Development and Economic Growth
Econ 403: Development Economics
Sonoma State University
Professor Carlos A. Benito
ECON 403
Countries by Income Groups
Countries
Low Income
Middle Income
High Income
World
Ratio High/Low Income
Population,
Million
2,495
2,742
965
6,201
GNP per
capita, $,
2000
PPP GNP
per capita,
$, 2000
430
1,840
26,310
5,080
2,040
5,630
27,590
7,570
61
14
Development along a continuum
 GNI
 Comparability
 PPP
Development Patterns
Historical Patterns by Regions
Growth patterns
 Growth
rates and income levels
Growth & Catching Up
Countries
GNP per
capita, %
growth,
2002-2003
Low Income
Middle Income
High Income
World
2.30%
2.20%
0.80%
2.02%
Growth
Years to
rate to
catch up catch up in
income of
one
century
315
442
367
7.25%
Development Question
 What
explain differences between
production and consumption possibilities
among low income and high income
countries?
 What can be done to reduce such
differences?
 How to think about these questions?
Development Notions
Progressive Development
Human Development
Basic Needs
Fairness
Resource
Sustainability
Economic Development
Structural
Changes
GNP
per capita
Growth Process ~ Graphic
Differential Equation
Flow of
Goods &
Representation
Services
of a
Consumption
Flow of
Goods &
Services
Accumulation
Stock
Growth and Development
 Economic
growth
– How savings, technology and organization
affect net investment and thereby the stock of
capital: physical, human and social capital
 Economic
development
– What institutional and cultural changes induce:
» Increases in savings rates,
» Allocation of savings into investment projects that
optimize economic growth and human development
Economic Development Level
Development Indicator ($)
GNP per Capita = GNP/Population
y’ = Y/ N
Over Time Comparisons
Real GNP per Capita = GNP per Capita/Price Level
yt
=
y’t/Pt
Across Country Comparisons
Adjusted GNP per Capita = GNP per Capita/PPP
yi
=
y’i/PPPi
Human Development Level
 Definition:
Possibility of
– A long and healthy life,
– With knowledge, &
– A decent standard of living
 Indicator:
Human Development Index
– HDI = a1*Life Expectance Index +
a2*Education Index+ a3*GDP Index
Economic Development Process
Indicator: Economic Growth Rate (%)
Growth Rate = (Real GNP per Capita this
year – Real GNP per Capita last year)/Real
GNP per Capita last year
gt = (yt – yt-1)/yt-1
Development Goals

The Indian Congress Consensus
– India, 1948-1970s
– Economic development results from the economic
growth of a nation. The dominate goal is to grow.

The Washington Consensus
– USA, 1984 to now
– The purposes of development policies are
» to assist countries pay back their international debts--the goal
being to sustain private financial markets.
» To adjust developing countries into globalization process

The Millennium Development Goals
– UNDP, 2000
– Satisfying basic needs. The goals is Human Development
– http://hdr.undp.org/reports/global/2003/
Is Economic Development Possible?
 Before World
War II and in Reference to
European colonies
– Economic Development was not possible in traditional
societies.
– Their peoples were happy with their living styles.
– Backward bending labor supply
 A view
sustained by some cultural anthropologists
Implicit Assumption about Market Structures
of Cultural Determinism
Wage Rate/Day
$
Backward bending
supply of labor
1.30
6.50/week
0.80
4.80/week
5
6
Quantity of Labor
Is Economic Development Possible? Again
 After
1930 in reference to Latin America
 After World War II in reference to ex- European
colonies
– Yes, Economic Development is possible in traditional
societies.
– The view of most economists and engineers
 How?
– Three development paradigms
Vocabulary
In studying development, we will encounter the
following terms:

Economic Development
– Development Level
» GNP per Capita
– Economic Growth




» Growth Rate of Real GNP

per Capita



Human Development
Institutional Development
Cultural Development



Development paradigms
Linear Stages of Growth
Structuralism
Neo-Marxism
Modeling growth
processes
Stocks
Flows
Changes/Accumulation
Development Paradigms
 Linear
Stages of Growth (view from 1st. World)
 Structuralism (view from 3rd. World)
 Neo-Marxism (view from the 2nd. World)
Development theme
Population
Millions
2000
Congo Democratic Republic
Norway
Ratio Norway/Congo D. Rep.
GNP per
capita $2000
PPP GNP
per capita
$2000
54
90
580
5
37,850
35,840
421
62