Caryl Jane F.

Muede
BSMA 1203
ECO 310- Economic Development
Asst. Prof. Inesio Sadiangcolor

CHAPTER I: INTRODUCTION

 Economic Development- it is the economic growth accompanied by the changes in

output distribution and economic structure.
 Economic Structure- it is a term that describes the changing balance of output, trade,
incomes and employment drawn from different economic sectors-ranging from
primary to secondary to tertiary quaternary sectors.
 Primary Sectors- includes farming, fishing, mining, and the like.
 Secondary Sectors- includes manufacturing and construction industries.
 Tertiary and Quaternary Sectors- include tourism, banking and software.
 Economic Growth- to increase in a country’s production and income per capita.
 Production- measured by Gross National Product (GNP) or Goss National Income
(GNY)- an economy’s total output of goods and products.
 Per Capita Income- measures the average income earned per person in a given area
in a specified year. It is calculated by dividing the area’s total income by its total
population.

Human Development Index (HDI) has 3 basic goals of development that can be
measured:
 Long and Healthy Life
 Improved Education
 Decent Standard of Living

0.800 and above- High Human Development

0.55-0.800- Medium Human Development
less than 0.55- Low Human Development

 One of the uses of the HDI is to re-emphasize that people and capabilities should be
the ultimate criteria for assessing the development of a country, not the economic
growth.
 Gender-Related Development Index (GDI)- examines the same indicators as the HDI
but takes into account the inequalities of these indicators for men and women.
 Gender Empowerment Measure (GEM)- measures the extent to which woman are
able to actively participate in economic and political life.
 Human Poverty Index (HPI)- looks a proportion of people who are deprived of the
opportunity to reach a basic level in each area.
 Income inequality in an economy can be measure in the form of a Lorenz Curve. This
takes data about household income gathered in national surveys and presents them
graphically.
 Gender Progress Indicator (GPI)- measures whether a country’s growth has actually
led to an improvement in the welfare of the people.
The GPI attempts to make estimates of:
 Environmental Costs
 Air, water and noise pollution
 Loss of farmland, wetlands and forests
 Resource Depletion
 Ozone Deletion
 Pollution Abatement

CHAPTER II: THEORIES OF ECCONOMIC DEVELOPMENT

Goals of Economic Development

 Growth of Gross National Product-its goal is to create the wealth of a nation. It is
expressed in a common currency, usually US Dollars and reposted in per capita terms
to take into account the size of a nation’s population.
 Quality of Life- recognizing people’s lives rather than their income.
 Sustainable Development- it is the progress that meets the needs of the present
without compromising the ability of future generations to meet their own needs.
 The Millennium Development Goals- were developed to address the most pressing
problems in developing countries:
1. Poverty and hunger
2. Primary universal education
3. Gender equality
4. Child health
5. Maternal health
 6. HIV/AIDS
7. Environmental sustainability
8. Global partnership

 Adam Smith- Capitalism

 Karl Marx- Communism
 Walt Whitman Rostow- an American Economist, Savings and Investment
 Roy Harold and Evsey Domar- model emphasized that the prime mover of the
economy is investments.
 Arthur Lewis- considered savings and investments to be the driving forces of
economic development but in the context of the less developed countries.
 Robert Solow- stresses the importance of three factors of output of growth:
1. Increases in labor quantity and quality through population growth and education
2. Increases in capital through savings and investments
3. Improvements in technology

CHAPTER III: GROWTH, POVERTY AND INEQUALITY

 Inequality- the distribution of income within a country.

 Functional Inequality- gives additional, more detailed information on inequality in a
country.
 Poverty- measurement

Poverty, Inequality and Welfare

1. Economic Efficiency: Income inequality can lead to inefficiencies
2. Political and Social Stability
3. Moral and Fairness Objections to Inequality

Empirical Evidence
1. Growth and inequality
2. Growth and poverty

Who are the poor?

