ECON 3066
Economic
Development
TOPICS
Todaro dan Smith: Economic Development, 9th
edition, CHAPTERS 1-2; 4-10; 12; 14
Sadono Sukirno. Ekonomi Pembangunan: Proses,
Masalah dan Dasar Kebijakan
Mubyarto. Sistem dan Moral Ekonomi Indonesia
Kindleberger, P. et al. Economic Development
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© Natalya Brown 2008
1
ECON 3066
Economic
Development
3/12/2016
© Natalya Brown 2008
RULES
TWO QUIZZES
: 15%
MID-TERM
: 30%
FINAL-TERM
: 40%
ASSIGNMENT
: 15%
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LECTURE 1:
Introduction
Economics, Institutions and
Development
• Overview
– Global Differences in Standard of Living
– Nature of Development Economics
– What is Development Economics
– Purpose of Development Economics
– Values in Development Economics
– Economies as social systems
– The Meaning of Development
– New Economic View of Development
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LECTURE 1:
Introduction
Economics, Institutions and Development
The majority of the 6.4 billion people in the world
live in absolute poverty.
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LECTURE 1:
Introduction
Economics, Institutions and Development
Part of the 6.4 billion people in the world live in luxury
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LECTURE 1:
Introduction
Economics, Institutions and
Development
• Global Differences in Living Standards
– Differences in:
• Household Size, Income and Property
• Educational Attainment and Opportunities
• Health and Nutrition
–Access to basic necessities (e.g. clean water)
–Life Expectancy
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LECTURE 1:
Introduction
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© Natalya Brown 2008
Economics, Institutions and
Development
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LECTURE 1:
Introduction
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© Natalya Brown 2008
Economics, Institutions and
Development
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LECTURE 1:
Introduction
Economics, Institutions and
Development
• Global Differences (Cont’d)
• Employment Opportunities
• Inequality within Countries/Cities
– Interdependence:
Economic and Environmental interdependence in
an ever-shrinking world
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LECTURE 1:
Introduction
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© Natalya Brown 2008
Economics, Institutions and
Development
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LECTURE 1:
Introduction
Economics, Institutions and Development
Average living condition, between countries
Variable
North America
Rural Asia
Nuclear family
4 persons
8 persons or more
Yearly average
income
USD50,000,-
USD 250-300
Levels of living
Reasonably good
Bad
Economy
Developed
In some parts:
Subsistence
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LECTURE 1:
Introduction
Economics, Institutions and Development
Average living condition, within country
Variable
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© Natalya Brown 2008
DKI
Papua
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LECTURE 1:
Introduction
Development Measures by Country
Standard Measures
Malaysia
Brazil
Sudan
Canada
GDP per capita (PPP US$)
9,512
7,790
1,910
30,677
Combined Primary,
Secondary, Tertiary Gross
Enrolment Ratio (%)
71
91
38
94
Infant Mortality Rate (per
1000 live births)
7
33
63
5
Life Expectancy at birth
(years)
73.2
70.5
56.4
80.0
5.6
2.6
Average Household Size
Population Living below
$2/day
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© Natalya Brown 2008
9.3
22.4
Source: UNDP Human Development Report, 2005
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LECTURE 1:
Introduction
The Nature of Development
Economics
• Traditional economics (neoclassical economics):
 concerned with the efficient allocation of scarce
productive resources and optimal growth of these
resources to achieve sustained growth
 deals with, e.g.:
– an advanced capitalist world of perfect markets
– consumer sovereignty
– automatic price adjustments
 assumes:
– economic rationality
– a purely materialistic, individualistic, self-interested
orientation toward economic decision-making
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LECTURE 1:
Introduction
The Nature of Development
Economics (cont’d)
– Political economy:
 analyzes how politics and economics are
related; role of power in decision making
 studies the social and institutional
mechanisms through which decisions about
the allocation of scarce productive resources
are made.
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LECTURE 1:
Introduction
The Nature of Development
Economics (cont’d)
– Development economics has a broader scope.
– It deals with:
 efficient allocation of scarce resources and
sustained growth, and
 the role of economic, social, political and
institutional mechanisms in promoting/hindering
rapid and large-scale improvements in the well
being of the people in LDCs
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LECTURE 1:
Introduction
The Nature of Development
Economics (cont’d)
– Some characteristics of LDCs (challenges)
Market imperfection:
most commodity and resource markets are highly imperfect
 Informational asymmetry:
consumers and producers have limited information
 Structural changes in the society and the economy
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LECTURE 1:
Introduction
The Nature of Development
Economics (cont’d)
– Some characteristics of LDCs (challenges)
Political and social considerations:
economic calculations dominated by political
and social priorities; family, clan, religious, or
tribal considerations may take precedence over
private, self-interested utility or profitmaximizing calculations
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LECTURE 1:
Introduction
The Nature of Development
Economics (cont’d)
– Some characteristics of LDCs (challenges)
Requires larger government role, wide scale
planning and coordinated efforts
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LECTURE 1:
Introduction

What is Development
Economics
The economics of the contemporary poor,
underdeveloped nations with varying
ideological orientations, diverse cultural
backgrounds, and very complex yet similar
economic problems that usually demand new
ideas and novel approaches.
 Neither the same with economics of advanced
capitalist nations nor to centrally planned
economies.
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LECTURE 1:
Introduction
Ultimate Purpose of
Development Economics
TO HELP US BETTER UNDERSTAND
DEVELOPING ECONOMIES IN ORDER TO HELP
IMPROVE THE MATERIAL LIVES OF THE
MAJORITY OF GLOBAL POPULATION
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LECTURE 1:
Introduction
Questions asked in Development
Economics:
• Can traditional, low-productivity, subsistence
societies be transformed into modern, highproductivity, high-income nations?
