ECONOMIC DEVELOPMENT C-AE12
BSA2A | 2ND SEMESTER (PRELIMS) | A.Y. 2024-2025
○ Part of this investment has come from Chinese companies
MODULE 1: INTRODUCTION TO ECONOMIC DEVELOPMENT
who have a vested interest in transporting raw materials
● According to Todaro and Smith (2015), Economic Development
from Africa to China
can be defined as process of a goal leading to a life of dignity for
people in relationship to the overall context of their community
and the environment that sustains them as a means of poverty 2. EDUCATION
alleviation ● Has significant influence on labour productivity
● One of the most striking characteristics of the world economy in ● Without basic literacy and numeracy, it is difficult for an economy
recent decades has been the growing inequality in the to develop from manual labour to new higher tech industries in
distribution of resources between different parts of the world the service sector
○ China experienced economic growth at an unprecedented ○ Example: good levels of education in India have given
rate opportunities for growth in service industries, such as IT and
○ India also made substantial progress call centers
○ Countries in Sub-Saharan Africa have stagnated
● By studying development economics, you will have the 3. LEVELS OF INWARD INVESTMENT
opportunity to apply the tools of economic analysis to the ● Developing countries that can attract inward investment can see
problems and challenges facing less-developed countries, and to significant growth in development due to higher levels of capital
begin to understand why some countries have been able to go and benefits of attracting multinational companies into their
through a process of economic and human development whilst economy
others have languished ○ For newly industrialised countries (NICs), inward investment
has played a significant role in increasing economic
FACTORS OF ECONOMIC DEVELOPMENT development
● Economic development implies an improvement in economic
welfare through higher real incomes and other welfare indices 4. LEVELS OF SAVINGS/CAPITAL
such as improved literacy, better infrastructure, reduced poverty ● In growth models, levels of savings and capital are seen as a key
and better health care factor in determining economic growth
○ 2 types of incomes: Nominal income & Real income ● Higher savings enables a virtuous circle of increased investment,
■ Nominal income: numerical higher growth, and therefore, higher savings
■ Real income: adjusted, purchasing power
● It requires a degree of political stability, investment and mixture 5. POLITICAL STABILITY (LAW AND ORDER)
of public and private initiatives to increase economic potential
● Political stability and the protection of private property was
ranked as the most important factors for encouraging firms to
invest in developing economies
● Any sign of instability increases the economic and personal risk
of investing in developing countries
● The biggest block to development is prolonged civil
unrest/military conflict as this causes investment to dry up and
resources to be wasted in unproductive means
MAIN FACTORS AFFECTING ECONOMIC DEVELOPMENT
1. Levels of Infrastructure 6. MACROECONOMIC STABILITY
2. Education ● Encourages investment and development
3. Levels of inward investment ● This involves low rates of inflation and exchange rate stability
4. Levels of savings/capital ● Rapid devaluation can cause capital flight and a decline in growth
5. Political stability (Law and order)
6. Macroeconomic stability
7. FOREIGN AID
7. Foreign aid
● Targeted aid, can help improve infrastructure and living
8. Regional effects
standards
9. Natural resources
● Can be important for developing economies with low levels of
savings and capital investment
1. LEVELS OF INFRASTRUCTURE ● Aid depends on how it is used – whether it is tied to trade deals
● Example: transport and communication or used to overcome market failure in areas such as education
● Economic development in Central Africa has been improved due and health care
to increased investment in roads, railways and seaports
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ECONOMIC DEVELOPMENT C-AE12
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○ There is also some criticism of foreign aid that it can
● Indicates the expansion of ● A broader concept then
influence incentives the Gross Domestic the Economic Growth. It
● Lots of foreign aids are intercepted by the government (sila lang Product (GDP) of the refers to the increase of
nakikinabang) country and the concept of the Real National Income
Economic Growth is of the economic and
basically related to the socio-economic structure
8. REGIONAL EFFECTS
developed countries of any country over a long
● Economic development is strongly influenced by the period of time. Economic
development of an economies neighbours Development is related to
● Example, south east Asia showed strong levels of economic underdeveloped or
growth and development but Sub-Saharan African countries developing countries of
experienced very slow growth. the world
○ This is partly due to the gravity effect – the theory that trade
● An automatic process ● Outcome of planned and
is most profitable and efficient with near neighbours result-oriented activities
■ If a neighbour does well, there tends to be spill over
effects, such as increased trade and increased ● Can be measured through ● Can be measured through
investment an increase in the GDP, per Improvement in the life
capita income (per person), expectancy rate, infant
etc. mortality rate, literacy rate,
9. NATURAL RESOURCES and poverty rates
● Ceteris paribus countries with higher levels of natural resources
can use this for economic development ● Refers to the rise in the
● For example, the revenues gained from oil have enabled the Gulf value of all the products
produced in the economy.
