Development Economics
Prof. Dr. Hans H. Bass
Jacobs University, Spring 2010
Development Economics
Agenda Feb. 04
0. Introductory remarks, grading, topics for
presentation, and overview
1. Economics
1.1 Approaches in mainstream economics
1.2 Approaches in Development Economics
2. Development
2.1 Meaning
2.2 Measurement
Feb. 04, 2010
2
Development Economics
Overview
Voices of the Poor ...
... and some questions for our course:
“Why does affluence coexist with dire poverty not only on
different continents but also within the same country?
Can traditional low-productivity, subsistence societies be
transformed into modern, high-productivity, high-income
nations?
To what extent are the development aspirations of poor nations
helped or hindered by the economic activities of rich
nations? ...”
(Todaro/Smith 2009, p. 7)
Feb. 04, 2010
3
1. Economics
1.1 Approaches in mainstream economics
1.2 Approaches in Development Economics
2. Development
The economic problem
Material wants exceed productive capacity
 scarcity!
Utility maximization under conditions of scarcity
 Economics is about making choices
What is the most efficient way to allocate scarce
resources and allow optimal growth of these
resources?
Feb. 04, 2010
4
1. Economics
1.1 Approaches in mainstream economics
1.2 Approaches in Development Economics
2. Development
From Adam Smith
to modern times ...
Adam Smith, 1776 (founder of classical economics)
(„An Inquiry into the Nature and Cause of the Wealth of Nations“)
modern mainstream economics
(neo-classical and beyond)
Feb. 04, 2010
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1. Economics
1.1 Approaches in mainstream economics
1.2 Approaches in Development Economics
2. Development






Main neo-classical
assumptions
homo economicus (fully informed, completely rational, utility
maximizing behavior)
decisions made on the basis of marginal, private-profit, and
utility calculations
consumer sovereignty, producer sovereignty
perfect markets
(perfect market information + no participant with market
power to set prices + no barrier to entry or exit + equal access
to production technology = perfect competition)
prices equate supply and demand, immediate price
adjustments
equilibrium outcomes in all product and factor markets
Feb. 04, 2010
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1. Economics
1.1 Approaches in mainstream economics
1.2 Approaches in Development Economics
2. Development
The new economic
problem
What is the most efficient way to allocate scarce
resources and allow optimal growth of these
resources?
and: What are the economic, social, and political
mechanisms necessary to bring about rapid and
large-scale improvements for the world’s poor(est),
i.e. 150+ economies?
Feb. 04, 2010
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1. Economics
1.1 Approaches in mainstream economics
1.2 Approaches in Development Economics
2. Development
Development
Economics assumes ...
 imperfect markets are the rule rather than the exemption;
 consumers and producers have limited information;
 prices often do not equate supply and demand


 disequilibrium situations prevail;
economic calculations can be dominated by political or social
priorities (building new nations, replacing foreign advisors
with local decision makers, resolving ethnic conflicts …);
non-economic (extended family, tribal …) considerations may
take precedence over private, self-interested utility or profitmaximizing calculations.
Feb. 04, 2010
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1. Economics
1.1 Approaches in mainstream economics
1.2 Approaches in Development Economics
2. Development
Development
Economics assumes ...
strategic economic variables (savings, investment, product and
factor prices, forex rates ...) and
non economic factors (attitudes to life, work, authority;
bureaucratic structures, kinship, religion, values ...)
can be equally important to increase national production, raise
standards of living, promote employment opportunities
Feb. 04, 2010
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1. Economics
1.1 Approaches in mainstream economics
1.2 Approaches in Development Economics
2. Development
Development
Economics assumes ...
Economics is
not a formal science (as mainstream economists, “formalists”
tend to believe),
but a social science (“substantivist approach”):
 It is about societies organizing their production, distribution,
and consumption (rather than only about “making choices”)
 It implies value judgments in the identification of its subjects
(“poverty is worth being investigated”) and its research goals
(“poverty should be eradicated”).
 The heterogeneity of the Developing World and its complexity
need eclectic and multi-disciplinary approaches.
 Its research must be policy-oriented.
Feb. 04, 2010
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1. Economics
1.1 Approaches in mainstream economics
1.2 Approaches in Development Economics
2. Development
What they say about
each other
(1) Development Economics is an amalgamation and basically
an unaltered application of traditional fields (micro, macro,
monetary economics, public finance ...) with a specific focus on
industrializing economies in Asia, Africa, and Latin America.
(2) Neo-classical mainstream economics is “monoeconomics”
(A.O.Hirschman): A book about horses cannot be called
“Animals” (D. Seers)!
Feb. 04, 2010
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1. Economics
1.1 Approaches in mainstream economics
1.2 Approaches in Development Economics
2. Development
From Adam Smith
to modern times ...
Adam Smith, 1776
John Maynard Keynes, 1936
Paul N. Rosenstein-Rodan, 1943
Gunnar Myrdal, Nobel Prize 1974 (not for D.E.)
A. William Lewis & Theodore Schultz, Nobel Prize 1979
Amartya K. Sen, Nobel Prize 1998
Joseph Stiglitz, Nobel Prize 2001
Muhammad Yunus, Nobel Peace Price 2006
Feb. 04, 2010
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Development Economics
Agenda Feb. 04
1. Economics
1.1 Approaches in mainstream economics
1.2 Approaches in Development Economics
2. Development
2.1 Meaning
2.2 Measurement
Feb. 04, 2010
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1. Economics
2. Development
2.1 Meaning
Three phases
2.2 Measuring

