Economic Development: A Brief Overview ‘The earth provides enough resources for

What is Economic Development? everyone’s need, but not for some people’s
• Economic development is the process greed’
of improving the economic, political, -Ghandi
and social well-being of people.
• It focuses on raising living standards, 1. Economic theories of development
reducing poverty, and creating What development economists agree on:
economic opportunities. Development economics: deals with the
economic, social, political, and institutional
Key Aspects of Economic Development mechanisms, both public and private,
Income
Growth: necessary to bring about improvements in
Increase in
per capita
income wellbeing.
Sustainabil and GDP. Structural
ity:
Environme
Transforma
tion: Shift
Structural change is an essential part of this
ntally
responsibl
to industry
and process
e growth. services.
BUT: does this mean a shift away from
Poverty
Reduction:
Support for
Improved
Living agriculture or increases in productivity
Standards:
low-
income
Education,
healthcare,
throughout the economy? (see Timmer’s
population
papers on Blackboard)
housing.
s.

Common Indicators Back and forth: theories of economic

• GDP per capita development
• Human Development Index (HDI) 1945-mid1950s
• Literacy and education rates Context: political independence of several
• Employment levels developing countries, Worldwide policies to
• Infrastructure quality boost aggregate demand (Keynesian), setting
Approaches to Economic Development up of the Bretton Woods institutions (World
❖ Classical/Neoclassical: Free markets Bank, IMF, WTO), state intervention and
and investment. planning of the economy (Soviet Union)
❖ Keynesian: Government intervention Ideas underdevelopment as low-level
and public spending. equilibrium caused by low savings, high
❖ Modernization Theory: Western population growth, market failures due to
industrial models. scale economies and externalities
❖ Sustainable Development: Balanced (Rosenstein-Rodan, Nurkse), dual economy
long-term goals. with backward sector (agriculture) and
Conclusion modern sector (industry) (Lewis), emphasis on
❑ Economic development aims for intersectoral linkages and discussions about
prosperity and equity. the benefits of balanced versus unbalanced
❑ It is a key focus of governments and economic growth (Lewis, Hirschman)
global organizations. …mid1950s-late 1960s
Context uneven international development
(Myrdal) and import substitution policies to
promote industrialisation
Ideas Marxist theorists (Baran): importance of
Economic theories and perspectives on political and social factors in development
development and inefficiency and corruption of capitalist
state. Structuralism (Cardoso, and Prebisch The Washington Consensus (World Bank and
at the UN ECLA, Chenery): recognition of IMF policies): macroeconomic stability
structural rigidities typical of DCs : supply (control of inflation and reduction of fiscal
rigidities in agriculture and industry, terms of deficit), liberalise trade and factor markets
trade weighted against DCs exports (Singer (privatisation and deregulation), globalisation
and Prebisch) of development policy analysis (one recipe)
…mid1960s-1980 and a-historical performance assessment
Context emergence of the Newly
Industrialised Countries –Taiwan, Singapore, Beliefs: markets work well and are superior to
South Korea, Hong Kong, debt problem in LA gvts. in resource allocation, all economies
and SSA behave in the same way, all economies tend to
Ideas revival of neoclassical economics, free equilibrium, predictable response to policy,
market policies and export orientation (Lal, speed of transition depends on the
Little, Scitovsky); emergence of basic needs consistency of policy makers and the swift
agenda, emphasising neglect of the poor; removal of barriers to market functioning
dependency school: criticism of structure of
international relations and trade (and Issues not addressed: how long is the
transnational corporations) which transition? how large the negative effects to be
systematically hampers efforts of ISI tolerated? how large the positive ones needed
countries to compensate them?
…1980s and 1990s:
Context Debt crisis, IMF and WB first First adjustment wave -Washington
structural adjustment wave: recession and Consensus: adoption of different trade
poverty increases. Revision of the NIC’s regimes (elimination of trade barriers adopted
experiences showing the scope for state during the Import Substitution phase),
intervention and the synergies between states privatisation of large domestic firms
and markets, BUT continuing pressure to (particularly in the service sector),
liberalise. deregulation of labour and financial markets
Ideas Raise of institutions: New growth theory
emphasising role of income inequality, Second adjustment wave “refurbished
education and natural resources, New Washington Consensus” or “augmented
structuralist theory studying determinants of Washington Consensus”: investment in
growth, income distribution, inflation, and education, training and infrastructure, access
fiscal and balance of payments problems. to finance for modernisation for small and
Micro: New neoclassical approaches medium enterprises (SMEs), education
(industrial organisation, game theory and reform, safety net type of projects for those
information economics) applied to who bear the costs of reform , need for ‘good
development (agrarian relations, income governance’ and anti-corruption measures,
distribution, causes of poverty). controls on flows of hot money.
POST CRISIS: rediscovery of state intervention The “Southern” Consensus (Latin American
and regulation (back to the 1940s???) Structuralism and East Asian
2. Development policies: West vs South (and Developmentalism): reject idea that there is
East) one recipe for growth with late
industrialisation, heavy emphasis on
historical analysis of processes of late
industrialisation in the world periphery,
emphasis on development of national
capabilities.

