ECONOMIC DEVELOPMENT

MIDTERM l 1st Semester

LESSON 1
INTRODUCTION TO ECONOMIC DEVELOPMENT It is a long-term process that focuses on improving quality of
life and creating opportunities for all individuals in society.
WHAT IS ECONOMIC?
● refers to anything related to the production,
DISTINCTION BETWEEN ECONOMIC GROWTH AND
distribution, and consumption of goods and
ECONOMIC DEVELOPMENT
services. It describes aspects of the economy or
the use of resources to create and exchange DEFINITION:
value. In various contexts, “economic” can
describe activities, policies, conditions, or ECONOMIC DEV. ECONOMIC GROWTH
systems that are concerned with wealth, trade,
• refers to the qualitative • refers to the quantitative
industry, or financial management.
improvement in the increase in a country’s
FOR EXAMPLE standard of living, poverty output or Gross Domestic
reduction, income Product (GDP). While
● Economic growth refers to the increase in a distribution, education, growth is measured by
country’s output or GDP. health, and overall the rise in GDP,
● Economic policy involves government actions well-being of a development is more
that influence the economy, such as tax rates or population. It involves holistic, encompassing
interest rates. long-term structural both quantitative and
● Economic activity refers to the actions involved changes in the economy qualitative improvements
in producing, buying, and selling goods and that lead to improved in society.
services. living standards.

WHAT IS ECONOMIC DEVELOPMENT?

DIFFERENCES:
● refers to the process through which a country
improves the economic, political, and social ECONOMIC DEV. ECONOMIC GROWTH
well-being of its people. Unlike economic
• Focuses on GDP growth • Involves improvement in
growth, which focuses solely on increasing a
and the increase in living standards,
country’s output (measured by GDP), economic
production. healthcare, education,
development involves a broader spectrum of
• Mainly quantitative. and equitable distribution
progress, including:
• Short-term focus. of income.
1. IMPROVING LIVING STANDARDS: Increasing • Qualitative and
access to better healthcare, education, housing, and long-term.
sanitation. • Includes non-economic
2. REDUCING POVERTY AND INEQUALITY: factors like human rights,
Ensuring that wealth and resources are distributed political stability, and
more equitably across the population. environmental
3. BUILDING INFRASTRUCTURE: Enhancing sustainability.
transportation, energy, and communication systems
to support industrial and social activities. MEASURING DEVELOPMENT
4. ENHANCING HUMAN CAPITAL: Developing a Key Indicators of Economic Development
skilled and healthy workforce through education and
● Gross Domestic Product (GDP): Total market
healthcare.
value of all goods and services produced in a
5. SUSTAINABILITY: Promoting long-term growth
country.
while ensuring the responsible use of environmental
● Human Development Index (HDI): A
resources.
composite index measuring life expectancy,
education, and per capita income.

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 ● Gini Coefficient: Measures income inequality 7. SUSTAINABILITY
within a nation. ● Sustainable economic development incorporates
● Poverty Rate: The percentage of the population practices that ensure growth while preserving
living below the national poverty line. environmental resources, leading to long-term
● Unemployment Rate: The percentage of the benefits for society and future generations.
labor force that is unemployed and actively
seeking employment. 8. REDUCTION OF INEQUALITY
● Proper economic development policies focus on
IMPORTANCE OF ECONOMIC DEVELOPMENT inclusive growth, which aims to distribute wealth
● Economic development is crucial for several more evenly and reduce social inequalities
reasons, as it leads to both short-term across different regions and communities.
improvements in the standard of living and
9. POLITICAL STABILITY
long-term, sustainable growth for a country. Here
● Economically developed countries tend to
are the key reasons why economic development
experience more political stability, as a growing
is important:
economy can reduce discontent, provide social
1. IMPROVED LIVING STANDARDS services, and address issues that lead to unrest.
● Economic development leads to higher incomes,
10. GLOBAL COMPETITIVENESS
better access to education, healthcare, housing,
● Economic development helps a country become
and overall improvements in the quality of life for
more competitive in the global market by
citizens.
improving the skills of its workforce, adopting
2. POVERTY REDUCTION advanced technologies, and increasing its
● By creating jobs, increasing productivity, and export capacity.
improving wealth distribution, economic
In summary, economic development is key to
development helps reduce poverty and improves
improving the quality of life, creating equitable opportunities,
access to essential services for lower-income
and ensuring sustainable growth for both current and future
groups. generations.

3. JOB CREATION
● Economic development stimulates business
growth and industrialization, which leads to job
opportunities and a reduction in unemployment LESSON 2
rates. I: Theories of Economic Development: Classical and
Neoclassical Theories
4. INFRASTRUCTURE DEVELOPMENT
● Economic development fosters investments in CLASSICAL Theories of Economic Development
vital infrastructure, such as roads, schools, ● The classical theories of economic development
hospitals, and energy, which supports further emerged during the late 18th and early 19th
growth and improves quality of life. centuries, focusing on how economies grow and
accumulate wealth. Key contributors include
5. TECHNOLOGICAL ADVANCEMENT Adam Smith, David Ricardo, and Thomas
● As economies develop, they often adopt new Malthus.
technologies that increase productivity, improve
efficiency, and encourage innovation, further Key Features of Classical Theories:
driving economic growth. CAPITAL ACCUMULATION:
● Growth is driven by the accumulation of capital
6. SOCIAL PROGRESS
(savings and investments).
● Economic development often leads to
● Adam Smith, in The Wealth of Nations,
improvements in education, healthcare, and
emphasized the importance of labor
social welfare systems, resulting in a more
specialization, division of labor, and free markets
educated and healthier population.
in enhancing productivity and wealth creation.

