DEVELOPMENT ECONOMICS — EXTENSIVE COURSE

NOTE

1. THE CONCEPT OF ECONOMIC GROWTH AND DEVELOPMENT

1.1 Meaning of Economic Growth

Economic growth refers to a sustained increase in the quantity of goods and services produced by an economy over a
period of time.

In simple terms: Economic growth means the economy is producing more than it did before.

For example, if Nigeria produces ■100 billion worth of goods and services this year and ■110 billion next year, there has
been economic growth.

Main measure of economic growth

Economic growth is usually measured by the increase in Real Gross Domestic Product (Real GDP).

Growth Rate = [(Real GDP_current − Real GDP_previous) / Real GDP_previous] × 100

Why use real GDP?

Nominal GDP can increase simply because prices have increased. Real GDP removes the effect of price changes and
gives a better picture of whether actual production has increased.

1.2 Meaning of Economic Development

Economic development is a broader concept than economic growth. It refers to the process through which a country
experiences improvements in income, employment, education, healthcare, housing, standard of living, infrastructure,
technology, productivity, poverty reduction, inequality reduction, and political and social wellbeing.

Simple definition: Economic development is an improvement in the economic and social wellbeing of people in a country.

For example, if Nigeria's GDP increases but millions of people remain unemployed, poor, and without access to quality
healthcare and education, we cannot say that economic development has fully occurred.

1.3 Difference Between Economic Growth and Economic Development

Economic Growth:

• Mainly concerned with increase in output

• More quantitative

• Usually measured using GDP/GNP

• Can occur without major social changes

• Narrower concept

• Focuses on production/income

• May occur in the short run

Economic Development:

• Concerned with improvement in people's wellbeing

• Both quantitative and qualitative

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• Measured using several social and economic indicators

• Involves social, institutional and structural changes

• Broader concept

• Focuses on living standards

• Generally involves long-term transformation

Example: Suppose a country's GDP increases by 10%. That is economic growth. But if the country also experiences
better schools, better hospitals, lower poverty, more employment, improved infrastructure, better housing and reduced
inequality, then we can say there is economic development.

Important point for exams: Economic growth is necessary for development, but economic growth alone does not
guarantee economic development.

1.4 Relationship Between Growth and Development

Economic growth and development are closely related. Growth provides the resources needed for development.

Higher production → higher income → higher government revenue → more spending on schools, hospitals and
infrastructure → improved standard of living.

However, the relationship is not automatic. A country can have high GDP growth + high inequality + poverty +
unemployment = limited development. Therefore, what matters is not only how much the economy grows, but also how
the benefits of growth are distributed.

2. MEASUREMENT OF ECONOMIC DEVELOPMENT

Economic development cannot be measured by one indicator alone because development has many dimensions.

2.1 Gross Domestic Product (GDP)

GDP is the total monetary value of final goods and services produced within a country's geographical boundaries during a
given period, usually one year.

GDP per capita = GDP / Population

It tells us the average amount of output/income available per person.

Example: If GDP = ■1,000,000,000 and Population = 100,000, GDP per capita = ■10,000.

Limitation: GDP per capita is only an average. It does not tell us how income is distributed.

2.2 Gross National Income (GNI)

GNI measures the income earned by the residents of a country, including income from abroad. It is related to GDP but
takes into account income flows between the country and the rest of the world.

2.3 Per Capita Income

PCI = National Income / Population

It gives the average income per person. A higher per capita income generally suggests a higher material standard of
living.

Limitations:

• income inequality

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• poverty distribution

• quality of healthcare

• quality of education

• environmental quality

• unpaid work

• informal economic activities

2.4 Human Development Index (HDI)

The Human Development Index is a broader measure of development.

It considers three major dimensions:

1. Health — measured using life expectancy at birth.

2. Education — measured using indicators relating to years of schooling.

3. Standard of living — measured using GNI per capita.

HDI ranges from 0 to 1. Generally, closer to 1 means higher human development and closer to 0 means lower human
development.

Importance of HDI: HDI is better than GDP alone because it recognises that people and their wellbeing are the ultimate
purpose of development.

2.5 Physical Quality of Life Index (PQLI)

PQLI attempts to measure quality of life using social indicators such as life expectancy, infant mortality and literacy. It
focuses more on the social aspects of development.