Beliefs: institutional failures of markets,

governments, and international institutions
structural differences and asymmetries exist,
path-dependency (history matters) and lock-
in (some processes may be irreversible)
Asymmetric globalisation in wealth generation
and in markets: think of mobility of capitals
and products and barriers to labour mobility.

Policies: growth and structural change to be

achieved through “strategic integration” of 3.1 Biophysical limits to growth
national economy into the world economy Finitude: fixed size of the ecosystem that
(attention to time and sequencing of opening hosts an expanding economic system
up); combine macroeconomic policy with
“productive development policy”, mixing Entropy: the ordered structures of the
sectorally-neutral and selective policies economic subsystem are maintained at the
(technology policy, financial policy, human expense of creating a more than offsetting
resource development, physical amount of disorder in the rest of the system.
infrastructure development, industrial Ecosystem as source of low-entropy inputs
organisation and competition policy); and sink for high entropy waste. Entropic
government-business co-operation (common costs = depletion of resources and pollution
vision of development targets), pragmatic (see contraction and convergence reading)
developmental state (support for private
sector temporary and conditional on targets); Ecological interdependence: ecological
management of distributional dimensions of connections between economic sub-system
the growth process to ensure legitimacy (wide and its hosting ecosystem are disrupted with
asset ownership and expansion of productive growth of economy
employment: agrarian reform, rural
development policies, re-investment of 3.2 Ethical and social limits to growth
profits, profit-related payment systems, Cost to unpaid workers: anything that does
support for SMEs); regional integration and co- not enter the calculations of GDP does not
operation policies matter, therefore it can be used up without
need for reinvestment
[Link] development
"Anyone who believes exponential growth can Costs to future generations: how do discount
go on forever in a finite world is either a rates work? Welfare of future people?
madman or an economist." Kenneth Boulding
(1910-1993) Cost to other life forms: extinction and the
welfare of other animals and planet
“The capitalist mode of production is not the What role for the market? Market efficient
famous capital-wage-labour relation, but mechanism for allocation of resources not for
rather needs different categories of colonies, scale or distribution!
women, other peoples and nature, to uphold
the model of ever-expanding growth” (Mies, What should public policy be about? Evidence
Maria (1986) Patriarchy and Accumulation on shows in fact that income is but one factor in
a World Scale London and New York: Zed determining well being, and that once basic
Books) needs are satisfied it is not associated with
What then? increases in well being, and other factors
matter much more instead.
United Nations Definition of Development The
basic purpose of development is to enlarge What is the current relationship between
people's choices. In principle, these choices income levels and wellbeing?
can be infinite and can change over time.
People often value achievements that do not Some Happy Policies
show up at all, or not immediately, in income The policy implications (Layard, EJ 2005):
or growth figures: greater access to massive redistribution, increased health
knowledge, better nutrition and health expenditure, reduced working hours,
services, more secure livelihoods, security incentives to reduce rather than enhance
against crime and physical violence, satisfying labour mobility, rethinking and drastically
leisure hours, political and cultural freedoms curbing advertising and performance-related
and sense of participation in community pay as they create anxiety and unhappiness.
activities. The objective of development is to
create an enabling environment for people to Consumption taxes: (Robert Frank) we should
enjoy long, healthy and creative lives." tax consumption and not income (as that
Mahbub ul Haq taxes savings) and have unbound upper rates.