 Rural- poor are disproportionately located in rural areas
 Women- women and children experience harshest deprivation
 Ethnic minorities- over-represented among poor
 People in the poor countries

 Dollar and Kray try different macro policy variables; find no or weak evidence in
promoting poverty reduction
 Human Capital- is a determinant of growth and good for reducing inequality

What should work?

 Productivity enhancing technologies for small farmers
 Food crops research
 Extensions systems
 Risk reduction devices for small farmers
 Increasing non-farm employment

CHAPTER IV: HUMAN CAPITAL AND DEVELOPMENT

 Capital- usable, productive resources, all forms of assets and capabilities that can be
harnessed for human development.
 Human Development- increasing human welfare, well-being and human capital
 Individuality- product of human mental development, of social organizations,
institutions and of a cultural sphere, imparting knowledge, skills and values, making
available to each member the cumulative advances of the collective and providing
freedom and opportunity for unique individual characteristics to develop.
 In 1973, John Smith applied game theory to the evolution: evolutionary stable
strategy. Animals not only compete but often share a resource if that is beneficiary.
 Altruism is an example of a non-zero-sum-game, (win-win game)
 Contemporary socio-political system is not adequately understood and we even lack
appropriate measures.

Market failures:
 ecological footprint and climate change- destroying natural capital
 huge unemployment- destroying human and social capital
 speculative bubbles- significant gap between intrinsic value and exchange price
 self-fulfilling prophesies- pessimism
 credit default swap- financial instrument classed as derivative negotiated directly
 sovereign default
 public debt
 contagion- mistrust

CHAPTER V: MIGRATION AND URBANIZATION

 Migration- geographic movement of people across a specified boundary for the

purpose of establishing a new permanent or semi-permanent residence
 Circular migration- regular pattern of shirt tern migration
 Migrant- a person who comes from one place to another especially in order to find
work or better living conditions

Types of Migration:
 International Migration- moves between countries
 Immigration- move into a new country
 Immigrant- an international migrant who enters the area from a place outside the
country; A person who comes to live permanently in a foreign country
 Emigration- move out of home country
 Emigrant- an international migrant departing to another country by crossing the
international boundary; a person who leaves their own country in order to settle
permanently in another.

Internal migration: Moves within a country

 In-Migration- movement into a new politically/geographically/administratively
defined area within the same country.
 In-Migrant- a person who moves into a new area within the same country
 Out-Migration- movement out of a politically/geographically/administratively
defined area within the same country.
 Out-Migrant- a person who moves out of an area within the same country

1. Emigration and Immigration

 Change in residence
 Relative to origin and destination
2. Requires information
 People and condition
  Two different places
 Two different time
3. Duration
 Permanent
 Seasonal/Temporary
4. Choice/Constraint
 Improves one’s life
 Leave inconvenient/ threatening conditions

Gross migration
 Total number of people coming in and out of an area
 Level of population turnover
Net migration
 Difference between immigration (in-migration) and emigration (out-
migration)
 Positive Value: more people coming in
 Negative Value: more people coming out

 Local Migration- no state boundaries are crossed; buying new house in the same
town or city
 Voluntary Migration- the migrant makes the decision to move; most migration is
voluntary
 Involuntary- forced migration in which the mover has no role in the decision-making
process
 National Migration- between states or provinces

Selective Migration
 Context
-Many migrations are selective
-Do not represent a cross section of the source population
-Differences: age, sex, level of education
 Age-specific migrations
-One age group is dominant in a particular migration
-International migrations tends to involve younger people
-The dominant group is between 25 and 45
 -Studies and retirement are also age-specific migrations
 Sex-specific migrations
Males- often dominate international migration
Females- often dominate rural to urban migration
 Education-specific migrations
High level of migration education attained by most contemporary Asian immigrants
 Immigration and jobs
Related to the economic sector