2.6 Infant Mortality Rate

This refers to the number of infants who die before reaching one year of age per 1,000 live births.

A high infant mortality rate usually indicates poor healthcare, poor nutrition, inadequate sanitation, poverty and poor
maternal care. Therefore, a falling infant mortality rate is generally an indication of improving development.

2.7 Life Expectancy

This refers to the average number of years a person is expected to live. Higher life expectancy generally indicates
improvements in healthcare, nutrition, sanitation, income and living conditions.

2.8 Literacy Rate

The literacy rate measures the proportion of the population that can read and write. Higher literacy generally contributes
to employment, productivity, innovation, better decision-making and improved living standards.

2.9 Other Development Indicators

• unemployment rate

• poverty rate

• access to clean water

• access to electricity

• access to healthcare

• school enrolment

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• housing conditions

• access to sanitation

• internet access

• nutritional status

• income distribution

• infrastructure

Key point: No single indicator is perfect. Economists use several indicators together to get a better picture of
development.

3. HUMAN DEVELOPMENT AND ITS INDICATORS

3.1 Meaning of Human Development

Human development is the process of expanding people's choices, capabilities, opportunities and freedoms so that they
can live meaningful and productive lives.

The central idea: Development should be about people, not merely about money.

A country may become richer while its citizens remain unhealthy, poorly educated and unemployed. True human
development therefore involves improving people's ability to live the kind of lives they value.

3.2 Major Dimensions of Human Development

A. Long and healthy life:

• adequate healthcare

• proper nutrition

• clean water

• sanitation

• safe housing

• maternal and child healthcare

B. Knowledge:

• primary education

• secondary education

• tertiary education

• vocational training

• adult education

C. Decent standard of living:

• adequate income

• employment

• food

• clothing

• housing

• access to basic services

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3.3 Indicators of Human Development

Health indicators:

• Life expectancy

• Infant mortality

• Maternal mortality

• Nutrition

• Access to healthcare

• Doctor-to-patient ratio

Education indicators:

• Literacy rate

• School enrolment

• Mean years of schooling

• Expected years of schooling

• Educational attainment

Economic indicators:

• Income per capita

• Employment

• Poverty rate

• Access to basic services

3.4 Why Human Development Is Important

Human development:

1. reduces poverty

2. improves productivity

3. improves health

4. increases life expectancy

5. increases educational attainment

6. improves employment opportunities

7. reduces vulnerability

8. increases people's participation in economic activities

9. improves standard of living

10. contributes to long-term economic growth

Example: An educated and healthy worker is generally more productive than a worker who lacks education and
healthcare.

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Education + Health → Human Capital → Higher Productivity → Higher Income → Development

4. ECONOMIC GROWTH AND INCOME DISTRIBUTION

4.1 Meaning of Income Distribution

Income distribution refers to the way income is shared among individuals or households in an economy.

Example:

Person A = ■20,000

Person B = ■30,000

Person C = ■50,000

Person D = ■100,000

Person E = ■1,000,000

Income is highly unequal.

4.2 Economic Growth and Income Distribution

Economic growth can reduce inequality if it creates more jobs, higher wages, better opportunities, improved education
and greater access to businesses.

Growth can increase inequality when it mainly benefits wealthy individuals, large businesses, highly skilled workers and
owners of capital while poor people receive little benefit.

Therefore: Economic growth does not automatically mean equal distribution of income.

4.3 Why Income Inequality Is a Problem

• poverty

• social unrest

• crime

• political instability

• poor access to education

• poor healthcare

• reduced social mobility

• lower opportunities for poor households

4.4 Measurement of Income Inequality — Gini Coefficient

The Gini coefficient is commonly used to measure income inequality. It ranges from 0 to 1:

• 0 = perfect equality

• 1 = perfect inequality

If everyone earns exactly the same income, Gini = 0. If one person receives all income while everyone else receives
nothing, Gini = 1.

4.5 Lorenz Curve

The Lorenz curve is a graphical method of showing income inequality. It compares cumulative percentage of the
population with cumulative percentage of income. The further the Lorenz curve is away from the line of perfect equality,
the greater the inequality.