UN definition of sustainable development: EVOLUTION OF ECONOMIC DEVELOPMENT

development which meets the needs of the Economic development refers to the
present without sacrificing the ability of the process by which nations improve the
future to meet its needs. economic, political, and social well-being of
their people.
Growth: quantitative increase by assimilation The concept and theories of
or accretion of materials development have evolved significantly over
time, shaped by changes in economic
Development: qualitative improvement, thought, global events, and technological
realization of potential progress.
[Link]-Modern Views of Development (Before
Sustainable development: development 18th Century)
without growth, limit the scale of throughput = Mercantilism (16th–18th Century):
the flow beginning with raw material inputs, ▪ Wealth measured by stock of precious
followed by their conversion into commodities metals (gold and silver).
and finally into waste outputs.
 ▪ Emphasis on trade surplus, colonialism, ➢ These theories primarily focused on
and accumulation of bullion. explaining how nations grow economically,
▪ Development = national power through accumulate wealth, and transition from
trade dominance. underdeveloped to developed states.
▪ Policies: High tariffs, restrictions on
imports, and colonial exploitation. CLASSIC THEORIES OF ECONOMIC GROWTH
▪ Limitations: Neglected production AND DEVELOPMENT
efficiency and domestic economic growth.
[Link] Smith’s Theory (Classical Growth
[Link] Period (18th–19th Century) Theory)
Proponent: Adam Smith (1776) – The Wealth of
Adam Smith (1776): Nations
• Development seen as result of Core Idea: Economic growth is driven by the
productivity growth from specialization and division of labor, capital accumulation, and
division of labor. free markets.
• Free markets and “invisible hand” ensure Key Points:
efficiency. ❑ Division of Labor: Specialization increases
• Savings and capital accumulation are productivity.
drivers of growth. ❑ Capital Accumulation: Investment in tools,
machinery, and infrastructure leads to higher
David Ricardo & Malthus: output.
• Ricardo: Diminishing returns in
❑ Role of Free Markets: The “invisible hand”
agriculture; comparative advantage in trade.
ensures efficient allocation of resources.
• Malthus: Population growth outpaces
❑ Savings & Investment: Higher savings →
food supply, leading to poverty.
more capital → economic growth.
Karl Marx (Mid-19th Century): ❑ Laissez-Faire: Minimal government
• Development shaped by class conflict and interference promotes growth.
capital accumulation. ❑ Implication: Economic growth depends on
• Critique of capitalism’s inequality; efficiency, specialization, and reinvestment of
predicted transition to socialism. profits.
Key Idea: Growth = capital accumulation,
productivity improvement, trade, and limited [Link] Ricardo’s Theory (Classical Model
state intervention (except Marx, who with Diminishing Returns)
advocated revolution). Proponent: David Ricardo (1817)
Core Idea: Economic growth is limited by
diminishing returns in agriculture.
Key Points:
CLASSIC THEORIES OF ECONOMIC • Law of Diminishing Returns: Adding more
GROWTH AND DEVELOPMENT labor and capital to land (a fixed factor)
➢ Classic theories of economic growth and eventually decreases productivity.
development emerged during the 18th and • Population Growth: Wages tend toward
19th centuries and laid the foundation for subsistence level due to population increases
modern economics. (Malthusian influence).
• Comparative Advantage: International trade •Ultimate Stage: Communism with equitable
boosts growth by exploiting differences in distribution.
opportunity costs. Relevance: Emphasized social and
• Long-Term Growth Constraint: Limited land institutional factors in development.
and rising food prices slow down economic
progress. 5. Harrod-Domar Growth Model (1930s–
1940s) (Though technically not “classical,” it
3. Thomas Robert Malthus (Population Theory) is an early growth model often discussed with
Proponent: T.R. Malthus (1798) these theories.)
Core Idea: Population growth will outpace Core Idea: Economic growth depends on the
food production, leading to poverty and savings rate and capital output ratio.
famine unless checked. Key Formula:
