Development Economics
Unit 1 — The Study of Economic Development
1. Development Economics as a Subject
Development economics is a relatively new branch of economics. Even 40 years ago, it was rare as a
university course. Today, every serious economics department teaches it.
It focuses on problems of poor/developing countries:
• Poverty and hunger
• Unemployment
• Inequality
• Structural transformation of economies
Key point: Before WW2, most poor countries were colonies, so their problems were largely ignored. After
independence, the world began paying attention. Institutions like the World Bank, IMF, and UN agencies
were all established post-WW2.
2. Meaning of Development
Development is much more than just economic growth. It includes:
• Higher incomes (GDP/GNP per capita)
• Reduction in poverty
• Better health and education
• Less inequality
• Greater freedom and self-esteem (Amartya Sen's view)
Amartya Sen (Nobel Prize winner) defined development as expansion of freedoms — political freedom,
social opportunities, economic facilities, and protection of basic rights.
3. Economic Growth vs Development
Economic Growth Economic Development
Quantitative (numbers go up) Qualitative + structural change
More output/GDP Better living standards
Necessary but NOT sufficient The broader, ultimate goal
4. Underdevelopment — Characteristics
Features of underdeveloped countries:
• Low per capita income
• High dependence on agriculture
• Low industrialization
• Poor infrastructure
• High population growth
• Technological backwardness
• Weak institutions
5. Causes of Underdevelopment
• Colonialism — wealth was extracted, not built locally
• Lack of capital formation — no savings → no investment
• Technological backwardness
• Institutional weaknesses
• Population pressure
The Vicious Cycle of Poverty:
Low income → Low savings → Low investment → Low productivity → Low income (repeats endlessly)
6. Academic Interest in Development
Key economists and their contributions:
Economist Key Contribution
Rosenstein-Rodan Big Push Theory
Ragnar Nurkse Balanced Growth / Vicious Cycle
W. Arthur Lewis Dual Economy Model
Amartya Sen Capabilities & Freedom Approach
Paul Krugman New Growth & Trade Theory
Gunnar Myrdal Circular & Cumulative Causation
7. New International Economic Order (NIEO)
Developing countries (Third World) demanded a fairer global economic system after WW2. The NIEO
called for:
• Better/fair trade terms for poor countries' exports
• Technology transfer from rich to poor nations
• Greater say in global institutions (IMF, World Bank)
• Reform of the international monetary system
• Alleviation of past debt
The Lima Declaration (1975) set a target for developing countries to secure 25% share of world
manufacturing output by 2000.
8. Globalisation and Interdependence
Globalisation refers to the growing interdependence of countries through:
• Trade and freeing of goods/services
• Capital flows — $2 trillion/day in global currency markets
• Movement of people across borders
• Spread of information technology
Positives of Globalisation:
• More power and assets than many national governments
• Greater flow of FDI
• Faster economic growth potential
Negatives of Globalisation:
• Countries more vulnerable to financial shocks
• Spread of disease and crime
• Reduced national autonomy
9. International Development Goals (2000–2015)
The Millennium Development Goals (MDGs) — 7 key targets:
1. Halve the proportion of people in extreme poverty by 2015
2. Enrol all children in primary school by 2015
3. Make progress toward gender equality by 2005
4. Reduce infant & child mortality rates by two-thirds between 1990-2015
5. Reduce maternal mortality by three-quarters between 1990-2015
6. Provide access to reproductive health services for all
7. Implement national strategies for sustainable development by 2015
10. Challenges of Development
• Income inequality (urban vs rural, rich vs poor)
• Environmental degradation
• Unemployment and underemployment
• Urban-rural divide
• Human security — less instability, less vulnerability
• Sustainability — less poverty and environmental destruction
11. Perpetuation of Underdevelopment
Why do poor countries stay poor? Several forces keep them trapped:
• Vicious cycle: Low income → low savings → low investment → low productivity → low income
• Colonialism legacy: Structural dependency on rich nations
• Urban bias: Resources flow to cities, agriculture neglected
• Circular & cumulative causation (Myrdal): Rich regions grow richer, poor stay poor
• Low self-esteem & fatalism: Lack of empowerment among the poor
Key insight: Underdevelopment is not accidental — it is perpetuated by structural, historical, and institutional
forces that must be actively addressed through policy.
Development Economics — Unit 1 Study Notes | Prepared for Exam Revision