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Development Economics
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- The most important sources of economic growth in economically less developed
countries include increases in quantities of physical capital and human capital, the
development and use of new technologies that are appropriate to the conditions of
the economically less developed countries, and institutional changes
...


- In the short term, some limited economic development is possible in the absence of
economic growth
...

Economically Less Developed Countries (ELDCs)
- Share certain common characteristics:
o low levels of GDP per capita
o high levels of poverty
o relatively large agricultural sectors
o large urban informal sectors
o high birth rates
...
4%
81% agriculture
6% industry
13% services
46
...
6% agriculture
5
...
7% services
35
...
5%
38
...
7 years

6%
37
...
7 years

Economically less developed countries differ enormously from each other in terms of a
variety of factors, including resource endowments, climate, history (colonial or otherwise),
political systems and degree of political stability
...


Arable Land
Geographic position
Natural resources

-

Mozambique – ex
Portuguese colony
6
...
5%
Land locked
natural gas, petroleum,
coal, copper, chromite, talc,
barites, sulfur, lead, zinc,
iron ore, salt, precious and
semiprecious stones

In some countries, there may be people trapped in a cycle that prevents them from
escaping poverty
...


Millennium Development Goals (updated)

4
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GDP per capita is a better indicator of the level of output per person produced in a
country

GDP per capita figures at purchasing power parity (PPP) exchange rates
- It is difficult to compare GDP per capita figures between countries because different
countries have different price levels
...

- It is defined as the amount of a country’s currency that is needed to buy the same
quantity of local goods and services that can be bought with US$1 in the United
States
...


GDP per capita
GNI per capita
GDP per capita at PPP
exchange rates
Literacy rate
Life expectancy
Health expenditure as % of
GDP

EDC: Sweden
54,010
50,000
51,300

LEDC: Haiti
729
...
60
1,654

99%
82
...
9%

60
...
2 years
7
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Whereas in Sweden there
are higher price levels than the US, hence why the GDP per capita at PPP is lower than GDP
per capita
...
Low GDP per capita, lower literacy rates and lower life expectancy
...

Composite Indicators
- Economic indicators that include more than one dimension of development
...

- Eg
...
The composite index is the average of the three
...
HDI ranks and

Singapore
Sweden
Haiti
Mozambique

Rank 5
Rank 14
Rank 163
Rank 181

HDI
0
...
913
0
...
418

GNI per capita at PPP
Rank 7
85,190
Rank 26
50,030
Rank 200
1,800
Rank 210
1,190

4
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Education and health 

Education and Health Care are considered basic human rights, something all are entitled to
have access to, according to the UN Universal Declaration of Human Rights 1948
...
They are
merit goods and have a number of positive externalities
...
As well as reducing
unemployment
...

- Increase in capital/technology requires workers to be trained in specific skills to use
them
...
Though
this is expensive and requires giving up spending on other areas
...

- Improvements in primary health care significantly improves living standards
...

- Less work days can be lost due to illness
...
Kenya
- Losing US$750,000 annually as a result of girls leaving school without completion
...

- World Bank has recognised that there is no investment more effect for achieving
development goals than educating girls
...
7% of government expenditure is for health care
- 64 years life expectancy
- 1
...
The empowerment of women 

- Education reduces the rate of violence against women and encourages them to
reject adverse cultural practises
...

Improves children’s educational attainment
...

Lower birth rates, slower population growth
...

UN Aims for women: higher incomes, better access to and control over resources
and greater security (protection from violence)

3
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Eg
...
7 billion was given to Kenya from international community for infrastructure
development; in order to strengthen democratic institution, incur economic growth, for
peace and security
- US gave $5 million for health care; to reduce child deaths
4
...

- First introduced in Bangladesh by a professor who started Grameen Bank, with the
aim of reducing poverty by providing small loans to the countries poor
...
5 million active borrowers, at an average loan of
$114
...

Types of microcredit businesses
1
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Not-for-profit
3
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2
...

4
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Poverty reduction
Funding essential spending
Protection against income volatility
Sustainable finance without the need for collateral
Gender empowerment

Negatives:
- Debt (multiple loans, higher interest rates)
- Savings are needed to generate long run development (generated by productivity)
- Direct funding of skills training may be more beneficial
- Risks: climate shocks, natural disasters; interest still needs to be paid
- Investment: credit is often used to fund consumption instead, microfinance cannot
compensate for inadequate health care/ education/ infrastructure in promoting
sustainable development and poverty reduction
Eg
...
5 billion
- 50,000 loans per day
- 7
...

Remittance Management: managing remittance payments from one country to another
(including transfer payments)
Micro-insurance: a safety net to prevent people from falling back into extreme poverty
Micro-savings: voluntary local savings clubs provided by charities (eg
...
Income distribution 

If a county experiences economic growth it only constitutes economic development if the
national income is being distributed
...
Or it could be better paying jobs and distributing the share of increasing national
income
...

Factors such as Gini Coefficient and the Lorenz Curve can be used to determine this
...
Kenya
- Increasing GDP/GNI/GDP per capita
- Gross enrolment has decreased since 2011

4
...

1
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As a country develops the proportion of GDP that agriculture
contributes shrinks, being replaced by industrial/manufacturing output then by services
...

Risks of dependence on commodity exports
- Value added
o At each stage in the production chain, there is value added to the good,
meaning it increases in price
...
Cocoa beans à cleaned, roasted, shelled à cocoa liquor à cocoa butter
à chocolate (vertical diversification, which is relatively easy for a country to
achieve compared to other forms of diversification)
o At the agricultural level, the product is worth the least, hence as a country
expands into manufacturing it’s potential revenue rises
...

o Moreover, it adds employment opportunities as new firms are introduced
...


Agriculture as % of GDP
Industry as % of GDP
Services as % of GDP

EDC - Singapore
0%
26%
74%

ELDC - Haiti
38
...
5%
50
...
Price volatility of primary products 

Primary products have low PED and PES, meaning the prices of these products fluctuate
greatly, they are highly volatile
...

Moreover, if the good is exported, it can lead to a volatile balance of payments, impacting
the government’s ability to plan for development and make investments
...


3
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- Low income countries face on average higher tariffs imposed by developed
countries
...

o Hence why membership to the WTO can be particularly beneficial to
developing nations
- Developed nations prevent ELDCs from vertical diversification
o Vertical diversification is a great way for developing countries to expand their
economy from one that is over-specialized agriculturally based to one
predominantly based on manufacturing
...

o Low tariffs are imposed on raw materials (so domestic producers can have
access to cheap raw materials, particularly those that aren’t available locally)
and high tariffs are imposed on manufactured goods (to protect domestic
manufacturers and discourage competition)
...

- Developing countries impose high barriers to trade on each other
o Often the highest in the world, particularly in Sub-Saharan Africa and South
Asia
...

o E
...

o It also subsidizes production of certain goods as well
...

§ It leads to global inefficiency as developed nations produce goods at a
far higher cost than developing nations, yet due to subsidies and
protectionism they are able to operate
...

- Because of these reasons developing nations suffer reduced export incomes which
can lead to government debt and balance of payment deficit
...

In the early 2000s, developed countries were spending just over $1 billion a year on aid to
developing country agriculture, and they were also spending just under $1 billion a day in
supporting their own farmers

4
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ELDCs often gain most of their export revenue from commodities
...

Thus the terms of trade of developing countries

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