• To what extent are the development goals of
developing countries thwarted by the
economic activities of developed nations?
• How is it that extreme inequality can exist not
only across continents but within cities and
countries?
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LECTURE 1:
Introduction
More Questions:
• What lessons can developing countries learn
from the historical record of economic
progress of developed countries?
• What are the primary causes of extreme
poverty?
• What strategies have been most successful in
eradicating poverty?
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LECTURE 1:
Introduction
Even more questions:
• What roles do population growth and
migration play in the development process?
• Do the educations systems in developing
countries promote development and reduce
inequality or do they help to sustain wealth
and class structures?
• Are deregulation and privatization the
answer?
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LECTURE 1:
Introduction
Values in Development
Economics
• The goals of this discipline are derived from
subjective value judgments about what is
good and desirable.
• The goals are:
–
–
–
–
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Economic and Social Equality
Elimination of Poverty
Universal Education
Higher Living Standards
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LECTURE 1:
Introduction
–
–
–
–
–
–
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Values (cont’d)
National independence
Institutional Modernization
Political and Economic Participation
Grassroots democracy
Self-reliance
Personal Fulfillment
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LECTURE 1:
Introduction
Economies as Social
Systems
Social system:
interdependent relationship between economic
and noneconomic factors.
Noneconomic factors:
attitudes toward life, work, and authority; patterns and
kinship and religion; cultural traditions; the authority and
integrity of government agencies; levels of political
participation; public and private bureaucratic, legal, and
administrative structures; systems of land tenure;
flexibility/rigidity of economic and social classes.
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LECTURE 1:
Introduction
The Meaning of
Development
• Traditional Measures
– The capacity of a once relatively stagnant national
economy to generate and sustain significant economic
growth
• Annual increases of 5% or higher in gross national product.
Alternative measures include income per capita and real
income per capita (‘real’ – accounting for inflation).
– Changes in the structure of production
– shifts from agriculture towards manufacturing and
services (i.e. industrialization)
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LECTURE 1:
Introduction
The Meaning of
Development
• Traditional Measures
– Trickle down
– Little attention paid to eradicating poverty,
unemployment, inequality, and discrimination
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LECTURE 1:
Introduction
New Economic View of
Development
• Contemporary Measures
– Broader:
include the reduction of poverty, unemployment
and inequality within the context of a growing
economy
– Multidimensional:
No longer be just higher incomes, must also
include e.g., better education, health and
nutrition, equal opportunities, individual rights
and freedoms, and clean environment
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LECTURE 1:
Introduction
Sen’s Capability
Approach
“Economic growth cannot be sensibly treated
as an end in itself. Development has to be
more concerned with enhancing the lives we
lead and the freedoms we enjoy.”
-Amartya Sen, Development as Freedom
1998 Nobel Laureate in Economics
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LECTURE 1:
Introduction
Sen’s Functionings and
Capabilities
• What matters is:
what a person is, or can be, and does or
can do
• What matters for well-being is ‘functioning’:
 not the characteristics of commodities
consumed, as in the utility approach, but what use
the consumer can and does make of commodities
 e.g. a book is of little value to an illiterate
person (except as cooking fuel or a status symbol)
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LECTURE 1:
Introduction
Five Sources of Disparity between
(measured) real incomes and actual
advantages
• Sen’s Five Sources:
–
–
–
–
–
Personal heterogeneities
Environmental diversities
Variations in social climate
Differences in relational perspectives
Distribution within households
• Sen argues that changes in functions and capabilities
are better measures of development
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LECTURE 1:
Introduction
Sen’s Functionings and
Capabilities
• Capabilities:
“the freedom an individual possesses with
respect to choice of functionings, given
his/her personal features/traits (conversion of
characteristics into functionings) and his
command/control over commodities”
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LECTURE 1:
Introduction
Three Core Values of
Development
Common goals:
1. Sustenance: the ability to meet basic needs
life-sustaining basic needs – food, shelter, health
and protection.
“absolute underdevelopment” describes the
absence or critical supply of these basic needs.
 Rising per capita incomes, elimination of absolute
poverty, greater employment opportunities, and
lessening income inequalities, necessary but not
sufficient conditions for development
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LECTURE 1:
Introduction
Three Core Values of
Development
Common goals:
2. Self-Esteem: to be a person
a sense of worth and self-respect (i.e. identity,
respect, honor, recognition, dignity).
 a sense of not being used as a tool by others for
their own end
 ‘development is legitimized as a goal because it is
an important, perhaps even an indispensable, way
of gaining esteem.
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LECTURE 1:
Introduction
Three Core Values of
Development
Common goals:
3. Freedom from Servitude: to be able to choose
 human freedom; emancipation from alienating
material conditions of life and from social servitude to
nature, ignorance, other people, misery, institutions,
dogmatic beliefs, especially that poverty is
predestination.
 ‘the advantage of economic growth is not that wealth
increases happiness, but that it increases the range of
human choice” (W.A. Lewis).
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LECTURE 1:
Introduction
Three Objectives of
Development
1) The improvement in the availability and
distribution of basic life-sustaining goods
2) The improvement of living standards
3) The expansion of the range of economic and
social choices
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LECTURE 1:
Introduction
1.
2.
3.
4.
5.
6.
7.
8.
United Nations’ 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 Stability
Develop a Global Partnership for Development
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LECTURE 1
• Next topic:
Comparative Development:
Differences and Commonalities among
Developing Countries
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