states to develop rapidly gaining high levels of real GDP
It indicated the yearly
○ For African and Asian countries, raw materials are an increase in the country’s
important source of revenue and export earnings which GDP or GNP, in percentage
enables higher development terms
● Economic growth is the
DIFFERENTIATING ECONOMIC GROWTH FROM ECONOMIC
subset of economic
DEVELOPMENT
development
ECONOMIC GROWTH ECONOMIC DEVELOPMENT
● Economic growth is
necessary but not enough
● Increase in the real output ● Increase in the level of to achieve economic
of the country in a production in an economy development
particular span of time along enrichment of living
standards and the
advancement of CONCEPTS IN ECONOMIC DEVELOPMENT
technology
● Development must be conceived of as a multi-dimensional
● Does not consider the ● Takes consideration of all process involving major changes in social structures, popular
income from the Informal activities, whether formal attitudes and national institutions, as well as the acceleration of
Economy | the informal or informal and eases economic growth, the reduction of inequality and the eradication
economy is an unrecorded people with low standards of absolute poverty
economic activity (hindi of living a suitable shelter ● Development, in its essence, must represent the whole gamut of
nalilista) and with proper change by which an entire social system, tuned to the diverse
employment
basic needs and desires of individuals and social groups within
that system, moves away from a condition of life widely perceived
● Does not reflect the ● Concerned with as unsatisfactory, toward a situation or condition of life as
depletion of natural Sustainability, which materially and spiritually “better”
resources such as means meeting the needs
pollution, congestion & of the present without
THREE (3) CORE VALUES OF ECONOMIC DEVELOPMENT
disease | Governments are compromising
under pressure due to ● According to Prof. Goulet, at least three basic components as core
environmental issues, values should serve as a conceptual basis and practical guidelines
majorly the problem is due for understanding the “inner” meaning of development
to Global warming ● These core values – sustenance, self-esteem, and freedom –
represent common goals sought by all individuals and societies
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ECONOMIC DEVELOPMENT C-AE12
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○ They relate to fundamental human needs that find their ■ Hence, the understanding of what people can actually
expression in almost all societies and cultures at all times do is imperative for Sen’s capability approach
● This approach, therefore, cannot offer explanations but focuses
SUSTENANCE on normative concepts
● The life-sustaining basic human needs include food, shelter, ● The capability approach does not try to explain what poverty is,
health and protection but is more concerned with the conceptualization of this social
○ When any one of these is absent or in critically short phenomenon
supply, a condition of absolute “underdevelopment” exists ● From Sen’s perspective, it is wrong to interpret one’s well-being
based just on his or her material possessions or riches because it
offers an improper theoretical focus
SELF-ESTEEM
● A second universal component of good life
FOUR (4) KEY ELEMENTS FOR EVALUATING THE WELL-BEING OF A
○ Self-esteem is a sense of worth and self-respect of not being
PERSON
used as a tool by others for their own ends
● Difference in Abilities
● Due to the significance attached to material values in developed
● Adaptive Preferences
nations, worthiness and esteem are now-a-days increasingly
● Achievement and Effective Freedom
conferred only on countries that possess economic wealth and
● Reflecting Complexity
technological power- those that have developed
💙 Now-a-days the Third World seeks development in order to gain 1. DIFFERENCE IN ABILITIES
● In Sen’s theory, people massively vary in their abilities to
the esteem which is denied to societies living in a state of
transform the same resource into any type of valuable functioning
💙
disgraceful “underdevelopment.”
Development is legitimized as a goal because it is an important, ○ How to transform resources to make them valuable
perhaps even an indispensable, way of gaining esteem ● From this perspective, any theory that directs its focus only
towards means is a phallic one, because it does not consider
what people are actually doing with those resources
FREEDOM FROM SERVITUDE
● Arthur Lewis stressed the relationship between economic
growth and freedom from servitude when he concluded that 2. ADAPTIVE PREFERENCES
“the advantage of economic growth is not that wealth increases ● The capability approach addresses one specific problem, and that
happiness, but that it increases the range of human choice.” is the situation where people accept the fact that they will never
● Wealth can enable a person to gain greater control over nature achieve something they want in life
and his physical environment than they would have if they ● If the conditions in which the people are living in seem too harsh,
remained poor people adapt their preferences and eventually stop desiring
○ It also gives them the freedom to choose greater leisure. things that are out of their reach
The concept of human freedom should encompass various
components of political freedom, freedom of expression, 3. ACHIEVEMENT AND EFFECTIVE FREEDOM
political participation and equality of opportunity ● It is vital for people to have important options, even if they do
not decide to use them
AMARTYA SEN’S CAPABILITY APPROACH ● The capability approach is very assertive when it comes to
● The capability theory in economics states that personal differentiating the actual achievements of people and the
well-being is the most important factor in life effective freedom they achieve
● This approach is a normative economic theory that emphasizes ● Real achievements are called functionings, while effective