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LABOR AND POPULATION GROWTH: Relevance to the Philippines:
● Thomas Malthus’ theory suggested that The Philippines can apply neoclassical models by
population growth would outpace food encouraging technological innovation, improving productivity,
production, leading to poverty and stagnation and investing in human capital to sustain growth.
(Malthusian trap). However, technology and Promoting market efficiency and creating a
industrialization countered this. business-friendly environment are key for attracting foreign
direct investment (FDI), essential for economic development in
COMPARATIVE ADVANTAGE: the country.
● David Ricardo’s theory of comparative
advantage proposed that countries should
Conclusion: Both classical and neoclassical theories offer
specialize in producing goods where they have a valuable insights into economic development. Classical
relative efficiency, which would promote theories highlight the importance of specialization, trade, and
international trade and overall economic labor, while neoclassical theories stress the significance of
development. technology, capital accumulation, and efficient markets. For the
Philippines, these theories can guide strategies for sustainable
growth, poverty reduction, and long-term economic stability.
Relevance To The Philippines:
The Philippines can apply classical principles by focusing on
sectors where it has a comparative advantage (e.g., II: The Role Of Capital, Labor, And Technology in
agriculture, BPOs, and labor-intensive industries). Economic Development
Classical thought also emphasizes the importance of free In economic development, capital, labor, and
trade and open markets, crucial for the country’s integration technology are critical factors that drive growth and
into the global economy. improve living standards. In the Philippines, these
factors play a significant role in shaping the country’s
NEOCLASSICAL Theories of Economic Development path toward sustainable development.
● The neoclassical theories, which emerged in the
20th century, built upon classical ideas but 1. ROLE OF CAPITAL IN ECONOMIC DEV.
introduced more mathematical and analytical Capital refers to the resources used to produce
approaches to understanding growth. Key goods and services, including financial capital,
contributors include Robert Solow and Trevor machinery, infrastructure, and equipment. It is a key
Swan. component in increasing productivity and driving growth.

Key Features of Neoclassical Theories: IMPORTANCE OF CAPITAL IN THE PHILIPPINES:

SOLOW-SWAN GROWTH MODEL: ● Investment in Infrastructure: The Philippines
● Growth is driven by capital accumulation, labor has been investing heavily in infrastructure (e.g.,
force growth, and technological progress. roads, bridges, airports) through programs like
● The model suggests that economies eventually the “Build, Build, Build” initiative, improving
reach a steady state where output per capita connectivity and reducing production costs.
grows only due to technological progress. ● Foreign Direct Investment (FDI): Attracting
foreign capital is crucial for industrialization and
DIMINISHING RETURNS TO CAPITAL:
modernization. FDI brings financial resources,
● The theory argues that adding more capital
technology, and expertise to key sectors like
(investment) will have diminishing returns unless
manufacturing and services.
there is technological improvement. This
● Human Capital: Investments in education,
emphasizes the importance of innovation in
healthcare, and skills development improve
sustaining long-term growth.
labor productivity, which in turn contributes to
ROLE OF MARKETS: economic growth.
● Neoclassical theories emphasize market
efficiency and the idea that free markets, under Example: The rise of Business Process Outsourcing
minimal government intervention, allocate (BPO) in the Philippines is a direct result of capital
resources effectively. investment in IT infrastructure and human capital
development, contributing significantly to the economy.

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2. ROLE OF LABOR IN ECONOMIC DEVELOPMENT Conclusion: In the Philippines, capital, labor, and technology
Labor refers to the human workforce involved in are essential drivers of economic development. Investments in
producing goods and services. The quality and quantity infrastructure and human capital, combined with a productive
of labor are essential for economic development, as a workforce and the adoption of advanced technologies, will help
skilled and productive workforce can drive innovation the country achieve sustained growth, reduce poverty, and
and efficiency. improve the quality of life for its people.

IMPORTANCE OF LABOR IN THE PHILIPPINES: LESSON 3:

● Demographic Dividend: The Philippines has a CONTEMPORARY THEORIES OF DEVELOPMENT
young and growing population, providing a large
workforce that, if well-trained and employed, can I. ENDOGENOUS GROWTH THEORY IN ECONOMIC
drive economic growth. DEVELOPMENT
● Overseas Filipino Workers (OFWs): An economic theory that explains long-term
Remittances from OFWs are a major contributor economic growth as a result of internal factors, rather
to the Philippine economy, supporting than external influences. Unlike traditional theories that
consumption and investment. attribute growth to factors like capital accumulation and
● Human Capital Development: Investing in population growth (which are subject to diminishing
education and skills training ensures that the returns), endogenous growth theory focuses on how
labor force can adapt to changing industries, innovation, knowledge, and human capital drive
particularly in the digital and technological sustainable growth from within the economy.
sectors.
Example: The BPO industry in the Philippines thrives Key Concepts of Endogenous Growth Theory
due to the availability of English-speaking, highly 1. ROLE OF HUMAN CAPITAL:
trainable labor, which has made the country a global hub ● Human capital—knowledge, education, and
for outsourcing. skills of the workforce—plays a central role in
this theory. Investments in education and
3. ROLE OF TECHNOLOGY IN ECONOMIC training lead to continuous innovation and
DEVELOPMENT productivity improvements.
Technology enhances the efficiency of ● The theory suggests that as people acquire
production processes, reduces costs, and fosters more skills and knowledge, the economy
innovation. It is a crucial factor in sustaining long-term benefits from increasing returns, meaning that
economic growth, especially in the modern digital the more you invest in human capital, the
economy. greater the potential for long-term growth.