Key Points: Growth Rate (g)=Savings Rate (s) ÷ Capital-
• Population Growth: Geometric progression Output Ratio (v)
(1, 2, 4, 8…) Implication:
• Food Production: Arithmetic progression (1, •Higher savings and efficient use of capital →
2, 3, 4…) higher growth.
• Result: Overpopulation → scarcity → poverty. •Explains the need for investment to maintain
• Checks on Population: steady growth.
o Positive Checks: Famine, war, Limitations:
disease. •Assumes fixed capital-output ratio and
o Preventive Checks: Moral restraint constant returns to scale.
(delayed marriage, fewer •Ignores technological progress and human
children). capital.
Criticism: Failed to predict technological
advances in agriculture and industry. COMMON ASSUMPTIONS OF CLASSICAL
THEORIES
4. Karl Marx’s Theory (Marxian Theory of
Development) ❖ Emphasis on Capital Accumulation:
Proponent: Karl Marx (1867) Savings and investment are key drivers
Core Idea: Economic growth is driven by class ❖ Limited Role of Government: Advocated
struggle and accumulation of surplus value, laissez-faire policies.
but capitalism is inherently unstable.
❖ Importance of Agriculture: Especially in
Key Points:
Ricardo and Malthus.
•Historical Materialism: Society evolves
❖ Concern about Scarcity: Land and
through stages (feudalism → capitalism
resources as constraints.
→socialism → communism).
•Surplus Value: Workers produce more than ❖ Focus on Long-Term Growth: Rather than
they earn; capitalists exploit this surplus. short-term fluctuations.
•Capital Accumulation: Leads to
concentration of wealth and economic crises. CRITICISMS OF CLASSICAL THEORIES
•Capitalism’s Collapse: Due to exploitation, ➢ Overemphasis on capital and neglect of
class conflict, and falling profit rates. technology and human capital.
➢ Assumed perfectly competitive markets.
➢ Failed to foresee institutional, cultural, and • Rostow’s Stages of Growth (1960):
technological changes. 1. Traditional society
➢ Neglected inequality and social 2. Preconditions for take-off
development issues. 3. Take-off
4. Drive to maturity
RELEVANCE TO MODERN DEVELOPMENT 5. Age of high mass consumption
❑ Ideas like savings, investment, and capital • Assumed development as a sequential
accumulation remain important. process driven by investment.
❑ Concepts like diminishing returns and
IV. Post-World War II Development Era
population pressure are still relevant
(1945–1970s)
forresource economics.
o Harrod-Domar Model:
❑ Critiques have led to modern models
Growth = savings/investment and capital-
(Solow, Endogenous Growth, etc.) that
output ratio.
incorporate technology, education, and
Emphasized need for capital formation.
innovation.
• Development Strategies:
o Import Substitution Industrialization
III. Neoclassical and Early Development
(ISI) – protect domestic industries.
Thinking
o State-led industrialization and
(Late 19th – Early 20th Century)
planning.
• Neoclassical Economics:
• Limitations: Neglected institutional and
o Emphasized equilibrium, marginal
social factors; assumed uniform paths of
productivity,
growth.
and efficiency.
o Development viewed as achieving
V. Structuralist and Dependency Perspectives
competitive markets and resource allocation.
(1960s–1970s)
• Colonial Development Policies:
• Structuralist Theory (Raúl Prebisch):
o Focused on extracting resources for
o Underdevelopment caused by
colonizing countries, not local development.
structural imbalances (center-periphery
• Economic Dualism (Boeke, 1953):
model).
o Coexistence of modern and
o Advocated protectionism and state
traditional sectors in developing economies.
intervention.
• Dependency Theory:
o Underdevelopment is a result of
historical exploitation and dependency on
core (rich) nations.
IV. Post-World War II Development Era
o Solution: Reduce dependence
(1945–1970s)
through self-reliance and regional integration.
• Context: End of colonialism, rise of newly
• Criticism: Overemphasis on external
independent nations.
factors; failed in practice.
• Development Economics Emerges:
o Concern with poverty,
VI. Neoliberal and Market-Oriented Approach
unemployment, and inequality.
(1980s–1990s)
• Dominant Theories:
• Washington Consensus:
o Linear Stages Theory:
 o Policies: Liberalization, and achieving other human development
privatization, deregulation, fiscal discipline. goals by 2015.