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4.6 Ways of Reducing Income Inequality
• progressive taxation

• free/affordable education

• affordable healthcare

• social welfare programmes

• minimum wage policies

• job creation

• rural development

• agricultural support

• provision of infrastructure

• support for small businesses

• targeted cash transfers

5. SUSTAINABLE DEVELOPMENT

5.1 Meaning
Sustainable development means development that meets the needs of the present generation without preventing future
generations from meeting their own needs.

In simple words: We should improve our lives today without destroying the ability of people tomorrow to live well.

5.2 Three Main Pillars

1. Economic sustainability — productive industries, employment, stable

economic policies and efficient use of resources.

2. Social sustainability — education, healthcare, equality, poverty reduction,

social justice and decent employment.

3. Environmental sustainability — reducing pollution, preventing deforestation,

protecting biodiversity, renewable energy and proper waste disposal.

5.3 Sustainable Development Goals (SDGs)

The United Nations established 17 Sustainable Development Goals:

1. No Poverty

2. Zero Hunger

3. Good Health and Well-being

4. Quality Education

5. Gender Equality

6. Clean Water and Sanitation

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7. Affordable and Clean Energy

8. Decent Work and Economic Growth

9. Industry, Innovation and Infrastructure

10. Reduced Inequalities

11. Sustainable Cities and Communities

12. Responsible Consumption and Production

13. Climate Action

14. Life Below Water

15. Life on Land

16. Peace, Justice and Strong Institutions

17. Partnerships for the Goals

5.4 Importance of Sustainable Development

• protect natural resources

• reduce poverty

• protect future generations

• reduce environmental damage

• promote long-term economic growth

• improve social wellbeing

• reduce climate-related risks

5.5 Examples
Unsustainable development: A company cuts down an entire forest without replacing the trees. It may make money today
but destroys resources needed in the future.

Sustainable development: A company uses forest resources while replanting trees and protecting the ecosystem.

6. CHARACTERISTICS OF AN UNDERDEVELOPED ECONOMY

An underdeveloped economy is an economy where levels of income, productivity, infrastructure, technology and human
welfare are relatively low compared with more advanced economies.

The term is increasingly replaced with terms such as developing economy or low-income economy, depending on the
context.

Major Characteristics:

1. Low per capita income

2. Widespread poverty

3. High unemployment and underemployment

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4. Dependence on agriculture

5. Low agricultural productivity

6. Inadequate infrastructure

7. Low level of industrialisation

8. Poor technological development

9. Low savings and investment

10. Rapid population growth

11. Poor healthcare

12. Low literacy and educational attainment

13. Dependence on primary products

14. Income inequality

Examples of primary products include crude oil, cocoa, agricultural products and minerals.

7. OBSTACLES TO ECONOMIC DEVELOPMENT

These are factors that prevent or slow down development.

7.1 Poverty
Poverty reduces people's ability to save, invest, obtain education, access healthcare and start businesses.

Poverty cycle:

Low income → Low savings → Low investment → Low productivity → Low income

7.2 Rapid Population Growth

If population increases faster than output, resources such as schools, hospitals, housing, jobs and food may become
inadequate.

7.3 Unemployment
High unemployment wastes human resources and reduces income.

7.4 Poor Infrastructure

Poor roads, electricity, water and transportation increase business costs and reduce productivity.

7.5 Low Capital Formation

Development requires investment in factories, machinery, roads, schools, hospitals and technology. Low savings can
limit investment.

7.6 Political Instability

Political instability discourages investment, production, entrepreneurship and foreign investment. It can also cause
destruction of infrastructure.

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7.7 Corruption
Corruption can cause public resources to be diverted away from productive purposes and can increase the cost of doing
business.

7.8 Low Human Capital

Poor education and healthcare reduce labour productivity.

7.9 Dependence on Primary Products

An economy that depends heavily on commodities may experience unstable export earnings because commodity prices
can fluctuate.

7.10 Poor Technology

Limited technology reduces productivity and competitiveness.

7.11 Environmental Problems

Desertification, flooding, erosion, pollution and deforestation can reduce agricultural and economic productivity.

8. FACTORS OF ECONOMIC GROWTH

Economic growth occurs when an economy's productive capacity increases.

8.1 Natural Resources

Examples: land, crude oil, natural gas, minerals, forests and water. Natural resources can contribute to growth when
properly managed.

