Chapter 19 economic development
- 1. CChhaapptteerr 1199 EEccoonnoommiicc DDeevveellooppmmeenntt
- 2. HHooww ttoo ccllaassssiiffyy eeccoonnoommiieess • The World Bank (an economic development institution affiliated with the UN) estimates gross national income (GNI) – GNI measures the market value of all goods and services produced by resources supplied by the countries’ residents and firms, regardless of the location of the resource. – It measures both the value of output produced and the income that output generates.
- 3. GGNNII ccoonnttiinnuuee • It measures income per capita, then adjusts figures across countries based on the purchasing power of that income in each country. • The World Bank then sorts into three major groups: – High-income economies • About one-sixth of the world’s population produces three-fourths of the world’s output – Middle-income economies • About 64% of the world’s population and account for about 25% of the world output – Low-income economies • About 20% of the world’s population and account for only 1% of the world output
- 4. GGNNII ccoonnttiinnuuee http://www.nationmaster.com/graph/eco_gro_ nat_inc-economy-gross-national-income
- 5. DDeevveellooppiinngg aanndd IInndduussttrriiaall EEccoonnoommiieess • Developing countries: the low- and middle-income economies – 50% of their labor force in agriculture • Industrial Economies: the high-income economies – 84% of the world’s population in 2007 but produce only 26% of the output
- 6. HHeeaalltthh aanndd NNuuttrriittiioonn • Malnutrition – In the poorest countries they consume only half the calories of those in high-income countries. – Contributes to more than half of the deaths of children under the age of 5 in low-income countries. – Safe drinking water is often hard to find; thus, causing many diseases
- 7. HHeeaalltthh aanndd NNuuttrriittiioonn • Infant Mortality – The rate is much greater in low-income countries than in high-income countries.
- 8. HHiigghh BBiirrtthh RRaatteess • Developing countries also have high birth rates • This year, more than the 80 million of the 90 million births will be added to developing countries. – WHY??
- 9. WWoommeenn iinn DDeevveellooppiinngg CCoouunnttrriieess • Poverty is greater among women than men, this is true for the world as a whole (on the average that is) • Women in developing countries tend to be less educated than men. – WHY???
- 10. WWhhyy aarree ppoooorr ccoouunnttrriieess ppoooorr?? • The simple answer: – They are poor because they produce few goods and services.
- 11. LLooww LLaabboorr PPrroodduuccttiivviittyy • Labor Productivity: output measured by worker • Labor Productivity tends to be low in developing countries. – WHY?? • Quality of the labor • Capital • Natural resources
- 12. WWhhaatt ttoo ddoo?? • Invest in Capital: – How? • Foreign Aid • Private Investment in Capital
- 13. TTeecchhnnoollooggyy aanndd EEdduuccaattiioonn • Education helps people make better use of the resources available. • It also makes people more receptive to new ideas and methods
- 14. IInneeffffiicciieenntt UUssee ooff LLaabboorr • Developing countries use labor less efficiently than do industrial nation. – Underemployment and Unemployment – Low productivity= Low Income= Less Saving= Less Investment in human and physical capital • Creating a “cycle of poverty”
- 15. NNaattuurraall RReessoouurrcceess • Many developing countries have little in natural resources. – The exceptions are the oil-rich countries
- 16. FFiinnaanncciiaall IInnssttiittuuttiioonnss • An important source of funds for investment is the savings of household and firms • In some developing countries, the people have little confidence in the country’s currency – Governments finance a large fraction of outlays by printing money • Hyperinflation – Zimbabwe
- 17. CCaappiittaall IInnffrraassttrruuccttuurree • Roads • Bridges • Airports • Harbors • Reliable Mail Service • Telephone Communication • Clean Water • Electricity
- 18. EEnnttrreepprreenneeuurriiaall AAbbiilliittyy • Entrepreneurs are needed to bring together resources and take the risk of profit or loss in order for development to get off the ground • Sometimes government officials create what they believe the free market can do – Favors for friends and relatives of the government
- 19. RRuulleess ooff tthhee GGaammee • Laws • Customs • Conventions • Property Rights
- 20. SSoocciiaall CCaappiittaall • Social capital consists of the shared values and trust that promote cooperation in the economy – Lower economies typically have poorly defined property rights, and less social capital – Bribery is often commonplace – Government corruption in everyday practice
- 21. Trade Problems for Developing Countries • What makes up exports for developing countries? – Agricultural goods and other raw materials (about half compared to about 20% from high-income countries) – Problem with this? • Fluctuates in prices= cut in imported capital items
- 22. MMiiggrraattiioonn aanndd tthhee BBrraaiinn DDrraaiinn • Migrants send money home to invest in their country – $238 billion in 2008 – Problems? • “Brain Drain” from their home country
- 23. Import Substitution Versus Export Promotion • An economy’s progress: – Agriculture to manufacturing to services • Import Substitution: a development strategy that emphasizes domestic manufacturing of products that had been imported – Tariffs and quotas
- 24. Import Substitution Versus Export Promotion • Why do this? – The “What to Produce” question is answered – To protect “Infant Industries” – Favored domestic industries • Problems? – Erases specialization and comparative advantage – Replace low-cost foreign goods with high-cost domestic goods – Often domestic production failed to be successful when shielded from foreign competition
- 25. Import Substitution Versus Export Promotion • Export promotion concentrates on producing for the export market. – The emphasis is on comparative advantage and trade expansion rather than on trade restriction. – The force is on producers becoming more efficient in order to compete in world markets
- 26. FFoorreeiiggnn AAiidd • Foreign aid is any international transfer made on concessional terms for the purposes of promoting economic development – Grants – Loans • Concessional Loan- low interest rates, longer repayment periods, or grace periods during which repayments are reduced or even waived • Bilateral: Country-to-Country aid • World Bank: multilateral infrastructure • IMF: multilateral balance of payments
- 27. Does Foreign Aid Promote Economic Development? http://www.youtube.com/watch?v=CNWzYy186W8 OR http://www.youtube.com/watch?v=8Y-E6sQ9DvI
- 28. Does Foreign Aid Promote Economic Development? • It does provide additional purchasing power, but it is unclear if it supplements domestic saving, thus increase investment!
- 29. TTrraannssiittiioonnaall EEccoonnoommiieess • Types of Economic Systems • Enterprises and Soft Budget Constraints – Soft budget constraint: the budget condition faced by socialist enterprises that are subsidized if they lose money • Inefficient uses of resources, non-responsive to demand and supply changes, changes in prices by central planners and not the market forces
- 30. Institutions aanndd EEccoonnoommiicc DDeevveellooppmmeenntt How do they work? http://www.youtube.com/watch?v=XxERamRMt24
- 31. TThhee BBiigg BBaanngg VVeerrssuuss GGrraadduuaalliissmm • Gradualism ( the bottom-up approach): an approach to moving gradually from a centrally planned to a market economy by establishing markets at the most decentralized level first, such as on a small farms or in light industry – China • Big Bang Theory: the argument that the transition from a centrally planned to a market economy should be broad and swift, taking place in a matter of months
- 32. PPrriivvaattiizzaattiioonn • Privatization is the process of turning public enterprise into private enterprises. – Cannot be accomplished overnight
Editor's Notes
- #31: Youtube video of Hernando De Soto “The Power of the Poor”