Economic Development
What is meant by economic development?
 According to Amartya Sen, a development economist, the nature of the
concept of development is very subjective and has a wide range of
possible explanations.
 In Amartya’s view development Is about increasing people’s freedoms,
reducing poverty so that people can be adequately fed and sheltered. It
is about the public provision of education, health care, and the
maintenance of law and order, the guarantee of civil liberties and the
opportunity for civic participation
Sources of Economic Growth
 1- Natural factors:
Anything that increases the quality and quantity of a factor of
production should lead to an increase in potential growth.
However increasing land for example is quite difficult,
although Singapore and Holland have done so by means of
land reclamation. This will only have a very small effect upon
total land area and thus productive capability, unless the
land is very small to start off with, as is the case with
Singapore
Using landfill methods Singapore increased its land area from
58.1 square km in 1965, when it gained independence, to
697.2 square km at the present time ( an increase of almost
20%). In comparison to Malaysia, if it was to gain the same
increase through landfill, 115.7 square km to add to its
existing 329847 square km, it would represent an increase of
just 0.03% of land area
Thus countries will generally aim to improve the quality of
their natural factors rather than quantity. The quality of land
may be improved by using fertilizers, better planning of land
usage and improved agricultural methods.
2- Human Capital
 The quantity of human capital can be increased either by
encouraging population growth or by increasing immigration
levels. However, developing countries would not be keen on
increasing population size and even if they were, the process is
very long term
 Thus most emphasis is put on improving the quality of the human
capital. This can be done by improving heath care, education
for children, vocational training, and re-training for the
unemployed. In addition to the provision of fresh water and
sanitation can very much improve the heath and thus quality of
human capital
3- Physical capital and technology
 Economic growth can be achieved by improving the quality and
quantity of physical capital. This includes factory buildings,
machinery, shops, offices and motor vehicles. The quantity of
physical capital is affected by the level of saving, domestic
investment, government involvement and foreign investment. The
quality of physical capital is improved by higher education,
research and development, as well as access to foreign
technology and expertise.
Two concepts are:
 Capital widening: extra capital is used with an increased amount
of labor, but the ratio of capital per worker doesn’t change. In this
case total production will rise, but productivity is likely to remain
unchanged.
 Capital deepening: when there is an increase in the amount of
capital for each worker, which will lead to improvement in labor
productivity. This often mean that there has been improvements in
technology
4- Institutional factors
 There are certain institutional factors involved in economic growth and
development . These factors are:
 Adequate banking system
 A structured legal system
 A good education system
 A reasonable infrastructure
 Political stability
 Good international relationships
Does Economic
Growth Lead to
Economic
Development
ADAM NORTH
What are the outcomes of higher
levels of economic growth in terms
of economic development?
 We must remember that consequence may be
positive or negative but is economic growth
guaranteed to lead to economic development?
 Positive Outcomes:
 1 – Higher incomes:
 Higher levels of economic growth lead to higher GDP per
capita, this should improve the standard of living. There is
no doubt that higher GDP will benefit many, in terms of
higher incomes however, it is possible that there will be a
significant group that will see little or no improvement.
 2 – Improved economic indicators of welfare
 Historically, it is clear that economic growth has led to
higher average of economic indicators of welfare, for
example, life expectancy, average years of schooling and
literacy rates. This again may not be the case for all groups
of the population.
 3 – Higher government revenues:
 Even if the tax collection system isn’t efficient, increased GDP
will see an increase in government revenue due to tax – this
means the government will be in a better situation when it
comes to the provision of services such as education, health
care, and infrastructure.
 Negative Outcomes:
 4 – Creation of Inequality:
 Some economists have argued that economic growth
achieved through market-based initiatives leads to increases
in inequality e.g. the rich get richer and the poor get poorer.
Furthermore, in developing countries the ‘trickle down effect’
where the rich spend more and some of this goes to the poor
does not work.
 5 – Negative externalities and lack of sustainability:
 In both developed and developing nations the search for economic growth
and the growth itself usually leads to pollution, a negative externality.
 As incomes rise people drive more, take more flights and buy imported
goods, all three of these increase pollution.
 Problems of Deforestation, Soil degradation, and reduction in bio-diversity
can all be linked to economic growth.
 As economies grow, so does the demand for energy.
 Factories, Power Plants, and Households all consume energy and to meet this
demand there must be huge increase in the burning of fossil fuels.
 The effects on humans will be felt the worst in the developing nations, the
effects are:
 Access to safe water will become even harder
 Tropical disease may spread further north.
 Droughts will become more frequent and intense
 Food production in the tropic and sub-tropics will suffer. (Although it may increase in
middle and high latitudes but there is no guarantee this will lessen the risk to food
security)
 Rising sea levels will effect millions.
Conclusion:
 Herman Daly:
 “Uneconomic Growth”
“when increase in production come at an
expense in resources and well-being that is
worth more than the items made”
 Economic growth based on current consumption
patterns is clearly not sustainable and is really
“uneconomic”
Development
Economics
Diversity among developing countries
Resource
Endowment
Endowment in terms of physical
resources can vary greatly
Angola considered a developing
country but possesses much oil and
diamonds
Chad discovered much oil in 2003
Bangladesh has very few physical
resources, synthetically produced
products have replaced the one major
resource that they did have – jute
A lack of physical resources does not
mean that a countries economy is in
bad shape – Singapore and Japan
both lack physical resources
Historical
Background
Whatever developing
countries we consider, there
will be marked historical
differences that will set the
countries apart from each
other socially, politically and
economically.
Singapore and Vietnam were
both once part of colonies,
Singapore benefitted from this
while Vietnam did not
Geographic &
Demographic
Factors
Developing countries differ hugely in
both geographical and population size
E.G. BIG countries: Brazil India
E.G. small countries: Jamaica Nauru
Developing countries come in all types of
population size; India has over a billion
people, Fiji has less than one million
Ethics & Religious
Breakdown
Developing countries come in a range of ethnicities
and religions
High levels of religious and ethnic diversity chances
of increases unrest in a country e.g. in Ethiopia
More ethnically & religiously homogenous E.G. Egypt
The structure of
industry
Although many developing countries depend
on primary goods to export (Angola) some rely
on export of manufactured goods
(Bangladesh) and others rely on export in the
form of tourism (Maldives)
Per capita income
levels
Differences do exist for income levels between
developing countries.
E.G. Malaysia GDP per capita $13,518
E.G. Sierra Leone GDP per capita $679
Political Structure
Political systems vary throughout developing
countries
E.G. Brazil – Democracy
E.G. Tonga – Monarchy
E.G. Pakistan – Military rule
E.G. Cuba – Single party state
E.G. Iran – Theocracy
Common Characteristics of
Developing Countries.
 1. Low Standards of living characterized by low
incomes, poor health, inadequate education and
inequality.
 2. Low levels of productivity – They are caused by
low education standards within the countries, the
low levels of health among worker, lack of
investment in physical capital, and lack of access to
technology.
 3. High rates of population growth and dependency
burdens.
 4. High and rising levels of unemployment and
underemployment.
 5.
Substantial
dependence
on
agricultural
production and primary product exports.
 6. Prevalence of imperfect markets and limited
information.
 7. Dominance, dependence, and vulnerability in
international relations.
 Despite the
differences
between
developing
countries
attempts are
made to set
development
goals that can
be adopted by
them all
 These are the
MDGs - the
Millennium
Development
Goals