IMPORTANCE OF TECH. IN THE PHILIPPINES: 2. TECHNOLOGICAL PROGRESS:

● Digital Transformation: The Philippines is ● Technological innovation is crucial for sustaining
undergoing a digital revolution, with increasing long-term growth. Endogenous growth theory
use of technology in business, education, posits that technological progress is not random
healthcare, and government services. or external but is influenced by intentional
● Agricultural Technology: The use of modern actions within the economy, such as research
farming techniques, machinery, and data and development (R&D).
analytics can improve productivity in the ● Firms and governments can invest in R&D to
agricultural sector, reducing poverty in rural create new technologies that improve
areas. productivity and lead to economic expansion.
● Industrial and Service Sector Growth:
3. KNOWLEDGE SPILLOVERS:
Technology drives innovation in industries like
● The theory highlights that knowledge and
manufacturing, healthcare, and financial
innovation tend to spill over to other sectors and
services, helping the country to compete
businesses, creating widespread economic
globally.
benefits. For example, when one firm invests in
Example: The adoption of e-commerce platforms like
R&D, the knowledge gained may be adopted by
Lazada and Shopee has enabled businesses,
other firms, fostering broader growth across
particularly small and medium enterprises (SMEs), to
industries.
expand their markets and contribute to the digital
economy.
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4. POLICY IMPLICATIONS: Key Concepts:
● Endogenous growth theory emphasizes the role 1. DUAL ECONOMY
of government policy in fostering long-term ● Developing economies are often characterized
growth. Governments can promote economic by a dual structure, where a small modern,
development by investing in education, industrialized sector coexists with a large
infrastructure, and R&D, and by creating an traditional agricultural sector. This leads to
environment conducive to innovation and inequalities and slow development.
entrepreneurship. 2. MARKET IMPERFECTIONS
● Structuralists argue that developing countries
IMPLICATIONS FOR THE PHILIPPINES face market imperfections (e.g., monopolies,
EDUCATION AND HUMAN CAPITAL rigid labor markets, and unequal land
● To boost long-term growth, the Philippines must distribution) that hinder economic progress.
focus on enhancing the quality of education and These imperfections prevent developing nations
increasing access to higher education and skills from benefiting from free trade and
training. This will improve the workforce’s industrialization.
productivity and innovation capabilities. 3. ROLE OF INDUSTRIALIZATION
INNOVATION AND R&D ● Structuralists emphasize the need for
● Encouraging research and development, industrialization and import substitution
particularly in sectors like technology and industrialization (ISI) policies. Instead of relying
agriculture, can help drive sustainable growth. on imports, developing countries should focus
The government can provide incentives for on building their own industries to reduce
businesses to invest in R&D and develop new dependence on external markets.
technologies that improve efficiency. 4. GOVERNMENT INTERVENTION
POLICY SUPPORT ● Structuralists argue that government intervention
● Endogenous growth theory suggests that is necessary to correct market failures and
government policies should focus on supporting promote industrialization, protect nascent
innovation, improving education, and fostering industries, and create policies that support
entrepreneurship. Initiatives like tax incentives long-term growth.
for startups, funding for science and technology,
and investments in infrastructure are vital. Relevance to the Philippines:
The Philippines faces some of the structural
Conclusion: Endogenous growth theory highlights that challenges described by structuralists, such as income
sustained economic growth comes from within, driven by inequality and a large agricultural sector. To develop, the
investments in human capital, innovation, and technological country can adopt policies aimed at strengthening domestic
progress. For countries like the Philippines, focusing on industries, addressing market imperfections, and investing in
education, R&D, and supportive policies can help generate industrialization.
continuous, self-sustaining growth and improve living
standards over time. B. DEPENDENCY THEORY
Dependency theory was developed in the 1960s
II. STRUCTURALIST AND DEPENDENCY THEORIES and 1970s, with roots in Marxist thought. It focuses on
IN ECONOMIC DEVELOPMENT the unequal economic relationships between developed
In the study of economic development, (core) and developing (periphery) nations, arguing that
Structuralist and Dependency theories provide global capitalism perpetuates the underdevelopment of
alternative perspectives to classical and neoclassical poorer nations.
theories, focusing on the dynamics between developed
and developing nations, and the internal structures of Key Concepts:
economies. 1. CORE AND PERIPHERY
A. STRUCTURALIST THEORY ● Dependency theory views the world economy as
Structuralist theory emerged in the mid-20th divided into the “core” (developed, industrialized
century, particularly from Latin American economists. It nations) and the “periphery” (developing
focuses on the structural challenges within developing nations). The core exploits the periphery by
economies that prevent them from achieving sustainable extracting raw materials and exporting
development. manufactured goods back to them at higher
prices.

