Chapter 1
Introducing Economic Development
A Global Perspective
"Development can be seen as a process of expanding the real freedoms that people enjoy."
— Amartya Sen, Nobel laureate in economics
1.1 How the Other Half Live
Over 7 billion people worldwide live under vastly different circumstances.
• About 2/5 of world population lives on less than $2 per day
• Sharp contrasts exist within and between nations
• Absolute poverty: inability to meet minimum needs
Key Definition: Absolute Poverty
Absolute Poverty
A situation of being unable to meet the minimum levels of income, food, clothing, health care,
shelter, and other essentials.
Key Definition: Subsistence Economy
Subsistence Economy
An economy in which production is mainly for personal consumption and the standard of living
yields little more than basic needs.
1.2 Economics and Development Studies
Study of economic development emerged over past five decades focusing on Africa, Asia, and Latin
America
Key Definition: Traditional Economics
Emphasizes utility, profit maximization, market efficiency, and equilibrium determination.
Assumes economic rationality and materialistic, individualistic, self-interested orientation.
Key Definition: Political Economy
The attempt to merge economic analysis with practical politics—viewing economic activity in its
political context. Emphasizes power's role in decision making.
Key Definition: Development Economics
The study of how economies transform from stagnation to growth, from low-income to high-
income status, and overcome problems of absolute poverty.
Development Process Set in Motion
Development: The process of improving the quality of all human lives and capabilities by raising
people's levels of living, self-esteem, and freedom
• New roads bring opportunities and frustrations
• Aspirations raised alongside awareness of deprivation
Scope of Development Economics
• Efficient allocation AND structural transformation
• Economic, social, political, institutional mechanisms
• Rapid improvements in levels of living
• Breaking out of poverty traps
Key Terms
Developing Countries: Countries of Asia, Africa, the Middle East, Latin America characterized by low
levels of living and other development deficits
More Developed Countries (MDCs): Economically advanced capitalist countries of Western Europe,
North America, Australia, New Zealand, Japan
Critical Development Questions (1/3)
• What is the real meaning of development?
• What can be learned from historical record?
• How do institutions shape development?
• Why extremes between rich and poor so great?
Critical Development Questions (2/3)
• Why do some countries progress while others remain poor?
• How can women's role especially benefit development?
• What causes extreme poverty?
• Is population growth threatening progress?
Critical Development Questions (3/3)
• Why so much unemployment in developing world?
• How can cities act as engines of transformation?
• Does health help spur development?
• Do educational systems promote development?
1.3 What Do We Mean by Development?
Development may mean different things to different people; need working definition and measurement
criteria
Key Economic Indicators
• GDP: Total output produced within country's territory
• GNI: Total domestic and foreign output claimed by residents
• Income per capita: GNI divided by total population
Philippine Economy: Recent Trends
• 2024: GDP growth reached 5.7%
• Fell short of government targets second year
• Service sector generates over 50% of GDP
• Manufacturing decreased to 17.3% of economy
The New Economic View
1970s redefined development as:
• Reduction of poverty
• Lessening inequality
• Expanding employment
• Within context of growing economy
Dudley Seers' Key Questions
"What has been happening to poverty? What has been happening to unemployment? What has been
happening to inequality?"
If all three have declined, genuine development occurred.
Development as Multidimensional Process
Development involves major changes in:
• Social structures
• Popular attitudes
• National institutions
• Acceleration of economic growth
Amartya Sen's Capability Approach
What matters is not just income, but what people can do with it.
• Focus on "functionings" - valued beings and doings
• Capabilities: freedoms people have to function
• Health, education, mobility,s self-esteem
Key Definition: Functionings
Functionings
What people do or can do with the commodities they possess or control—valued "beings and
doings" like being healthy, well-nourished, or taking part in community life.
Five Sources of Disparity (Sen)
• Personal heterogeneities (disability, age, gender)
• Environmental diversities (climate, pollution)
• Variations in social climate (crime, social capital)
• Distribution within the family
• Differences in relational perspectives
Key Definition: Capabilities
Capabilities
The freedoms people have in terms of choice of functionings, given personal features
(conversion of characteristics into functionings) and command over commodities.
Development and Happiness
Research findings on happiness factors:
• Happiness increases with income up to $10,000-$20,000 per capita. Beyond that, relationship
plateaus.
• Seven key factors: family, finance, work, community, health, freedom, values
Three Core Values of Development
• Sustenance: Ability to meet basic needs
• Self-Esteem: Sense of worth and respect
• Freedom: Expanded range of choices
Sustenance
Basic goods and services (food, clothing, shelter) necessary to sustain human life at minimum
level. Without these, absolute underdevelopment exists.
Three Objectives of Development
• Increase availability and widen distribution of basic life-sustaining goods
• Raise levels of living (income, jobs, education, cultural values, self-esteem)
• Expand economic and social choices by freeing from servitude and dependence
Self-Esteem
Feeling of worthiness that society enjoys through respect, dignity, integrity, and self-
determination. Development legitimizes esteem for nations.
Freedom
Emancipation from material deprivation and social servitude. Expanded choices and minimized
external constraints. As W. Arthur Lewis said: wealth increases the range of human choice.
Key Term: Millennium Development Goals
Eight goals adopted by UN in 2000 to address global poverty, health, education, and sustainability.
MDG Progress and Challenges
• Global poverty halved by 2012
• Great regional disparity remains
• Hunger target unlikely to be met
• Under-5 mortality reduction fell short
Sustainable Development Goals
Post-2015 successor to MDGs with five transformative shifts:
1. Leave no one behind—focus on excluded groups
2. Put sustainable development at core—integrate social, economic, environmental dimensions
3. Transform economies for jobs and inclusive growth
4. Build peace and effective, open, accountable institutions—rule of law, freedom, democratic choice
5. Forge new global partnership—involving governments, civil society, business, communities
Philippine Progress on SDGs
• Poverty rate declining but still high
• Education access improving gradually
• Healthcare system challenges remain
• Infrastructure development ongoing
Key Term: Institutional Structure
The organizational structure of society including values, attitudes, power structure, and
traditions shaping development.
Key Institutional Factors
• Land tenure arrangements
• Social and class stratifications
• Credit, education, health systems
• Government bureaucracy effectiveness
Central Role of Women
• Women tend to be poorer globally
• Primary responsibility for child rearing
• Spend higher fraction of income on children
• Empowering women has biggest development impact
Philippine Women's Role
• High female labor force participation
• Many OFWs are women (healthcare, domestic work)
• Gender equality improving but gaps remain
• Women's education investment yields high returns
Core Concept: Sector
A subset of an economy with four usages: technology (modern/traditional), activity
(industry/product), trade (export), and sphere (private/public sectors).
Growing Global Interdependence
"The world is like the human body: If one part aches, the rest will feel it; if many parts hurt, the whole will
suffer"
What happens in developing nations affects all nations
Values vs Attitudes
• Values: Principles a society considers desirable
• Attitudes: Feelings toward material gain, work, saving
• Both shape economic behavior and development paths
Critical Concept: Freedom of Choice
A situation where society has alternatives to satisfy wants and individuals enjoy real choices
according to their preferences.