Turning the vicious circle of poverty into a virtuous circle of
growth – resulting in a diversified industrial economy and
higher per capita incomes (1950s)

Looking beyond averages: Reducing poverty, unemployment,
and inequality (1970s)

Replacing the domination of circumstances and chance over
individuals by the domination of individuals over chance and
circumstances (1990s)
Feb. 04, 2010
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1. Economics
2. Development
2.1 Meaning
2.2 Measuring
Phase I: Vicious to
virtuous circles
“Low productivity is the problem. The
economic remedy for the problem is
capital creation, ...
... though I readily agreed that noneconomic remedies may be more
important.”
“Economic progress is not a spontaneous
or automatic affair.”  “Big push”
(Ragnar Nurkse 1953)
Feb. 04, 2010
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1. Economics
2. Development
2.1 Meaning
2.2 Measuring
Development
Paradigms
Goals
Policies
Theories
Data
Feb. 04, 2010
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1. Economics
2. Development
2.1 Meaning
Paradigm 1950s/1960s
2.2 Measuring
Goal:
Policies
Economic Growth
(GNI, GNI p.c.)
capital accumulation, planning,
industrialization, diversification,
infrastructure investment
Theories
big push, critical minimum effort,
no full employment natural 
state intervention
Feb. 04, 2010
Data
national accounts
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1. Economics
2. Development
2.1 Meaning
2.2 Measuring
Phase II: Social Dimensions
of Growth
“What has been happening to poverty?
What has been happening to
unemployment?
What has been happening to inequality?
...
If one 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 has soared.”
There is no trickle-down effect!
(D. Seers 1969)
Feb. 04, 2010
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1. Economics
2. Development
2.1 Meaning
2.2 Measuring
Phase II: Social Dimensions
of Growth
Phase I
Phase II
Feb. 04, 2010
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1. Economics
2. Development
2.1 Meaning
2.2 Measuring
Goals
emplyoment, harmonizaton of
income distribution, basic needs
Theories
informality, migration (HarrisTodaro model), appropriate
technology
Feb. 04, 2010
Paradigm 1970s
/ early 1980s
Policies
integrated rural development,
employment creation, asset
redistribution
Data
employment censuses,
household / rural / IS surveys
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1. Economics
2. Development
2.1 Meaning
2.2 Measuring
Phase III: Development as
Freedom / Capabilities
„The process of economic
development has to be concerned
with what people can or cannot do,
e.g. whether they can live long,
escape avoidable morbidity, be well
nourished, be able to read and write
and communicate, take part in
literary and scientific pursuits ...“
Sustenance, self-esteem, freedom
(A. K. Sen 1983)
Feb. 04, 2010
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1. Economics
2. Development
2.1 Meaning
2.2 Measuring
Phase III: Development as
Freedom / Capabilities
Phase I
Phase II
Phase III
Feb. 04, 2010
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1. Economics
2. Development
2.1 Meaning
2.2 Measuring
“Millenium
Development Goals“
(multidimensional)
Theories
new institutional economics,
economics of corruption
Feb. 04, 2010
Paradigm
late 1990s / present
Policies
promotion of good governance
and accountability, change in
social and political institutions
Data
large-scale income / household
surveys, subjective poverty
assessments, health surveys
23
Emphasis on Production
Emphasis on Distribution
Government as Main
Protagonist
Feb. 04, 2010
Market Forces as Main
Protagonists
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Goals
Policies
Goals
Policies
Theories
Data
Theories
Data
1950s / 60s
Emphasis on Distribution
Emphasis on Production
Government as Main
Protagonist
1970s
late 1990s - present
Goals
Policies
Theories
Data
Feb. 04, 2010
Market Forces as Main
Protagonists
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1. Economics
2. Development
2.1 Meaning
2.2 Measuring
1.
2.
3.
4.
5.
6.
7.
8.
Millennium
Development Goals
Eradicate Extreme Hunger and Poverty
Achieve Universal Primary Education
Promote Gender Equality and Empower Women
Reduce Child Mortality
Improve Maternal Health
Combat HIV/AIDS, Malaria and other diseases
Ensure Environmental Sustainability
Develop a Global Partnership for Development
Feb. 04, 2010
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1. Economics
2. Development
2.1 Meaning
MDG Targets
2.2 Measuring
1.
Eradicate Extreme Hunger and Poverty
Target 1. Halve, between 1990 and 2015, the proportion of people
whose income is less than $1 a day
Target 2. Halve, between 1990 and 2015, the proportion of people who
suffer from hunger
4.
Reduce Child Mortality
Target Reduce by two-thirds the mortality rate among children under 5.
Feb. 04, 2010
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Quiz 1
Todaro/Smith, Economic Development, 9th ed., 2005
http://wps.aw.com/aw_todarosmit_econdevelp_9/35/9052/231
7470.cw/index.html
 Chapter 1
Feb. 04, 2010
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Questions for
Discussion
1.
(Why) is economics central to an understanding of the
problems of development?
2.
(Why) is a strictly economic definition of development
inadequate?
3.
Are there dimensions of development not mentioned so
far? Which ones?
Feb. 04, 2010
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Download Link
http://www.hsbremen.de/internet/de/hsb/struktur/mitarbeiter/bass/lehrver
anstaltungen/schwerpunkt_internationale_wirtschaft/Develo
pment_Economics/
Feb. 04, 2010
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