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2. EXPLOITATION OF RESOURCES Key Concepts of Amartya Sen’s Capability Approach
● Developing countries are dependent on 1. DEVELOPMENT AS FREEDOM
exporting raw materials and agricultural ● Sen argues that development is not merely
products, leaving them vulnerable to fluctuations about economic growth but about expanding the
in global prices and exploitation by more freedoms that individuals enjoy. These freedoms
powerful economies. This reliance on exports include political freedom, access to education
keeps them in a cycle of poverty. and healthcare, and the ability to participate in
economic and social life.
3. ECONOMIC DEPENDENCE ● According to this approach, economic
● Dependency theory argues that developing development should enable individuals to live
nations are economically dependent on the core lives they value by removing obstacles such as
countries for capital, technology, and markets. poverty, illiteracy, and poor health.
This dependence reinforces underdevelopment
by keeping developing countries subordinate 2. CAPABILITIES vs. COMMODITIES
and unable to fully industrialize. ● Sen distinguishes between commodities (goods
and services) and capabilities (what people are
4. BREAKING THE CYCLE actually able to do or be). For example, owning
● To break free from dependency, dependency a bike (commodity) is less important than the
theorists advocate for policies that reduce capability to use it for transportation or physical
reliance on foreign capital, promote self-reliance, activity.
and emphasize regional cooperation among ● The focus is on what individuals can achieve
developing nations. with the resources available to them, rather than
just accumulating wealth or goods.
Relevance to the Philippines:
The Philippines, as a developing nation, faces
3. FUNCTIONINGS
dependency on foreign investment, imported goods, and global ● Functionings refer to the various things a person
markets, which can limit its growth potential. Dependency may value being or doing, such as being healthy,
theory suggests that to achieve long-term development, the being educated, participating in the community,
country should focus on policies that promote economic and having meaningful employment.
self-reliance and reduce external dependencies, such as ● Development involves enhancing individuals’
developing its own industries and investing in local markets. capabilities to achieve these valuable
functionings, allowing people to lead richer,
Conclusion: Both structuralist and dependency theories offer more fulfilling lives.
alternative explanations for the challenges faced by developing
countries like the Philippines. Structuralist theory emphasizes 4. ROLE OF PUBLIC POLICY
internal structural changes and government intervention to ● Public policies play a crucial role in expanding
promote industrialization and correct market imperfections, people’s capabilities. Sen emphasizes the need
while dependency theory focuses on the unequal relationships for governments to invest in healthcare,
between developing and developed nations and the need to education, and social welfare, ensuring that
reduce reliance on external powers for sustainable growth. individuals have the necessary conditions to
Together, these theories provide valuable insights into
expand their freedoms and capabilities.Social
addressing the economic development challenges faced by
safety nets and equal opportunities are essential
many nations.
to enable people to reach their full potential.

III. MODERN APPROACHES TO ECONOMIC IMPLICATIONS FOR THE PHILIPPINES

DEVELOPMENT (AMARTYA SEN’S CAPABILITY
1. HUMAN DEVELOPMENT
APPROACH)
● The Philippine Development Plan aligns with
● introduced by Indian economist Amartya Sen
Sen’s Capability Approach by focusing on
● represents a modern approach that shifts the
improving education, healthcare, and social
focus from traditional economic indicators, such
services, which help people develop their skills
as GDP, to human well-being and the expansion
and lead healthier, more fulfilling lives.
of individual freedoms and capabilities
● emphasizes that true development goes beyond
material wealth and includes the enhancement
of people’s abilities to live fulfilling lives.

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2. POVERTY REDUCTION RELATIVE POVERTY
● Sen’s approach emphasizes that reducing ● This is measured in comparison to the average
poverty is not just about increasing income but income of the society in which a person lives.
also about improving people’s ability to access Even if someone is above the absolute poverty
opportunities (e.g., education, healthcare). line, they may still be considered poor relative to
Programs like the Pantawid Pamilyang Pilipino the overall wealth distribution within their
Program (4Ps) aim to improve the well-being of country.
vulnerable families by investing in their ● Inequality is broader than poverty and refers to
capabilities. the unequal distribution of wealth, resources, or
opportunities across a population. Income
3. EQUALITY AND ACCESS inequality is often the focus, but it can also
● The Philippine government can further promote include disparities in access to healthcare,
economic development by ensuring equal education, and political influence.
access to resources and opportunities, reducing ● While poverty focuses on those who have very
inequality, and enhancing the ability of all little, inequality considers the gap between the
Filipinos to participate fully in society. wealthiest and the poorest in society. High levels
of inequality can exist even in relatively wealthy
Conclusion: Amartya Sen’s Capability Approach provides a countries and can lead to social unrest and
broader, more human-centered perspective on economic stunted economic growth.
development. Rather than focusing solely on income or
material wealth, it emphasizes the importance of expanding Poverty measures how far people are from a minimum
people’s capabilities to live the lives they value. In the acceptable standard of living, while inequality looks at the
Philippines, adopting this approach encourages policies that disparity between different income levels or access to
enhance human development, reduce poverty, and create opportunities in a society.
equal opportunities for all citizens, promoting a more inclusive
and sustainable form of development.
II. MEASURING POVERTY
Understanding how to measure poverty is
crucial for developing policies that can effectively
address it. There are several ways to measure poverty
LESSON 4
and inequality:
POVERTY, INEQUALITY, AND ECONOMIC
DEVELOPMENT ABSOLUTE POVERTY:
● The World Bank uses the poverty line of
I. CONCEPTS OF POVERTY AND INEQUALITY $1.90/day to define extreme poverty globally.
This threshold is based on what a person needs
POVERTY AND INEQUALITY
to afford basic living essentials, such as food
● Are two key issues that challenge economic and shelter, in the world’s poorest countries.
development, particularly in developing Challenges:
countries. They are closely interrelated, yet
● While absolute poverty lines are useful for
distinct concepts:
tracking extreme poverty, they don’t capture the
POVERTY
varying cost of living in different regions or the
● Refers to the condition where individuals or non-financial aspects of well-being, such as
communities lack the financial resources to meet access to healthcare and education.
their basic needs, such as food, shelter, and
healthcare. Poverty is often divided into: RELATIVE POVERTY:
● This measure is context-specific and reflects
ABSOLUTE POVERTY poverty as it relates to others in a given society.
● This is a fixed threshold, typically defined by the It’s often defined as people earning less than
World Bank as living on less than $1.90 a day. 60% of the median income in a country. It
Absolute poverty reflects the minimum income acknowledges that poverty is not just about
required to meet basic life necessities. survival but also about the ability to participate
fully in society.

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Challenges: GEOGRAPHIC DISPARITIES
● Relative poverty can persist even in wealthier ● Rural areas tend to have fewer economic
nations because it depends on income opportunities and less access to services, which
distribution rather than absolute living standards. can concentrate poverty in certain regions.