8.2 Labour
Labour refers to human effort used in production. A large and skilled labour force can increase output.

8.3 Capital
Capital includes machinery, factories, tools, equipment and infrastructure. More productive capital can increase output.

8.4 Human Capital

Human capital refers to the knowledge, skills, education and health embodied in people. Investment in education, training
and healthcare improves human capital.

8.5 Technology
Technological advancement allows firms to produce more output, faster, at lower cost and with better quality. Technology
is a major source of productivity growth.

8.6 Entrepreneurship
Entrepreneurs identify opportunities, organise resources, introduce innovations, take risks and establish businesses.
They contribute to employment and output.

8.7 Savings and Investment

Savings provide funds that can be used for investment.

Savings → Investment → Capital Formation → Higher Productivity → Economic Growth

8.8 Infrastructure

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Good infrastructure includes electricity, roads, railways, ports, telecommunications and water supply. Infrastructure
reduces production and transportation costs.

8.9 Political and Economic Stability

Investors are more willing to invest when the economy has stable government, predictable policies, secure property rights
and low levels of conflict.

8.10 Trade
International trade allows countries to specialise, access larger markets, earn foreign exchange, acquire technology and
import capital goods.

9. CHARACTERISTICS OF MODERN ECONOMIC GROWTH

Modern economic growth refers to the sustained economic growth experienced by countries following industrialisation
and technological advancement.

Economist Simon Kuznets associated modern economic growth with long-term increases in productive capacity
accompanied by structural and social changes.

Characteristics:

1. High rate of increase in output — modern economies experience sustained

increases in production.

2. Increase in per capita output — output per person tends to increase.

3. Technological advancement — innovation, machinery, digital technology,

scientific research and automation.

4. Industrialisation — movement from heavy dependence on agriculture toward

manufacturing, services and technology.

5. Urbanisation — people increasingly move from rural areas to towns and

cities for employment, education and business opportunities.

6. Increased productivity — workers can produce more output per unit of time
because of better technology, skills and capital.

7. Structural transformation — the structure of employment and production

changes, often from agriculture toward manufacturing and services.

8. Increased international trade — modern economies are increasingly

integrated into the global economy.

9. Higher life expectancy — economic and technological development can

improve healthcare, sanitation and nutrition.

10. Greater education — modern growth is associated with increased

investment in human capital.

10. POVERTY AND INEQUALITY

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10.1 Meaning of Poverty
Poverty is a condition in which people lack sufficient resources to meet basic needs and maintain an acceptable standard
of living.

10.2 Types of Poverty

• Absolute poverty — inability to meet basic necessities.

• Relative poverty — living significantly below the standard of living of the surrounding society.

• Chronic poverty — long-term poverty.

• Transient poverty — temporary poverty caused by events such as job loss, illness, recession or disasters.

10.3 Causes of Poverty

Economic: unemployment, low wages, low productivity, inflation and lack of access to credit.

Social: poor education, poor healthcare, discrimination and inadequate housing.

Political/institutional: corruption, poor governance, political instability and weak institutions.

Environmental: drought, flooding, desertification and climate-related disasters.

10.4 Effects of Poverty

• malnutrition

• poor health

• school dropout

• child labour

• crime

• poor housing

• low productivity

• social exclusion

• reduced life expectancy

10.5 Meaning of Inequality

Inequality refers to unequal distribution of income, wealth, opportunities or resources among people.

Income inequality concerns differences in income. Wealth inequality concerns differences in ownership of assets such as
land, houses, businesses, savings and investments.

10.6 Relationship Between Poverty and Inequality

They are related but not the same. A country can have high inequality but relatively low poverty, low inequality but
widespread poverty, or both high poverty and high inequality.

Important exam point: Poverty concerns whether people have enough resources to meet basic needs, while inequality
concerns how resources are distributed among people.

10.7 Ways to Reduce Poverty and Inequality

1. create employment

2. improve education

3. improve healthcare

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4. provide social protection

5. support small businesses

6. improve infrastructure

7. provide agricultural support

8. improve access to credit

9. implement effective taxation

10. provide targeted cash transfers

11. improve rural development

12. promote inclusive economic growth

11. TARGETING AND EVALUATION OF SOCIAL PROGRAMMES AIMED AT

IMPROVING MEASURES OF DEVELOPMENT

11.1 Meaning of Social Programmes

Social programmes are government or community interventions designed to improve people's welfare. They may focus
on poverty, education, healthcare, employment, food security, housing and social protection.