o Assumed markets are efficient; state
should have minimal role. The eight MDG goals toward which progress
• Structural Adjustment Programs (SAPs): was pledged were:
o Imposed by IMF and World Bank on 1. To eradicate extreme poverty and hunger;
developing countries during debt crises. 2. Achieve universal primary education;
o Criticized for increasing inequality 3. Promote gender equality and empower
and poverty. women;
• Outcome: Mixed results; some growth, but 4. Reduce child mortality;
social costs were high. 5. Improve maternal health;
6. Combat HIV/AIDS, malaria, and other
VII. Contemporary and Holistic Views (2000s– diseases;
Present) 7. Ensure environmental sustainability; and
• Human Development Approach (UNDP): 8. Develop a global partnership for
o Focus on health, education, and development.
standard of living (Human
Development Index – HDI). B. Seventeen Goals
o Amartya Sen’s Capability Approach: In September 2015, the member
Freedom and opportunities matter. countries of the United Nations adopted 17
• Sustainable Development: Sustainable Development Goals (SDGs), to be
o Development that meets present achieved by 2030, thereby committing to
needs without compromising future substantial achievements in ending
generations (Brundtland Report, 1987). multidimensional poverty and improving the
o Emphasis on environmental quality of life. The 17 goals span many,
sustainability, social inclusion, and economic although not all, of the widely accepted goals
growth. of economic development. Goals were
• Inclusive Growth: assigned 169 targets to be achieved by 2030;
o Growth must be equitable and some were much more specific than others.
benefit all segments of society. There were also 304 indices to be used to track
• Knowledge Economy & Technology: progress, of which 232 were agreed upon by
o Innovation, ICT, and digital economy the end of 2018.
as new drivers of development. Along with the United Nations, the World
• Sustainable Development Goals - SDGs Bank, the International Monetary Fund (IMF),
(2015–2030): OECD, and the World Trade Organization
o UN SDGs: poverty reduction, (WTO), NGOs from developing as well as
climate action, gender equality, etc. developed countries had a voice in their
formulation. The goals are officially used by
[Link] Millennium Development Goals most development agencies and many
(MDGs), 2000–2015. independent NGOs.
In 2000, the member countries of the
United Nations adopted eight MDGs, The 17 Sustainable Development Goals:
committing themselves to making substantial Goal 1. End poverty in all its forms everywhere
progress toward the eradication of poverty
Goal 2. End hunger, achieve food security and Goal 17. Strengthen the means of
improved nutrition, and¬ promote sustainable implementation and revitalize the global
agriculture partnership for sustainable development
Goal 3. Ensure healthy lives and promote well-
being for all at all ages
Goal 4. Ensure inclusive and equitable quality
education and promote lifelong learning
opportunities for all
Goal 5. Achieve gender equality and¬
empower all women and girls
Goal 6. Ensure availability and sustainable
management of water and sanitation for all.
Goal 7. Ensure access to affordable, reliable,
sustainable and modern energy for all
Goal 8. Promote sustained, inclusive and
sustainable economic growth, full and
productive employment and ¬decent work for
all.
Goal 9. Build resilient infrastructure, promote
inclusive and sustainable industrialization
and foster innovation.
Goal 10. Reduce inequality within and among
countries.
Goal 11. Make cities and human settlements
inclusive, safe, resilient and sustainable.
Goal 12. Ensure sustainable consumption and
production patterns
Goal 13. Take urgent action to combat climate
change and its impacts
Goal 14. Conserve and sustainably use the
oceans, seas and marine resources for
sustainable development.
Goal 15. Protect, restore and promote
sustainable use of terrestrial ecosystems,
sustainably manage forests, combat
desertification, and halt and reverse land
degradation and halt biodiversity loss.
Goal 16. Promote peaceful and inclusive
societies for sustainable development,
provide access to justice for all and build
effective, accountable and inclusive
institutions at all levels