THE GINI COEFFICIENT: Consequences of Poverty:

● This is a statistical measure used to represent HEALTH OUTCOMES
income inequality within a nation. The Gini ● Poverty is linked to poor health outcomes.
coefficient ranges from 0 to 1: Those in poverty often live in areas with
● A score of 0 represents perfect equality inadequate sanitation, healthcare, and nutrition,
(everyone has the same income). leading to higher rates of disease and lower life
● A score of 1 represents perfect inequality (one expectancy.
person has all the income, and everyone else EDUCATION
has none). ● Children from poor families often drop out of
● Most countries fall between 0.25 and 0.60, and a school earlier and have lower educational
higher Gini coefficient indicates greater income attainment. This creates a vicious cycle where
inequality. low education levels lead to low-paying jobs,
perpetuating poverty.
LIMITATIONS: The Gini index only measures income SOCIAL UNREST
inequality and does not consider differences in wealth or ● High levels of poverty can lead to political
access to resources like education and healthcare. instability, crime, and social unrest. Inequities
within a society can breed discontent, as people
Measuring poverty and inequality provides a basis for feel disenfranchised or left behind by economic
policymakers to craft interventions. Absolute poverty focuses progress.
on survival, relative poverty on social inclusion, and inequality ECONOMIC GROWTH
measures the distribution of resources. ● Widespread poverty can stifle economic growth
by limiting the consumer base and workforce
III. CAUSES AND CONSEQUENCES OF POVERTY productivity. Without investment in education
Causes of Poverty: and healthcare, countries struggle to improve
LACK OF EDUCATION human capital, leading to stagnant economies.
● Education increases job prospects and earnings
potential. Those without access to quality Poverty is both a cause and consequence of
education are often stuck in low-paying jobs, underdevelopment. It traps individuals and societies in a cycle
perpetuating poverty. of low income, poor health, and limited educational
UNEMPLOYMENT opportunities.
● Lack of job opportunities is a direct cause of
poverty, particularly in economies with stagnant IV. STRATEGIES TO REDUCE POV. & INEQUALITY
or declining industries. ● Addressing poverty and inequality requires a
POOR HEALTH AND ACCESS TO HEALTHCARE multifaceted approach that combines economic,
● Illness can trap people in poverty due to high social, and political reforms. Here are some
healthcare costs & lost income from the inability strategies to consider:
to work. 1. SOCIAL SAFETY NETS
ECONOMIC POLICIES ● Cash transfers (both conditional and
● Government policies that do not prioritize unconditional) can directly alleviate poverty by
inclusive growth can exacerbate poverty. For providing the poor with immediate financial
instance, tax systems that disproportionately support. Conditional cash transfers, such as
burden the poor or limited social welfare Mexico’s Oportunidades program, require
programs leave vulnerable populations without recipients to meet specific conditions, such as
safety nets. sending children to school or attending health
SOCIAL DISCRIMINATION check-ups.
● Marginalized groups (e.g., based on gender, ● Unemployment benefits: In countries with more
ethnicity, or caste) may face systemic barriers to developed welfare systems, unemployment benefits
accessing education, jobs, and healthcare provide a temporary financial buffer for those who
. lose their jobs, helping them avoid falling into poverty.

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2. PROGRESSIVE TAXATION Poverty and inequality can be reduced through a combination
● Progressive tax systems, where wealthier of social welfare programs, equitable tax policies, investment in
individuals pay a higher proportion of their education and healthcare, and inclusive economic growth
income in taxes, can reduce income inequality. strategies.
This revenue can then be used to fund social
programs that benefit the poor, such as
Conclusion: Understanding the complex relationship between
healthcare, education, and housing.
poverty, inequality, and economic development is key to
● Tax reforms aimed at closing loopholes and formulating effective development strategies. Measuring
addressing tax evasion are also essential to poverty and inequality allows us to track progress and pinpoint
ensure the wealthy contribute their fair share. areas for intervention, while addressing their root causes
ensures that development is inclusive and sustainable.
3. INVESTMENT IN HUMAN CAPITAL Strategies to combat poverty and inequality must balance
Education immediate relief with long-term investments in human capital,
● Providing universal access to quality education, legal reform, and economic policy.
especially at the primary and secondary levels,
can equip individuals with the skills needed for
higher-paying jobs. Programs that focus on
marginalized groups can also help reduce LESSON 5
gender, ethnic, and regional disparities. POPULATION GROWTH & ECONOMIC DEV.

Healthcare DEMOGRAPHIC TRANSITION THEORY

● Access to affordable healthcare improves ● Demographic transition theory explains the
productivity by keeping people healthy and able transformation of a country’s population from
to work. Public health initiatives, such as high birth and death rates to low birth and death
vaccination campaigns and maternal health rates as it develops economically. The process
services, are vital for reducing poverty in the happens in four stages:
long term. 1. PRE-INDUSTRIAL STAGE: High birth and death
rates due to limited access to healthcare and family
4. INCLUSIVE ECONOMIC GROWTH
planning. Population growth is slow.
● Governments should design economic policies
2. TRANSITIONAL STAGE: Death rates decline
that promote job creation in industries that can
because of improvements in healthcare and
absorb large numbers of workers, particularly in
sanitation, but birth rates remain high. This leads to
developing countries. Infrastructure
rapid population growth.
development, rural employment schemes, and
3. INDUSTRIAL STAGE: Birth rates begin to fall as
incentives for small businesses can help create
economies develop, women gain better access to
jobs for the poor.
education and employment, and family planning
● Microfinance: Providing small loans to
becomes widespread. Population growth slows.
low-income individuals (often targeting women)
4. POST-INDUSTRIAL STAGE: Both birth and death
to start businesses can be an effective way to
rates are low, and population growth stabilizes or
promote entrepreneurship and reduce poverty.
declines slightly.
Microfinance initiatives have shown success in
places like Bangladesh (Grameen Bank).
The Philippines is currently in the transitional to early
industrial stage, experiencing high birth rates but gradually
5. EMPOWERMENT AND LEGAL REFORMS
declining as family planning and healthcare improve.
● Addressing structural inequalities through legal
reforms that promote equal rights to education,
property, and work can empower disadvantaged RELATIONSHIP BETWEEN POPULATION GROWTH
groups. Gender equality, for example, has been & ECONOMIC DEVELOPMENT
shown to reduce poverty rates by enabling more ● Population growth can both positively and
women to participate in the workforce. negatively impact economic development:
Anti-corruption measures can ensure that 1. POSITIVE IMPACTS: A large working-age
resources meant to reduce poverty are not population (demographic dividend) can boost
diverted for personal gain. economic productivity and foster economic growth if
the labor force is well-educated and employed.

