LESSON 1

Same as the examples in the previous section, the economies also develops and this course will
try to explain how economies developed through time and why do they develop at a different
pace.
To start let us define what development is.
Development - the process of improving the quality of all human lives and capabilities by
raising people’s levels of living, self-esteem and freedom.
Levels of living - income, comfort, availability of necessities.
Self-esteem - confident in one's capabilities or worth.
Freedom - ability to take economic actions (education, equal rights, etc.).

NATURE OF DEVELOPMENT ECONOMICS

Traditional Economics – approach to economics that emphasizes utility, profit maximization,

market efficiency and determination of equilibrium.
Political economy – goes beyond traditional economics. The attempt to merge economic
analysis with practical politics. – To view economic activity in its political context.
Traditional Economics + Political Economy = Development Economics
Development Economics – the study of how economies are transformed from stagnation to
growth, from low income to high-income status and overcome problems of absolute poverty.

As we go along with this course, we are going to face these two terms:
LDC - Least Developed Countries: countries that exhibits low indicators of socio-economic
development.
MDC -More Developed Countries: developed and has advanced technological
infrastructures.

Role of Values in Economic Development

"Realization of Human Potential." - Mahatma Gandhi
Economic and social equality, elimination of poverty, universal education, rising levels of living,
national independence, modernization of institutions, rule of law and due process, access to
opportunity, political and economic participation, grassroots democracy, self-reliance and personal
fulfillment all derived from subjective value judgments of what is good and desirable and what is
not.
“Economies as Social System”
 Interdependent relationships between economic and non-economic factors.
 Social system – the organizational and institutional structure of a society, including its
values, attitudes, power structure and traditions.
Traditional Economic Measures VS New Economic View of Development
Traditional Economic Measure
 Economic development is being measured by the Gross Domestic Product (GDP)or Gross
National Product (GNP).

GDP - Goods and services produced within a country over a given period of time.
GNP - Goods and services produced within and outside a country over a given period of time.
QUICK Fact: Philippine is currently in a recession because of two consecutive quarters of negative
GDP growth. -0.7% in the 1st quarter and -16.5% in the second quarter due to the COVID 19
pandemic.
Recession - occurs when economic activity declines causing widespread unemployment, falling
prices and weak economic activity.
New Economic View
Development must therefore be conceived of as multidimensional process involving major
changes in social structures, popular attitudes, and national institutions as well as acceleration of
economic growth, the reduction of inequality and the eradication of poverty.

Amartya Sen's Capability Approach

According to Amartya Sen, capability to function is what really matters. It enhances the lives we
lead and the freedom we enjoy. Thus, our capabilities aid economic development.
However, according also to Amartya Sen there are 5 sources of disparities that can hide our
capabilities to function. These are the following:
1. Personal Heterogeneities – illness, disability, age, gender
2. Environmental Diversities – heating and clothing requirements in the cold, infectious
diseases in tropics, impact of pollutions.
3. Variation in Social Climate – prevalence of crime and violence
4. Distribution within the Family – family resources distributed unevenly.
5. Difference in relational perspective – In a rich society the ability to partake in a community
life will be extremely difficult.
Given such disparities, it affects the pace of development of a certain country.
Happiness and Development
Happiness is part of Human well-being.

Three Core Values of Development

1. Sustenance: The ability to meet the basic needs
2. Self- Esteem: To be a person
3. Freedom from Servitude: To be able to choose
Women and Development
Globally women tend to be poorer than men. However, women are very essential for
development. Women are essential for child rearing.

