Economic
Development,
12 Edition
th
M.P. Todaro and S.C. Smith
Chapter One:
Introducing Economic
Development: A Global
Perspective
Why living conditions differ across countries and regions?
Why are there disparities in income, wealth, health, nutrition, education, freedom of
choice, women’s autonomy, environmental quality, market access, security and political
voices?
Some of Why is output per worker higher in some countries than others?
the World’s Why do workers in some countries have fairly secure, formal jobs with regular, predictable
biggest
pay, while other countries don’t?
questions Why population growth across countries differ?
Why are public services in some countries inefficient and corrupt and so effective in
others?
Why have some poor countries made so much progress and others so little?
Four Stylised Strata of Living Standards:
1. Bottom (extreme poverty):
• Cooking: Open fire, smoke exits through hole in the roof
How • Food and nutrition: Food insecure, majority of food grown by family; often
malnourished and among the 800 million people classified as hungry
Living • Clothing: Used, worn, may be inadequate; flip-flops or in many cases still bare
Levels feet
differ • Education: Majority now able to attend primary school, but may not complete
it
around • Housing: Self-constructed, natural or found materials, often mud; thatch roof,
dirt floors with mats
the • Furnishings: Any pallet or bed, table, chair, or shelf is self-constructed; no
world? electricity
• Water: hand-carried in buckets from public, often unsanitary sources
• Sanitation: Pit latrine or open defecation
• Transportation: On foot
More than one billion people live in extreme income poverty, or suffer acute
multidimensional deprivations
Four Stylised Strata of Living Standards:
1. Second-lowest Stratum (poverty is not officially considered as extreme poverty):
How • Cooking: Basic, but typically use kerosene or some other improved energy source
• Food and nutrition: May be food insecure or vulnerable to falling into food insecurity
Living • Clothing: : Inexpensive, often used clothing, not well fitting, perhaps inadequate for
Levels the weather; worn shoes and rubber-soled shoes
• Education: : Children finish primary school; on average attend a couple years longer
differ • Housing: Partly and perhaps fully selfconstructed; improved floor, corrugated tin roof
around • Furnishings: Basic tables and seating; fans if electricity; power connection may be
illegal and improvised
the • Water: From a tap, typically outdoors and perhaps a 50-metre-plus walk; needs self-
world? treating with chlorine or boiling
• Sanitation: Latrine
• Transportation: Bicycle
Close to 3 billion people may be thought of as living in this stratum.
A typical family in this stratum may live on about $3.80 per day per person.
Four Stylised Strata of Living Standards:
1. Second-highest Stratum:
• Cooking: Manufactured burners with improved fuel if not electric plates
How • Food and nutrition: Usually food secure; but many vulnerable to fall into food
insecurity
Living • Clothing: : Inexpensive, though new when purchased, and worn or less-expensive
shoes and sneakers; expensive clothes as social expectations rise
Levels • Education: : Children finish primary school; some finish secondary school
differ • Housing: Modest but better constructed, if not comfortable
around • Furnishings: Electricity, purchased tables, chairs, beds; fans or even a room AC,
space heater, a television
the • Water: Piped directly to house site; may need treating
world? • Sanitation: Toilets, but many lack what the top stratum considers full indoor
plumbing
• Transportation: Motor bike
More than three-quarters of the world lives on less than $15 a day; this family is
considered solidly middle income by global standards.
A typical family in the second-highest of the strata may live on about $15 per day per
person.
Four Stylised Strata of Living Standards:
1. highest Stratum (Rich):
• Cooking: Modern appliances including modern range, microwave, dishwasher
How • Food and nutrition: Rich and diverse diet, though obesity may bring other health
risks
Living • Clothing: Well-fitting, perhaps designer clothing; multiple, relatively new,
comfortable dress and sports shoes
Levels • Education: Children complete high school; on average attend at least one year of
differ post-secondary education
around • Housing: Modern, manufactured, professionally constructed
• Furnishings: House filled with consumer goods and durables, wifi, home
the entertainment centres
world? • Water: Safe water at taps throughout the house
• Sanitation: Hygienic, modern bathroom plumbing
• Transportation: A car per each adult; or in high density each person is assured
reliable transportation alternatives
close to a billion people live on the highest stratum.