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2. NEGATIVE IMPACTS: Rapid population growth can Key Features of Labor Markets in Developing
strain resources like education, healthcare, and Countries:
infrastructure. It can also lead to underemployment, 1. HIGH INFORMALITY:
poverty, and slower economic development if job ● A large portion of workers operate in the
creation does not keep pace with population growth. informal economy (e.g., street vendors, informal
service providers). The formal sector, where jobs
In the Philippines, high population growth has challenged are typically more secure and better regulated,
infrastructure development, job creation, and the delivery of is relatively small.
social services, but efforts in improving human capital 2. UNDEREMPLOYMENT:
(education and health) can harness the potential for economic ● Many workers in developing countries are
gains. underemployed, meaning they work fewer hours
than they would prefer or are engaged in jobs
POPULATION POLICIES AND THEIR IMPACTS that do not fully utilize their skills.
● Population policies refer to government 3. AGRICULTURAL DEPENDENCE:
measures aimed at managing population growth ● In developing countries, a significant portion of
to balance it with economic resources. There are employment is in the agricultural sector.
two main types: However, agricultural jobs are often low-paying
1. PRO-NATALIST policies: Encourage higher birth and highly seasonal, contributing to income
rates, often in countries facing aging populations instability.
(e.g., tax incentives for families). 4. URBAN-RURAL DIVIDE:
2. ANTI-NATALIST policies: Aim to reduce birth rates ● Labor markets are often geographically
through family planning programs, education, and segmented, with more formal job opportunities
healthcare (e.g., China’s former one-child policy). concentrated in urban areas, while rural areas
rely more heavily on agriculture and informal
In the Philippines, the Responsible Parenthood and labor.
Reproductive Health Act of 2012 (R.A. 10354) supports access 5. HIGH LABOR SUPPLY, LOW DEMAND:
to family planning services and maternal healthcare. This ● Developing countries often experience high
policy seeks to address high birth rates, improve family population growth, resulting in a large supply of
welfare, and foster sustainable economic growth by aligning labor that outpaces the demand for jobs. This
population growth with available resources. leads to unemployment and informal
employment.
Conclusion: The relationship between population growth In the Philippines, for instance, the government aims to
and economic development is complex. By understanding transition from low-productivity agriculture to
demographic transitions and implementing effective population higher-productivity sectors such as manufacturing and
policies, countries like the Philippines can manage population services, but barriers such as poor infrastructure, low
growth to enhance economic development. education levels, and regulatory issues persist.