3 Objectives of Development
1. To increase the availability and widen the distribution of life-
sustaining goods such as food, shelter, health and protection.
 2. To raise levels of living, higher income, more jobs, better education , cultural and
human values, individual and national self esteem
3. To expand the range of Economic and Social Choices. freedom from servitude
and dependence.
LESSON 2
Common Characteristics of Developing Countries
1. Lower levels of living and productivity
2. Lower levels of human capital
3. Higher levels of inequality and absolute poverty
4. Higher population growth rates
5. Greater social fractionalization
6. Larger rural populations but rapid rural-to-urban migration
7. Lower levels of industrialization
8. Adverse geography
9. Underdeveloped financial and other markets
10. Lingering colonial impacts such as poor institutions and often external dependence.
World Bank
An organization known as an “international financial institution” that provides development funds to
developing countries in the form of interest-bearing loans, grants, and technical assistance.
Low-income countries (LICs)
In the World Bank classification, countries with a gross national income per capita of less than
$976 in 2008.
Middle-income countries
In the World Bank classification, countries with a GNI per capita between $976 and $11,906 in
2008.
Newly industrializing counries (NICs)
Countries at a relatively advanced level of economic development with a substantial and dynamic
industrial sector and with close links to the international trade, finance, and investment system.
Least developed countries
A United Nations designation of countries with low income, low human capital, and high economic
vulnerability.
Gross national income (GNI)
The total domestic and foreign output claimed by residents of a country, consisting of gross
domestic product (GDP) plus factor incomes earned by foreign residents, minus income
earned in the domestic economy by nonresidents.
Value added The portion of a product’s final value that is added at each stage of production.
Depreciation (of the capital stock) The wearing out of equipment, buildings, infrastructure,
and other forms of capital, reflected in write-offs to the value of the capital stock.
Capital stock The total amount of physical goods existing at a particular time that have been
produced for use in the production of other goods and services. Gross domestic product
(GDP) The total final output of goods and services produced by the country’s economy within
the country’s territory by residents and nonresidents, regardless of its allocation between
domestic and foreign claims.
LESSON 5

Indicators and ways to analyze population:

1. Geographical Location
 More than three-quarters of the world’s people live in developing countries;
fewer than one person in four lives in an economically developed nation
 In the Philippines, Luzon Island has the highest number of population and
National Capital Region (NCR) is the most densely populated across all the
regions (PSA, 2015). NCR being a capital of the country it is expected to be
populated and to have a high income (see Gross Regional Domestic Product) in
comparison to other regions.

2. Birth rates, death rates , Total fertility rates and its Trend
 Crude birth rate The number of children born alive each year per 1,000
population (often shortened to birth rate)
 Death rate The number of deaths each year per 1,000 population (also known
as mortality rate)
 Total Fertility Rate (TFR) the average number of children a woman would have
assuming that current age-specific birth rates remain constant throughout her
childbearing years (15 to 49 years of age)
o most developing nations have birth rates ranging from 15 to 40 per 1,000
while in almost all developed countries, the rate is less than 15 per 1,000.
 Life expectancy at birth The number of years a newborn child would live if
subject to the mortality risks prevailing for the population at the time of the
child’s birth
o developing countries averaged Life expectancy at birth 35 to 40 years,
compared with 62 to 65 years in the developed world
 Under-5 mortality rate Deaths among children between birth and 5 years of age
per 1,000 live births.
3. Population Growth rate
 Population Growth rate can be expressed through:

 Rate of population increase The growth rate of a population, calculated as the

natural increase after adjusting for immigration and emigration
 Natural increase The difference between the birth rate and the death rate of a
give population.
 Net international migration The excess of persons migrating into a country over
those who emigrate from that country.
4. Age Structure and dependency burdens
 Youth dependency ratio The proportion of young people under age 15 to the
working population aged 16 to 64 in a country
  Population pyramid A graphic depiction of the age structure of the population,
with age cohorts plotted on the vertical axis and either population shares or
numbers of males and females in each cohort on the horizontal axis.
o Figure below shows the Population pyramid for 2020 of developed
countries (Japan and USA) and developing country (Philippines). The figure
shows that most future population growth will take place in the
Philippines. The wider/ bulging bottom indicates a higher youth
dependency ratio such as Philippines. On the other hand, developed

countries will have a wider/bulging in the middle. This implies that working
population greatly out numbered the dependent population. This further
implies that there is a higher share of population that is generating
income to support the young population. The population pyramid of Japan
shows that higher share of population of old age over young population.
The highest age cohorts for Philippines, USA and Japan is from age 5-9
years old, from age 25-29 years old and from age 45-49 years old
respectively.

5. The Demographic Transition The process by which fertility rates eventually decline to
replacement levels has been portrayed by a famous concept in economic demography.

