Economics of Development:

Theory and Evidence

Ninth edition

A.P. Thirlwall

Economics of Development

Chapter 1. Study of Economic Development

Development economics as a subject Academic interest in development New international economic order (including Millennium Development Goals) Globalisation and interdependence in the world economy Meaning of development and the challenge of development economics The perpetuation of underdevelopment Summary

Economics of Development

Development Economics as a Subject

Four main factors account for growth of development economics as a discipline since World War II: Renewed interest by economists in growth and development theory Poor countries increasingly aware of their own backwardness Political shift in world towards socialism and growing humanitarian interest in reducing poverty Growing recognition of interdependence of the world economy Concerned with why some countries are rich and others poor; why some countries grow faster than others, and how to raise people out of primary poverty.

Economics of Development

Academic Interest in Development

Modern development economics born after 1945, but all earlier classical economists, e.g Adam Smith, Thomas Malthus, David Ricardo, John Stuart Mill, and Karl Marx, concerned with progress of nations.
In the neoclassical era (1870-1914), little interest in growth and development theory.

Interest revived in 1930s, with Harrods famous paper An Essay in Dynamic Theory (Economic Journal, 1939).
Development economics has attracted some of worlds most distinguished economists: Partha Dasgupta; Albert Hirschman; Nicholas Kaldor; Simon Kuznets; Harvey Leibenstein; Arthur Lewis; James Mirrlees; Gunnar Myrdal; Joan Robinson; Dani Rodrik; Amartya Sen; Hans Singer, and Joseph Stiglitz.
4

Economics of Development
Development economics has pioneered such concepts as: Low-level equilibrium trap Theory of the big push

Models of population and growth

Models of rural-urban migration Immisering growth Models of structural inflation Dual gap analysis Theory of missing markets Rent-seeking behaviour

Dynamic externalities
Models of dualism Theory of circular and cumulative causation

Dependency theory
Growth pole analysis

Economics of Development

New International Economic Order (NIEO)

Seeks to provide fairer deal for poor countries in world economy. First call for a NIEO came from United Nations in 1974. It demanded:
Improved terms of trade for exports of poor countries Greater access to markets of developed countries More aid and debt relief Greater say in decision-making of international institutions, IMF and World Bank An international food programme Greater technical cooperation

Since, there has been the Lima Declaration (1975); the Arusha Declaration (1980); the Copenhagen Declaration (1995), etc. all calling for more equal relations between rich and poor countries in fields of trade, finance and employment. The world is strong on rhetoric, but weak on action.
6

Economics of Development

Millennium Development Goals

This set of goals was announced by UN in 2000 to be achieved by 2015:
1. Halve proportion of people living in absolute poverty compared with 1990 2. Universal primary education 3. Gender equality in all education 4. Reduce child mortality by two-thirds 5. Reduce maternal mortality rate by three-quarters 6. Reverse the incidence of HIV/AIDS and malaria 7. Ensure environmental sustainability 8. Develop a global partnership for development

Achievement of some goals is on track, but others not. Progress differs from continent to continent; country to country. Most of Africa will not achieve any of the goals. 7

Economics of Development

Globalisation and Interdependence of the World Economy

Globalisation refers to forces operating in the world economy that increase interdependence between countries and make them more dependent on forces outside their control:
Capital flows: long term, and speculative short-term Foreign direct investment by multinational corporations Outsourcing Labour migration Spread of information technology New institutions with authority over national governments, and new multilateral agreements on trade, services and intellectual property Spread of disease, crime and flow of arms
8

Economics of Development

Challenge of globalisation is to preserve advantages of global markets, but tempered by:

Ethics less violation of human rights Equity less disparity within and between nations Inclusion less marginalisation of people and countries Human security less instability of countries and vulnerability of people Sustainability less environmental destruction Development less poverty and deprivation

Economics of Development

Meaning of Development and the Challenge of Development Economics

Concept of development is required that embraces all major economic and social objectives and values that countries strive for. Goulet distinguishes three core components :
Life sustenance provision of basic needs: housing, clothing, food and education Self esteem feeling of self-respect and independence Freedom ability to make choices which is impossible without income, education and good health

Amartya Sen focuses on entitlements and capabilities of people, which depend not only on income but on power relations in society; spatial distribution of resources, and what individuals can extract from the State. Challenge of development economics is to understand, and meet, these core components of development to give individuals freedom.
10

Economics of Development

Perpetuation of Underdevelopment
Many factors perpetuate poverty:
Backwardness of agriculture Risk-averse nature of poor people in agriculture Low saving because of low income, leading to low savings a classic vicious circle Rapid population growth, depressing per capita income, leading to larger families Structure of production: poor countries specialising in primary commodities Structure of trade: poor countries exporting primary commodities and importing manufactures Deterioration in terms of trade of poor countries Difficulty of poor countries competing in world markets

Divisions in world economy will persist without tackling these biases That is also the challenge of development economics.
11

Economics of Development

Learning Objectives
You should now know:
Origins of development economics What the subject is all about Concepts that development economists/economics have invented Components of a new international economic order (NIEO) Millennium Development Goals Meaning of globalisation and interdependence of world economy Challenges of globalisation Meaning of economic development: ideas of Goulet and Sen Challenges of development economics Forces that perpetuate underdevelopment and divisions in world economy between rich and poor
12

Economics of Development

Chapter Summary
Development economics originated after World War II, and has attracted many of worlds top economists Development economics concerned with why some countries are rich and others poor, and forces which perpetuate country divisions Poor countries need fairer deal in world economy to develop more rapidly Millennium Development Goals on track in some countries, but not Africa Globalisation presents opportunities for poor countries, but also challenges Development means more than rising per capita income, particularly expanding entitlements and capabilities of people to provide basic needs, self esteem and freedom. Many poor countries are caught in vicious circles of poverty. Great challenge of development policy is to break these vicious circles.
13