Brain Drain
 Relates to educationally specific selective migrations
 Some countries are losing the most educated segment of their population
 Can be both a benefit for the receiving country and a problem to the country of
origin

Push-Pull Theory
 Migrations as the response of the individual decision-makers
 Intervening Obstacles
Migrations costs/transportation
Immigration laws and policies of the destination country
 The problem of perception
Assumes rational behavior on the part of the migrant
When the migrant’s information is highly inaccurate, a return migration may be one
possible outcome

Economic Approaches
 Labor Mobility- the primary issue behind migration
 Remittances- capital sent by workers working abroad to their family/relatives at
home

Behavioral Explanations of Migration

 Life-cycle Factors
Migration linked to events in one’s life
Flexibility decreases and inertia increases
 Large migrations of retired people have been occurring in the direction of amenities-
oriented areas
 Migrants as risk-takers
Migrants tend to be greater risk-takers, more motivated, more innovative and more
adaptable

CHAPTER VI: AGRICULTURAL SECTOR

 Agricultural Sectors- compromise establishments primarily engaged in growing

crops, raising animals and harvesting fish and others animals from a farm, ranch, or
their natural habitats.
 Agricultural Systems- useful to view agriculture in a systems framework; inputs,
outputs and linkages
 Inputs- labor, fertilizers, seeds, land preparation, land quality and tenure
 Outputs- production in form of mature crops and income earned and allocated
 Linkages- labor intensity > type of crop; land size > income earned and traditional
system

Agricultural Systems
 Physical- Ecosystem. Especially climate, soil and vegetation
 Behavioral- how ecosystem is perceived, physical and behavioral may be in conflict
 Operational- culture, values, class structures, institutions and traditions, political
system, technology level-farm management, land tenure-all influence and govern
machinery of production, consumption and exchange

 Agrarian Structure- refers to ways in which agricultural system is developed on the

land and includes land ownership, cropping system, and institutions
 Land tenure- owns or controls the land
 Communal tenure- land held by village where villagers enjoy usufruct (right to use
profit)
 Estates- large estates where age laborers are employed by private sector firms, or
plantations held by public sector
 Freehold- outright ownership with land being transferred and divided equally among
 Tenancy- farmers pay owners for use of land either cash or kind
Forms of Agriculture
 Wet rice cultivation- rice grown in an embanked field relying on natural rainfall or
irrigation
 Plantation or Estate agriculture- foreign capital or public sector capital
 Sedentary dry farming- mostly smallholders growing cereal grains usually millets and
sorghums
 Shifting agriculture- referred to as swidden and means occupancy of the land
interrupted by lengthy rest periods, field and burning vegetation, sowing food crops
 Highland Market Gardens- higher elevation areas which allow cultivation of
temperate crops

Green Revolution
 Basically a worldwide attempt to revolutionize production of wheat and rice in many
Third World countries
Hybrid Rice
 Responsive to fertilizers in conditions of adequate water supply and effective
management

Toward a New Strategy for Rural Development

 Land Reforms- reorganization of land holdings and tenure structures by
expropriation and consolidation of fragmented and tiny holdings
 Supportive Policies- need state policies that provide incentives and opportunities
 Integrated Development Objectives- need simultaneous changes in income,
employment, education, health and housing; lessening of rural-urban imbalances;
capacity or rural sector to sustain these improvements over time

CHAPTER VII: INTERNATIONAL TRADE AND DEVELOPMENT

 International Trade- exchange of goods and services that is conducted beyond the
political boundaries of a country. It constitutes a vital element of international
economics.

Benefits of International Trade

1. Increases consumers’ satisfaction
2. Improves standard of living
3. Promotes product specialization
4. Accelerated economic development
5. Generates foreign exchange earnings
6. Simulates production

Bases of International Trade

1. Technological differences
2. Price differences
3. Distribution of natural resources

Comparative advantage- refers to the ability of a party to produce a particular good or

service at a lower marginal and opportunity cost over another.