LESSON 6

Population Models and Theory

 Malthusian population trap -The threshold population level anticipated by
Thomas Malthus (1766–1834) at which population increase was bound to stop
because life sustaining resources, which increase at an arithmetic rate, would
be insufficient to support human population, which increases at a geometric
rate.
o This prediction did not happen due to the following reasons:
 With technological progress mass production of commodities is
made possible
 They are based on a hypothesis about a macro relationship between
population growth and levels of per capita income that does not
 stand up to
empirical testing of the modern period.
 They focus on the wrong variable, per capita income, as the
principal determinant of population growth rates. A much better and
more valid approach to the question of population and development
centers on the microeconomics of family size decision making in
which individual, and not aggregate, levels of living become the
principal determinant of a family’s decision to have more or fewer
children.
 The Microeconomic Household Theory of Fertility The theory that family
formation has costs and benefits that determine the size of families formed.
o Demand for Children depends on:
 Income -the higher the household income, the greater the demand
for children.
 Difference between anticipated costs and benefits of potential child
income and old-age support -The higher the net price of children,
the lower the quantity demanded.
 Prices of all other goods -The higher the prices of all other goods
relative to children, the greater the quantity of children demanded.
 Tastes for goods relative to children -The greater the strength of
tastes for goods relative to children, the fewer children demanded.
 The Demand for Children in Developing Countries
o First two or three as “consumer goods”
o Additional children as “investment goods”
Implications for development and fertility:
 Birth rate will fall if there is :
o An increase in the education of women and a consequent change in their
role and status
o An increase in female nonagricultural wage employment opportunities,
which raises the price or cost of their traditional child-rearing activities
o A rise in family income levels through the increased direct employment
and earnings of a husband and wife or through the redistribution of
income and assets from rich to poor
o A reduction in infant mortality through expanded public health programs
and better nutritional status for both mother and child and better medical
care
o The development of old-age and other social security systems outside the
extended family network to lessen the economic dependence of parents,
especially women, on their offspring
o Expanded schooling opportunities so that parents can better substitute
child “quality” for large numbers of children
 In short, expanded efforts to make jobs, education, and health more broadly
available to poverty groups in general and women in particular will not only
contribute to their economic and psychic well-being but also to a manageable
and desirable birth, fertility and population rate.
The Consequences of High Fertility: Some Conflicting Opinions
 Population growth isn’t a real problem, the real problem is on the following,
 o Underdevelopment - population growth is desirable as long as it could not
hamper people's income, education, and health. As such
underdevelopment is the real problem, and development should be the
only goal.
o World resource depletion and environmental destruction - Population can
only be an economic problem in relation to the availability and utilization
of scarce natural and material resources. Fact: developed countries
(assumed to have a desirable population growth) consume almost 80% of
the world’s resources
o Population Distribution - it is not the number of people per se that is
causing population problems but their distribution in space. Population
that leads to congestion is the problem. Like in the Philippines, NCR is
experiencing too much congestion due to rural-urban migration.
o Subordination of women -women often bear the disproportionate burdens
of poverty, poor education, and limited social mobility. If women’s health,
education, and economic well-being are improved along with their role
and status in bot the family and the community, this empowerment of
women will inevitably lead to smaller families and lower population
growth.
 Population growth as an essential ingredient to stimulate economic
development.
o Large population increases demand of goods and services which leads to
increase of production and economic activity thereby creates economic
growth
o Countries claim a need for population growth to protect currently
underpopulated border regions against the expansionist intentions of
neighboring nations
o There are many ethnic, racial, and religious groups in less developed
countries whose attitudes favoring large family size have to be protected
for both moral and political reasons.
o Military and political power are often seen as dependent on a large and
youthful population.
 But population needs to be curtailed due to the following reasons:
o A rule of thumb says that any kind of excessiveness is not good.
Unmanageable/undesirable population occurs when it is the principal
cause of poverty, low levels of living, malnutrition, ill health,
environmental degradation, and a wide array of other social problems.
o Population-Poverty Cycles -theory is the main argument advanced by
economists who hold that too rapid population growth yields negative
economic consequences and thus should be a real concern for developing
countries
 increase of population ->Low savings and purchasing power -
>reduces improvement of living (like education and health) -
>presence of poverty condition the present generation -> transmit
poverty to future generations of low-income families
 as such cycle of poverty will continue
o Seven Negative Consequences of Population Growth:
 Lower economic growth
 Poverty and Inequality may worsen
 Adverse impact on education
  Adverse impact on health
 Food issues
 Impact on the environment-congestion
 International migration -excess of job seekers (caused by rapid
population growth) over job opportunities
Goals and Objectives: Toward a Consensus
Despite the conflicting opinions, there is some common ground on the following:
 Population is not the primary cause of lower living levels
 It’s not numbers but quality of life
 Population intensifies underdevelopment
Population Policy and Approaches
 Attend to underlying socioeconomic conditions that impact development
 Family planning programs should provide education and technological means to
regulate fertility
 Developed countries should
o Address inequity of resources utilization over developing countries
o Migration policies
o Assist developing countries with their population programs
 International economic relations
 Research into technology of fertility control
 Financial assistance for family planning programs
 Developing countries should
o Persuasion through education
o Family planning programs
o Manipulate incentives and disincentives for having children
o Coercion may not be a good option
o Raise the socioeconomic status of women