-off. But in your decision or choice, there are consequences. DEVELOPMENT is the process expanding human freedom. It is “the enhancement of freedoms that allow people to lead lives that they have reason to live”. Hence “development requires the removal of major sources of unfreedom: poverty as well as tyranny, poor economic opportunities as well as systematic social deprivation, neglect of public facilities as well as intolerance or overactivity of repressive states”. –Sen 1998 Example: Father, construction worker. Family always eats sardines. Study under TESDA. Welder. Income increases. Level up. Instead of sardines, now eat chicken due to increased income. From sardines, now pork or chicken. That’s progress. Development. ECONOMIC DEVELOPMENT Add or connect Economic to Development. Not just choosing goods and services, but the totality of choosing. How are we going to choose to progress? To level up? Through the use of economic theories, principles, approaches, etc. and it would be a good help in attaining progress. ECONOMIC DEVELOPMENT OR DEVELOPMENT ECONOMIC For our class, we will use them as synonymous. The subject is Development Economics and the its goal or target is Economic Development. Definition The branch of economics that focuses on improving fiscal, economic, and social conditions in developing countries. Development economics considers factors such as health, education, working condition with a focus on improving conditions in the world’s poorest countries. WHAT IS ECONOMIC DEVELOPMENT? You most likely help fund economic development every time you purchase something at the store and pay local or state sales tax. That cup of coffee, those new shoes you bought, or the real estate taxes you may pay, all usually have a percentage of the sales going towards economic development projects or initiatives. In general, economic development is usually the focus of federal, state, and local governments to improve our standard of living through the creation of jobs, the support of innovation and new ideas, the creation of higher wealth, and the creation of an overall better quality of life. Economic development is often defined by others based on what it is trying to accomplish. Many times these objectives include: 1. 2. 3. 4. Building or improving infrastructure such as roads, bridges, etc.; Improving our education system through new schools; Enhancing our public safety through fire and police service; or Incentivizing new businesses to open a location in a community. Economic development often is categorized into the following three major areas: 1. 2. 3. Governments working on big economic objectives such as creating jobs or growing an economy. These initiatives can be accomplished through written laws, industries' regulations, and tax incentives or collections. Programs that provide infrastructure and services such as bigger highways, community parks, new school programs and facilities, public libraries or swimming pools, new hospitals, and crime prevention initiatives. Job creation and business retention through workforce development programs to help people get the needed skills and education they need. This also includes small business development programs that are geared to help entrepreneurs get financing or network with other small businesses. The funding of development is mainly acquired by means of: 1. 2. 3. taxes on personal property, local sales, and real estate. In free market economies, investment from the private sector is key to development and growth, whereas, in command economies (generally communist), government investment is the deciding factor. Economic development focuses on the advancement of income, jobs, and quality of life. One can measure this advancement by looking at the average income of families, state or local unemployment rates, and life expectancy or average hospital stay length. Examples of economic development relate to new businesses, infrastructure, education, and policies. HOW DO WE KNOW IF ECONOMIC DEVELOPMENT IS WORKING? There are hundreds of ways to measure things for the hundreds of different economic development objectives that communities may have. We can measure many of the above things through: 1. 2. 3. 4. improvements in average income of families, local unemployment rates, standardized testing and literacy results in children, leisure time and changes in life expectancy, or hospital stays. Economic development refers to economic growth accompanied by changes in output distribution¹ and economic structure². These changes include: 1. 2. 3. 4. 5. Improvement in the material well-being of the poorer half of the population A decline in the agriculture’s share of GNP Corresponding increase in the GNP share of industry and services Increase in the education and skills of the labor force Substantial technical advances originating within the country Frequently Asked Questions What is meant by the economic development? Economic development ties closely to growth. It centers around how the economy advances to subsequently become wealthier and benefit citizens. What is an economic development example? Government spending presents an economic development example. When a government makes work of building a new railway, consumers, and especially companies in the private sector, will benefit tremendously. This captures the essence of economic development. What is economic development and why is it important? Economic development refers to how an economy advances. It's importance lies in how it enables producers and consumers to operate more efficiently and live wealthier. GROWTH AND DEVELOPMENT The major goal of poor countries is economic development or economic growth. The two terms are not identical. Growth may be necessary but not sufficient for development. Economic growth refers to increase in a country’s production or income per capital. Production is usually measured by gross national product (GNP) or gross national income (GNI). Classification of Countries Before: 1. Low-income countries 2. Lower-middle-income countries 3. Upper-middle-income countries 4. High-income countries Now: 1. First World 2. Second World 3. Third World Developing, Under-developed and Less-developed countries or the South Developed countries or the North High-income capitalist countries, where capital and land are owned by private countries Socialist, or centrally directed countries, where the government owns the means of production. Low-and-middle income economies of the developing world Better Measure of Economic Development 1. 2. 3. The Physical Quality of Life Index (PQLI) The Human Development Index (HDI) Weighted Indexes for GNP Growth Costs and Benefits of Economic Development Welfare Economics Welfare economics is that branch of economics, which primarily deals with taking of poverty, famine and distribution of wealth in an economy. This is also called Development Economics. The central focus of welfare economics is to assess how well things are going for the members of the society. If certain things have gone terribly bad in some situation, it is necessary to explain why things have gone wrong. Prof. Amartya Sen was awarded the Nobel Prize in Economics in 1998 in recognition of his contributions to welfare economics. Prof. Sen gained recognition for his studies of the 1974 famine in Bangladesh. His work has challenged the common view that food shortage is the major cause of famine. In the words of Prof. Sen, famines can occur even when the food supply is high but people cannot buy the food because they don’t have money. There has never been a famine in a democratic country because leaders of those nations are spurred into action by politics and free media. In undemocratic countries, the rulers are unaffected by famine and there is no one to hold them accountable, even when millions die. Welfare economics takes care of what managerial economics tends to ignore. In other words, the growth for an economic growth with societal upliftment is countered productive. In times of crisis, what comes to the rescue of people is their won literacy, public health facilities, a system of food distribution, stable democracy, social safety, (that is, systems or policies that take care of people when things go wrong for one reason or other).