11.2 Examples of Social Programmes

1. Cash transfer programmes — provide money directly to poor or vulnerable

households.

2. School feeding programmes — provide meals to improve attendance,

concentration and nutrition.

3. Free or subsidised education — reduces the cost of education and develops

human capital.

4. Healthcare programmes — provide free or subsidised healthcare.

5. Employment programmes — create public employment or support

private-sector job creation.

6. Agricultural support programmes — provide fertilisers, improved seeds,

loans, machinery and extension services.

11.3 Meaning of Targeting

Targeting means directing government assistance toward the people who need it most.

11.4 Types of Targeting

A. Geographic targeting — assistance directed to people in particular areas.

B. Means testing — benefits given to people whose income falls below a specified level.

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C. Categorical targeting — assistance provided to a particular group such as children, elderly people, pregnant women or
persons with disabilities.

D. Self-targeting — programmes designed so mainly people who need them participate.

11.5 Why Targeting Is Important

Targeting can reduce government expenditure, concentrate resources on vulnerable people, reduce poverty, improve
effectiveness and reduce wastage.

Problems include exclusion of some poor people, inaccurate information, corruption, difficulty identifying poor households
and high administrative costs.

11.6 Evaluation of Social Programmes

Evaluation means assessing whether a programme has achieved its intended objectives.

A programme can be evaluated based on:

1. Effectiveness — did it achieve its objectives?

2. Efficiency — did it achieve objectives at reasonable cost?

3. Equity — did it benefit those who needed it most?

4. Sustainability — can it continue over the long term?

5. Impact — what difference did it make to people's lives?

11.7 Methods of Evaluation

Before-and-after comparison: compare conditions before and after a programme.

Control group method: one group receives the programme while another similar group does not, then outcomes are
compared.

11.8 Common Problems With Social Programmes

• corruption

• poor implementation

• inadequate funding

• political interference

• poor targeting

• inaccurate data

• lack of monitoring

• duplication of programmes

• poor infrastructure

• lack of transparency

• exclusion of deserving beneficiaries

QUICK REVISION TABLE

Growth — increase in production/output.

Development — improvement in economic and social wellbeing.

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Measurement of Development — ways of determining the level of development.

Human Development — expanding people's capabilities and opportunities.

Income Distribution — how income is shared among people.

Sustainable Development — development without compromising future generations.

Underdeveloped Economy — economy with relatively low income, productivity and living standards.

Obstacles to Development — problems that prevent or slow development.

Factors of Growth — resources and conditions that increase output.

Modern Economic Growth — sustained growth associated with productivity, technology and structural transformation.

Poverty — inability to meet basic needs.

Inequality — unequal distribution of income, wealth and opportunities.

Social Programmes — government interventions designed to improve welfare.

Targeting — directing assistance toward people who need it.

Evaluation — determining whether a programme achieved its objectives.

KEY POINTS TO MEMORISE FOR EXAMS

1. Economic growth is mainly an increase in real output.

2. Economic development is broader than economic growth.

3. GDP alone cannot adequately measure development.

4. GDP per capita is an average and does not show income distribution.

5. HDI considers health, education and standard of living.

6. Human development focuses on expanding people's capabilities and

choices.

7. Economic growth can occur without equitable distribution of income.

8. The Gini coefficient measures income inequality.

9. A Gini coefficient closer to 0 indicates greater equality.

10. Sustainable development considers economic, social and environmental

needs.

11. Poverty and inequality are related but are not the same thing.

12. Human capital consists of people's knowledge, skills, education and health.

13. Technology increases productivity and supports economic growth.

14. Poor infrastructure can be a major obstacle to development.

15. Social programmes are intended to improve people's welfare.

16. Targeting ensures scarce resources are directed toward intended

beneficiaries.

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17. Evaluation determines whether a programme has achieved its objectives.

18. Economic growth does not automatically guarantee economic development.

19. Inclusive growth is growth whose benefits reach a broad section of society.

20. The ultimate objective of development is improvement in human wellbeing.

One sentence that ties the whole course together:

Development economics studies how economies can achieve sustained growth while reducing poverty and inequality,
improving human wellbeing, and ensuring that development remains sustainable.

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