LESSON 6 Economic Theory on Employment in Developing

EMPLOYMENT, UNEMPLOYMENT, AND INFORMAL Countries (Sicat and Balisacan):
SECTOR
DUALISTIC LABOR MARKETS
I. EMPLOYMENT AND LABOR MARKETS IN ● According to development economics,
DEVELOPING COUNTRIES developing countries often have a dual labor
● Labor markets in developing countries differ market structure: the formal sector with secure
significantly from those in more advanced employment and the informal sector with
economies due to various economic, structural, insecure, often lower-paid work.
and institutional factors. In developing countries LEWIS MODEL OF SURPLUS LABOR
like the Philippines, a large portion of the labor ● W. Arthur Lewis’s dual-sector model explains the
force works in informal, low-wage, or insecure movement of labor from the traditional, rural
employment. Labor markets are characterized (agricultural) sector to the modern, urban
by a mix of formal and informal employment (industrial) sector, driving economic
sectors, significant underemployment, and development. However, this shift is slow in many
limited job opportunities in high-value sectors. developing countries, leading to persistent rural
underemployment.
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II. CAUSES AND TYPES OF UNEMPLOYMENT III. ROLE OF THE INFORMAL SECTOR IN ECONOMIC
● Unemployment in developing countries is a DEVELOPMENT
critical issue that hinders economic development ● The informal sector plays a vital yet complex
and social progress. Gerardo Sicat and Arsenio role in the economies of developing countries.
Balisacan identify several factors that cause While it provides critical livelihood opportunities
unemployment, which vary in different contexts. for millions, it also presents challenges for
long-term economic development.
Causes of Unemployment:
1. STRUCTURAL UNEMPLOYMENT What is the Informal Sector?
● This occurs when the skills of workers do not ● The informal sector refers to economic activities
match the needs of the economy. In the that are not regulated by the government,
Philippines, for example, rapid technological including small-scale, unregistered businesses
changes/shifts in the structure of the economy and casual labor. Workers in this sector lack
(e.g., from agriculture to services) can leave formal contracts, social security, and labor
workers w/o the necessary skills, creating protections.
structural unemployment. Examples: Street vendors, domestic helpers,
Example: Workers in traditional agricultural sectors may small-scale farmers, and informal construction workers.
find it difficult to transition to the growing
service/manufacturing industries due to a lack of Why is the Informal Sector Prevalent in Developing
education/training. Countries?
1. HIGH BARRIERS TO ENTRY IN THE FORMAL
2. FRICTIONAL UNEMPLOYMENT ECONOMY:
● This is temporary unemployment that occurs ● Stringent regulations, high taxes, and costly
when workers are between jobs or are searching business registration processes push many
for new opportunities. It is often short-term and small entrepreneurs and workers into the
part of a healthy labor market. informal economy.
Example: Recent graduates looking for their first job or
workers who quit their jobs to seek better opportunities. 2. LACK OF JOB OPPORTUNITIES:
● In economies with limited formal job creation,
3. CYCLICAL UNEMPLOYMENT people turn to informal work to survive.
● This type of unemployment arises from
downturns in the business cycle. During 3. POPULATION GROWTH:
economic recessions, demand for goods & ● High population growth rates, particularly in
services declines, leading to reduced production urban areas, increase the supply of labor
and job losses. beyond what the formal sector can absorb.
Example: The COVID-19 pandemic caused a global
economic downturn, leading to high cyclical Positive Contributions of the Informal Sector:
unemployment in many countries, including the Phil., as 1. EMPLOYMENT CREATION:
businesses temporarily closed/reduced operations. ● The informal sector provides jobs for millions of
people who might otherwise be unemployed,
4. SEASONAL UNEMPLOYMENT offering a source of livelihood in areas where
● In economies with significant agricultural or formal employment is scarce.
tourism sectors, unemployment can rise and fall Example: In the Philippines, the informal sector
depending on the season. accounts for over a third of total employment, providing a
Example: In agricultural economies, workers may be critical safety net for low-income individuals.
employed during planting and harvest seasons but
unemployed in between. 2. FLEXIBILITY AND INNOVATION:
● The informal sector is often characterized by
5. INSTITUTIONAL UNEMPLOYMENT entrepreneurial activity. Small-scale enterprises
● This is caused by government policies or labor are nimble, adaptable, and able to respond
market institutions that inadvertently create . For quickly to changing market conditions.
example, high minimum wage laws, strict labor Example: Informal workers in urban centers may quickly
regulations, or poor enforcement of labor rights set up small businesses, such as food stalls or mobile
can deter businesses from hiring. phone repair services, to meet immediate consumer
needs.
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Challenges Posed by the Informal Sector:
1. LOW PRODUCTIVITY: LESSON 7
● Informal sector jobs are typically characterized Sustainable Development and the Environment
by low wages, low productivity, and little
opportunity for advancement. As a result, I. CONCEPT OF SUSTAINABLE DEVELOPMENT
informal workers remain trapped in poverty and ● Sustainable development refers to the pursuit of
cannot contribute significantly to economic economic growth and development while
growth. ensuring that resources are used in a way that
2. LACK OF SOCIAL PROTECTION: does not compromise the needs of future
● Workers in the informal sector often lack access generations. According to the Brundtland
to social security, healthcare, and pensions. This Commission (1987), sustainable development is
increases their vulnerability to economic shocks "development that meets the needs of the
and health crises. present without compromising the ability of
3. LIMITED TAX REVENUE: future generations to meet their own needs.”
● The informal economy does not contribute to the
tax base, limiting government revenue and the Key Principles of Sustainable Development:
ability to invest in public services, infrastructure, INTERGENERATIONAL EQUITY: Ensuring that
and poverty reduction programs. economic activities today do not deplete or degrade
resources for future generations.
FORMALIZATION OF THE INFORMAL SECTOR: INCLUSIVE GROWTH: Sustainable development
● Policymakers often advocate for the gradual emphasizes inclusive economic growth, ensuring that
formalization of the informal sector, encouraging benefits are shared across all sectors of society,
businesses to register and workers to join the particularly marginalized groups.
formal labor market. This involves simplifying BALANCING ECONOMIC, SOCIAL, AND
business regulations, reducing the cost of entry ENVIRONMENTAL GOALS: Sustainable development
into the formal economy, and improving access requires balancing the pursuit of economic growth with
to credit and business support services. the protection of the environment and the promotion of
● However, formalization must be done carefully to social equity.
avoid displacing informal workers who may not
have the capacity to comply with formal sector
In the context of the Philippines, the pursuit of sustainable
regulations. development is crucial given the country’s high dependence on
natural resources and vulnerability to environmental
ROLE OF GOVERNMENT POLICY: degradation. As Balisacan notes in his works, economic
● Governments can play a key role in enhancing development in the Philippines is intertwined with the need to
the contributions of the informal sector to manage its rich but finite natural resources sustainably.
economic development through policies that Over-exploitation of resources such as forests, fisheries, and
encourage the formalization of businesses, agricultural land can undermine long-term growth prospects
and deepen poverty.
protect workers’ rights, and provide social safety
nets.
● Programs such as microfinance, vocational Il. ENVIRONMENTAL DEGRADATION AND ITS
training, and entrepreneurship support can help ECONOMIC COSTS
informal workers transition to more stable, ● Environmental degradation refers to the
productive employment. deterioration of the environment through the
depletion of natural resources, pollution, habitat
Conclusion: The dynamics of employment, unemployment, destruction, and the loss of biodiversity. This
and the informal sector are central to understanding economic degradation has significant economic costs,
development in countries like the Philippines. Employment particularly in developing countries like the
creation and labor market development are crucial for Philippines, where livelihoods are often directly
economic growth and poverty reduction. However, the dependent on natural resources.
persistence of high unemployment and a large informal sector
pose significant challenges. Effective government policies and
economic reforms are needed to improve the formal job
market, reduce structural barriers to employment, and harness
the potential of the informal sector for sustainable
development.