A family in this stratum living in North America, Western Europe, or Japan might live
on an income of perhaps $75 per person per day.
• Countries are often classified by levels of income and human development
• Countries are also grouped by levels of poverty, quality of governance, and
many other dimensions
How • The World Bank classifies countries according to four ranges of average
national income: Low, Lower-Middle, Upper-Middle, and High.
countries are
classified by • Upper income countries have Gross national income (GNI) per capita of at
least $12,056.
their • To be classified as upper-middle income a country need GNI per capita
average between $3,896–$12,055.
levels of • Lower-middle income countries (LMCs) have annual per capita GNI between
Developmen $996–$3,895.
t? • Low income countries have annual GNI per capita of less than $996.
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.
Subsistence
Economy
An economy in which production is mainly for
personal consumption and the standard of living
yields more than basic necessities of life – food,
shelter, and clothing.
• When one is poor, she has no
say in public, she feels inferior.
She has no food, so there is
famine in her house; no
The clothing, and no progress in her
family. – A poor woman from
Experienc Uganda
• For a poor person everything is A universal theme reflected
e of terrible – illness, humiliation,
shame. We are cripples; we are
in these quotes alone is that
poverty is more than lack of
Poverty afraid of everything; we depend
on everyone. No one needs us.
income – it is inherently
multidimensional, as is
We are like garbage that
everyone wants to get rid of. – A economic development.
blind woman from Tiraspool,
Moldova
• [Poverty is]… low salaries and
lack of jobs. And it’s also not
having medicine, food, and
clothes. – Discussion group,
Brazil
The process of improving the
quality of all human lives and
capabilities by raising people’s
levels of living, self-esteem, and
freedom.
Developme
nt
The possibilities of a “better” life
will be promoted, and the
opportunities for such a life will
become feasible.
Economics and Development
Studies
The study of economic development is one of the newest, most exciting,
and most challenging branches of the broader disciplines of economics
and political economy.
Traditional economics. An approach to economics that emphasizes utility,
profit maximization, market efficiency, and determination of equilibrium.
It assumes economic “rationality” and a purely materialistic,
individualistic, self-interested orientation toward economic decision
making.
Economics and Development
Studies
Political economy goes beyond traditional economics to study. The attempt to
merge economic analysis with practical politics – to view economic activity in its
political context.
Development economics. The study of how economies are transformed from
stagnation to growth and from low-income to high-income status, and overcome
problems of absolute poverty.
More developed countries (MDCs). The now economically advanced capitalist
countries of western Europe, North America, Australia, New Zealand and Japan.
Less Developed countries. A synonym for developing countries.
Economics and Development
Studies
Development economics must be concerned with the economic, cultural and political
requirements for effecting rapid structural and institutional transformations of entire
societies in a manner that will most efficiently bring the fruits of economic progress to the
broadest segments of their populations.
It must focus on the mechanisms that keep families, regions and entire nations in poverty
traps, in which past poverty causes future poverty, and on the most effective strategies for
breaking out of these traps.
The ultimate purpose of development economics: to help understand developing economies
in order to help improve their material lives of the majority of the global population.
• Economics is a social science. It is concerned with
human beings and the social systems by which they
organize their activities to satisfy basic material needs.
• It is necessary to recognize from the outset that ethical
or normative value premises about what is or is not
The Important desirable are central features of the economic discipline
in general and of development economics in particular.
Role of Values • Mahatma Gandhi called these the “realization of human
in potential.”
Development • Social equality, universal education, elimination of
poverty, self-reliance, personal fulfillment, sanctity of
Economics private property, natural right.
• It follows that value premises are an inherent
component of both economic analysis and economic
policy.
Economies as Social
Systems: The Need to Go
Beyond Simple Economics
• Social Systems. The organizational and
institutional structure of a society, including its
values, attitudes, power structure and
traditions.