the concept of well-being as the most important moral factor of freedom is labeled as capability
human life
○ This approach was first explained by an Indian economist 4. REFLECTING COMPLEXITY
Amartya Sen ● The capability theory views reality as a very complex scientific
● The capability approach has been used by scientists to derive entity
several more normative theories, the theory of social justice, and ● Therefore, it demands that no factors that make up a human life
the ethics of development should be avoided
● Two central normative demands: ● This normative approach needs to be observant of all living
○ Firstly, the achievement of well-being is the fundamental conditions in order to evaluate the well-being of people
freedom every person strives for
○ Secondly, well-being must be interpreted within a person’s
real capabilities and opportunities
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ECONOMIC DEVELOPMENT C-AE12
BSA2A | 2ND SEMESTER (PRELIMS) | A.Y. 2024-2025
DEVELOPMENT AND HAPPINESS
● The World Happiness Report (WHR) is a landmark survey of the
state of global happiness that ranks 156 countries by how happy
their citizens perceive themselves to be
● The World Happiness Report 2020 for the first time ranks cities
around the world by their subjective well-being and digs more
deeply into how the social, urban and natural environments
combine to affect our happiness
● The WHR states that global happiness is in decline, despite 3. NORWAY
continued economic growth ● A lowly third for Norway – one down on last year and two down
● This year’s ranking focuses on happiness and the community – from 2017 when it reined in the happiness stakes
how happiness has evolved over the past 12 years with a focus on ● Still, it’s consistently described as Europe’s most beautiful
the technologies, social norms, conflicts and government country that benefits from little to no corruption, phenomenal
policies that have driven those changes social support and freedom and a regular top spot in the world’s
○ Special chapters focus on generosity and prosocial prosperity indexes
behaviour, the effects of happiness on voting behavior, big
data, and the happiness effects of internet use and
addictions
TOP TEN (10) HAPPIEST COUNTRIES IN THE WORLD
1. FINLAND
● Finland’s balance of beauty and generosity has helped it retain its
place as the happiest country 4. ICELAND
● Holding off the competition to retain the top spot, Finland is still ● Iceland mixes magical landscapes with a forward-thinking
the envy of the happiness seeking world – its 5.5 million residents approach to life
topping several of the ranking categories ● By far the world’s most equality-driven country, tiny Iceland’s
● In particular the generosity of its people with little to no isolation has been a boon rather than a burden to its equally tiny
corruption and phenomenal GDP, married to the extraordinary population
freedom offered by its landscapes and social structure make it the ● Low taxes, free health care, great and accessible education (one
place to live in ten Icelanders have published a book) and a landscape that
makes you feel like you’re wandering through Middle Earth
● In 2018 it became the first country in the world to enforce equal
pay for women and men
2. DENMARK
● Historic, modern and cool - capital Copenhagen perfectly sums
5. NETHERLANDS
up the Danish approach to life
● Danish lifestyle trend has caught fire around the world and seen ● Amsterdam’s beauty and diversity makes Holland’s capital one of
the diminutive Danes claw back a place towards the top in 2019 the most visited cities
(they were ranked one in 2016) ● Famously relaxed and welcoming, their particular brand of
● Benefiting from excellent life expectancy and one of the smallest lifestyle has propelled to the fifth happiest country on Earth
wealth gaps in the world, it’s got to have its eye on the top spot ● Pace of life and freedom are particularly strong points that put a
for 2020 smile on many residents’ faces
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9. CANADA
● Canada’s wide open spaces and relaxed approach to life keeps its
citizens happy
● Dropping two places from seventh spot last year, the world’s
second biggest country still ranks high across pretty much every
category with great life expectancy married to a still small
population with more than enough room to spread out and find
6. SWITZERLAND their own corner of paradise
● Tax breaks and a thriving economy make living in Lucerne,
Switzerland an easy decision
● Dropping another spot, neutral but stunning Switzerland sat atop
this list in 2015 but has slowly slipped downwards
● Still, it’s not all bad thanks to the thriving economy, amazing life
expectancy and the kind of tax breaks that attract the wealthy
and healthy from around the world
10. AUSTRIA
● Austria’s stunning landscapes are enough to put a smile on
anyone’s face
● Forcing its almost-namesake Australia out of the top ten, Austria
scored particularly highly in social support and its citizens’
freedom and was no doubt helped by its capital Vienna – now
widely regarded to be the world’s most liveable city according to
7. SWEDEN the Global Liveability Index (coincidentally also forcing out
● Sweden’s high life expectancy has helped it climb two places up another Australian asset, Melbourne)
the top ten
● Essentially swapping places with Canada since last year, Sweden
has once again benefitted from excellent social support and a
high life expectancy
8. NEW ZEALAND
● New Zealand is one of only two countries outside Europe to
make the top ten
● Holding steady once again in eighth spot, far flung New Zealand
remains a relaxed, welcoming wonderland that loses none of its
appeal, whether you’re on vacation or based there permanently
● It’s also only the second and highest ranked country in the top
ten outside Europe
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