Forms of Trade Protection

 Quotas- refer to a quantitative restriction in limiting imports of a particular product
to a specified number of units, or to a certain value in a given period of time.
 Tariffs- refer to a tax imposed on imports as they enter a country. It is commonly
levied as specifies as valorem percentage of the value of imports.
 State trading- governments, especially those with socialist and communist
economies, sometime grant monopoly importing rights to state enterprises.
 Exchange controls- only those with permission from the Bangko Sentral ng Pilipinas
to buy foreign exchange have the ability to import.
 Government regulations- these constitute a sort of protection for the domestic
protection for the domestic products.

Classification of Imports
 Freely importable- neither regulated nor prohibited
 Regulated commodities- requires clearances/permits from appropriate government
agencies
 Prohibited or banned- not allowed under the existing law

Letter of credit- is a letter from the bank guaranteeing that a buyer’s payment to a seller
will be received on time and for the correct amount.
No Dollar Import- is a special privilege given by the government to returning residents
and other qualified individuals to bring motor vehicles into the country for personal use
under certain conditions.

Foreign exchange- refers to the global market where currencies are traded virtually
around-the-clock. It is usually abbreviated as forex.

Balance of payments- accounts are an accounting record of all monetary transactions

between a countries and the rest of the world. These transactions include payments for
the country’s exports and imports of goods, services, financial capital and financial
transfers.

Globalization
 Core economic- the increased openness of economies to international trade,
financial flows and foreign direct investments

Demand Elasticities and Export Earning Instability

 Low income elasticity of demand for primary products
 Low price elasticity of demand and supply
 Export earnings instability

 Total export earnings depend on:

-Total volume of exports sold
-Price paid for exports
 Prebisch and Singer argue that exports prices fall overtime, so LDCs lose revenue
unless they can continually increase export volumes

 Ricardo and Mill- static model

 Heckscher and Ohlin- factor endowment theory

 Trade theory and development: the traditional arguments

-trade stimulates economic growth
-trade promotes international and domestic equality
 -trade promotes and rewards sectors of comparative advantage
-international process and costs of production determine trading volumes
-outward-looking international policy is superior to isolation

 The following assumptions of the Neoclassical model must be scrutinized:

-fixed resources, full employment and international factor immobility
-fixed, freely available technology and consumer sovereignty
-internal factor mobility and perfect competition
-governmental non-interference in trade
-balanced trade and international price adjustments
-trade gains accruing to nationals

Trade strategies for Development Export Promotion vs. Import Substitution

 Export promotion: looking outward and seeing trade barriers
 Expanding exports of manufactured goods: some successes
 Import substitutions: looking inward but still paying outward
 The IS industrialization strategy and results
 Tariff structure and effective protection
 Standard argument for tariff protection
 Must be applied selectively and wisely
 Foreign-exchange rates, exchange controls, and the devaluation decision
 Chronic payments deficits can be ameliorated

Trade Optimists and Trade Pessimists

 Trade pessimist arguments
-Limited growth of world demand for primary exports
-Secular deterioration in terms of trade
-Rise of new protectionism
 Trade optimist arguments
-Trade liberalization promotes competition and efficiency
-Generated pressure for product improvement
-Accelerated overall growth
 The industrialization strategy approach to export policy
-Focus on government interventions to encourage exports
 -Without proper attention to incentives, industrial policies may be
counterproductive too
-WTO rules and industrial policies
-Competence and political authority of government

South-South Trade and Economic Integration: Looking Outward and Inward

 Economic Integration
 Regional trading blocs and the globalization of trade

Trade Policies of Developed Countries: Need for Reform

 Rich-nation economic and commercial policies matter for LDCs
 1995 Uruguay Round and WTO
 Despite 8 liberalizations rounds over 50 years trade barriers remain in place in
agriculture and textiles
 Doha Development Round 2001 has tilted the focus on the needs of the developing
world.