• Interdependent relationships between
economic and noneconomic factors.
• Noneconomic factors include: attitudes
toward life, work and authority; patterns of
kinship and religion; cultural traditions.
• These variables often play a critical role in the
success or failure of the development effort.
What Do We
Mean by
Developmen
t?
It has traditionally meant achieving
sustained rates of growth of income per
capita to enable a nation to expand its
output at a rate faster than the growth
rate of its population.
• Income per capita. Total gross national income of a
country divided by its total population.
• Gross National Income (GNI). The total domestic
and foreign output claimed by residents of a
Traditional country. It comprises gross domestic product (GDP)
plus factor incomes accruing to residents from
Economic abroad, less the income earned in the domestic
economy accruing to persons abroad.
Measures • 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.
• Economic development came to be redefined in
New terms of the reduction or elimination of
poverty, inequality, and unemployment within
Economic the context of a growing economy. (1970’s)
View of • Development must therefore be conceived of as
a multidimensional process involving major
Developme changes in social structures, popular attitudes,
and national institutions, as well as the
nt acceleration of economic growth, the reduction
of inequality, and the eradication of poverty.
• Amartya Sen (born
November 3, 1933,
Santiniketan, India), Indian
economist who was awarded
the Nobel Prize in Economic
Sciences for his
contributions to welfare
economics and social choice
theory and for his interest in
the problems of society’s
poorest members.
(source:
[Link]
ography/Amartya-Sen
Amartya Sen’s )
Capability Approach
Sen argues that the “capability to function” is what really matters for
status as a poor or nonpoor person.
The expansion of commodity productions… are valued, ultimately, not
for their own sake, but as means to human welfare and freedom.
Capability
Approach He argues that poverty cannot be properly measured by income or
even by utility as conventionally understood; what matters
fundamentally is not the things a person has – or the feelings these
provide – but what a person is, or can be, and does, or can do.
Functionings. What people do or can do with the commodities of
given characteristics that they come to possess or control.
Sen stresses, a person’s own valuation of what kind of life
would be worthwhile is not necessarily the same as what
gives pleasure to that person.
Functioning is different from (1) having goods and (2) having
utility (in the form of happiness resulting from that
Capability functioning), to which it is, in an important way, prior.
Approach Sen provides the example of bicycling. (it has to be
distinguished from possessing a bike. It has to be
distinguished also from the happiness generated by it.)
Capabilities. The freedom that a person has in terms of the
choice of functioning, given his personal features and his
command over commodities.
Being Being able to live long
Being Being well-nourished
Being Being healthy
Some Key Being Being literate
Capabilitie Being Being well-clothed
s Being Being mobile
Being Being physically secure
Being Being able to take part in the life of the community
Being Being happy – as a state of being – may be valued as a functioning
Development and Happiness
Clearly, happiness is part of human well-being, and greater happiness may in
itself expand an individual’s capability to function.
Sen has argued, a person may well regard happiness as an important functioning
for her well-being.
There is an empirical relationship across countries and over time between
subjectively reported satisfaction and happiness and factors such as income.
One of the findings is that the average level of happiness or satisfaction increases
with a country’s average income.
Sustenance. The Ability to Meet Basic Needs. (The basic
goods and services, such as food, clothing, and shelter,
that are necessary to sustain an average human being at
the bare minimum level of living.
Three Core Self-esteem. To be a Person. (The feeling of worthiness
Values of that a society enjoys when its social, political, and
economic systems and institutions promote human values
Developm such as respect, dignity, integrity, and self-determination.
ent
Freedom from Servitude. To be Able to Choose. (A
situation in which a society has at its disposal a variety of
alternatives from which to satisfy its wants and individuals
enjoy real choices according to their preferences.
The Three Objectives of Development
1. To increase the availability and widen the distribution of basic life-
sustaining goods such as food, shelter, health and protection.