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Key Forms of Environmental Degradation: Gerardo Sicat, in his work on economic policy, emphasizes
1. DEFORESTATION: that environmental degradation imposes not only direct costs in
● Large-scale deforestation, particularly in the terms of resource depletion but also opportunity costs in terms
upland areas of the Philippines, results in soil of lost economic potential. As resources become scarce, the
erosion, loss of biodiversity, and increased economy loses future revenue streams, and the burden of
vulnerability to floods and landslides. rehabilitating degraded ecosystems grows.
Deforestation not only impacts local ecosystems
but also contributes to climate change through Ill. POLICIES FOR SUSTAINABLE GROWTH: GREEN
the release of carbon dioxide. ECONOMY AND RENEWABLE ENERGY
Economic Impact: Deforestation reduces the ● To achieve sustainable development, countries
availability of forest resources such as timber and must adopt policies that promote long-term
non-timber products, negatively affecting industries economic growth while preserving
reliant on these resources and local communities that environmental integrity. The shift toward a green
depend on forests for livelihood. It also increases the economy and the promotion of renewable
costs of disaster response and rehabilitation due to energy are crucial components of these policies
floods and landslides.
GREEN ECONOMY:
2. WATER POLLUTION: ● A green economy is an economic system that
● Industrial activities, untreated wastewater, and aims to reduce environmental risks and
agricultural runoff pollute rivers, lakes, and ecological scarcities while improving human
coastal waters in the Philippines. This pollution well-being and social equity. It involves investing
harms marine life, reduces fish stocks, and in environmentally friendly technologies,
poses health risks to humans. industries, and infrastructure, and minimizing the
Economic Impact: Water pollution threatens the fishing ecological footprint of economic activities.
industry, which is a significant source of income for many
Filipinos. It also increases healthcare costs due to Key Components of a Green Economy
waterborne diseases and reduces the attractiveness of 1. ENERGY EFFICIENCY:
the country’s natural resources for tourism. ● Improving the efficiency of energy use in
industries, transportation, and households
3. AIR POLLUTION:
reduces overall energy consumption and lowers
● The rapid urbanization and industrialization in
greenhouse gas emissions.
the Philippines have led to increased air
pollution, particularly in metropolitan areas like 2. SUSTAINABLE AGRICULTURE:
Metro Manila. Pollution from vehicles, factories, ● Encouraging sustainable agricultural practices
and open burning contributes to respiratory that minimize the use of chemical inputs, protect
illnesses and environmental damage. biodiversity, and improve soil health.
Economic Impact: Air pollution leads to higher
healthcare costs, lost productivity due to illness, and 3. SUSTAINABLE:
reduced quality of life. It also affects agricultural ● Promoting sustainable urban planning and
productivity by harming crops and reducing soil fertility. development practices that reduce congestion,
lower pollution, and improve the quality of life in
4. CLIMATE CHANGE: cities.
● The Philippines is one of the most vulnerable
countries to climate change due to its location in In the context of the Philippines, transitioning to a green
the Pacific Typhoon Belt. Rising sea levels, economy involves significant investments in renewable energy,
more frequent and intense typhoons, and promoting sustainable farming practices, and improving urban
changing weather patterns threaten agriculture, infrastructure to support cleaner transportation and reduce
infrastructure, and coastal communities. pollution.
Economic Impact: Climate-related disasters impose
massive costs on the economy in terms of damaged RENEWABLE ENERGY:
infrastructure, displaced populations, and lost ● The use of renewable energy is essential for
agricultural output. Balisacan highlights that without reducing the country’s reliance on fossil fuels,
adequate adaptation strategies, climate change could which contribute to both environmental
reverse many of the developmental gains made in recent degradation and energy insecurity.
decades.
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 ● The Philippines has abundant renewable energy PUBLIC AWARENESS AND EDUCATION:
resources, particularly in geothermal, solar, ● Promoting sustainable development also
wind, and hydropower. requires raising public awareness of
environmental issues and encouraging the
1. GEOTHERMAL ENERGY: adoption of green practices at both the
● The Philippines is one of the largest producers household and community levels.
of geothermal energy in the world. This clean,
renewable energy source can reduce
Conclusion: Sustainable development, as outlined by
dependence on imported fossil fuels and cut Gerardo Sicat and Arsenio Balisacan, is a critical issue for the
carbon emissions. Philippines. The country’s economic growth cannot be
Economic Benefits: Investment in geothermal energy sustained without addressing the environmental costs of
reduces the cost of energy production in the long run, development. Through policies that promote a green economy,
creates jobs in the energy sector, and decreases energy investments in renewable energy, and efforts to combat
imports. environmental degradation, the Philippines can balance
economic growth with the protection of its natural resources,
2. SOLAR ENERGY: ensuring long-term prosperity for future generations.
● With its tropical climate, the Philippines has high
solar energy potential. Solar power is particularly
useful for off-grid rural areas where access to
electricity is limited.
Economic Benefits: Solar energy can provide low-cost
electricity to remote communities, improving their
productivity and quality of life. It also creates
opportunities for local businesses in the solar industry.

3. WIND ENERGY:
● The Philippines has several areas with strong
wind potential, such as Ilocos Norte, where wind
farms are already operational.
Economic Benefits: Wind energy reduces the country’s
carbon footprint and creates jobs in the installation,
maintenance, and operation of wind farms.

Challenges and Policy Recommendations (Balisacan

and Sicat):

FINANCING AND INVESTMENT:

● A key challenge in promoting renewable energy
and transitioning to a green economy is the
availability of financing. Government incentives,
such as tax breaks and subsidies for renewable
energy investments, are necessary to
encourage private sector participation.

REGULATORY FRAMEWORK:
● A strong regulatory framework is needed to
support the development of renewable energy
projects and ensure that they comply with
environmental standards. The Philippine
government’s Renewable Energy Act of 2008 is
a significant step in this direction, providing
incentives for the development of renewable
energy sources.

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