2. To raise levels of living, including in addition to higher incomes, the
provision of more jobs, better education, and greater attention to cultural
and human values, all of which will serve not only to enhance material
well-being but also to generate greater individual and national self-
esteem.
3. To expand the range of economic and social choices available to
individuals and nations by freeing them from servitude and dependence,
not only in relations to other people and nation-states, but also to the
forces of ignorance and human misery.
• HDI An Index measuring national socioeconomic development,
based on measures of education, health, and adjusted real
income per capita.
• It ranks each country on a scale of 0 (lowest human
development) to 1 (highest human development), with:
The New Low human development (index of 0.0 – 0.499)
Medium human development (index of 0.5 – 0.799);
Human High human development (index of 0.8 – 1.0)
Developmen • The Index is based on three goals:
t Index Longevity: a long and healthy life as measured by life
expectancy at birth;
Knowledge as measured by a combination of average schooling
attained by adults and expected years of schooling for school-
age children; and
A decent standard of living
In September 2000, the 189 member countries of the UN
at that time adopted eight MDGs, committing themselves
to making substantial progress toward the eradication of
poverty and achieving other human development goals by
2015
Millennium The question is do the MDGs fit with meanings of
Developm Development we discussed?
ent Goals
(MDGs)
What about the targets?
i. Eradicate extreme poverty and hunger
ii. Achieve universal primary education
iii. Promote gender equality and empower women
iv. Reduce child mortality
The Eight v. Improve maternal health
MDGs vi. Combat HIV/AIDS, malaria and other diseases
vii. Ensure environmental sustainability
viii. Develop a Global Partnership for Development
• The greatest achievement of the MDGs was to
mobilize broad support for a global development
agenda
• While there was progress on many of the MDGs in
certain areas, the global promise went unfulfilled by
From 2015
MDGs…
• Three major criticisms of the MDGs are;
i. It was developed by a small group of experts and
was not member state driven
ii. It is too aid focused/donor driven and
iii. It completely overlooked the issue of inequality
• The UN intergovernmental process planned to begin in
September 2014 to agree the successor framework to
the MDGs which were set expire in 2015
Sustainabl
e • The post 2015 SDGs go beyond aid and will address
three pillars of Sustainable Development: Economic,
Developm Social, Environmental
ent Goals
(SDGs) • There are currently 17 focus areas that serve as the
foundation from which the SDG recommendations will
be prioritized
• A set of 17 goals for the world’s future,
through 2030
• Backed up by a set of 169 detailed targets
The SDGs
are… • Negotiated over a two-year period at the
United Nations
• Agreed to by nearly all the world’s nations, on
25 September 2015
• First, and most important, these goals apply on every
nation and every sector. Cities, businesses, schools,
organizations, all are challenged to act. Universality
What is • Second, it is recognized that the goals are all inter-
new and connected, in a system. The aim is not to achieve just
one goal, but all. Integration
different
about the • Finally, it is widely recognized that achieving these
17 SDGs? goals involves making very big, fundamental changes
in how we live on Earth. Transformation
1. End poverty in all its forms everywhere
2. End hunger, achieve food security and improve
nutrition and promote sustainable agriculture
3. Ensure healthy lives and promote well-being for all
at all age
4. Ensure inclusive and quality education for all and
promote lifelong learning
17 SDGs… 5. Achieve gender equality and empower women and
girls
6. Ensure access to water and sanitation for all
7. Ensure access to affordable, reliable, sustainable
and modern energy for all
8. Promote inclusive and sustainable economic
growth, employment and decent work
9. Build resilient infrastructure, promote sustainable
industrialization and foster innovation
10. Reduce inequality within and among countries
11. Make cities inclusive, safe, resilient, and sustainable
12. Ensure sustainable consumption and production
patterns
13. Take urgent action to combat climate change and its
17 SDGs… impacts
14. Conserve and sustainably use the oceans, seas and
marine resources
15. Sustainably manage forests, combat desertification,
halt and reverse land degradation, halt biodiversity
loss
16. Promote just, peaceful and inclusive societies
17. Revitalize the global partnership for sustainable
development