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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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Causing them to experience an ever-decreasing share of world output and resources,
without access to imported goods it is likely that economic development is going to
be stifled
...

In the case of many primary products, slow growth in demand over decades (due to
low YEDs) has been accompanied by large increases in supply resulting from
technological progress, further depressing prices
...


Trade Strategies
Trade as a method for economic growth and development
1
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With protective
measures (tariffs, quotas, etc
...

Advantages:
- Independence seen as an opportunity to modernize
- Historical evidence of developed nations doing this successfully
- Issues with exports
o Dependence of exports that leads to an eventual decrease in the terms of
trade
- Avoiding balance of payments problems
o Decline in the use of foreign reserves to buy imports
- Protection of infant industries
Consequences:
- High levels of protectionism can lead to domestic inefficiency and resource
misallocation
- Overvalued exchange rate
o Fixing exchange rates too high in order to make imports of the factors of
production cheaper

-

o Lead to unemployment as labour was replaced by cheaper technology
o Made exports more expensive, leading to agricultural poverty
Too much government intervention in the economy
o Created inefficiencies
Neglect of agriculture
o Increased need for food imports
Balance of payments of deficit
o High levels of imports for food and factor inputs
Unemployment and unequal income distribution
Limited possibilities for long term growth
Increased risk of corruption
o Due to government involvement

2
...
Often the result of import
substitution policies which subsidized/protected/supported industries, allowing them to
expand production greatly and thus export greater quantities
...
The Asian Tigers – Singapore, South Korea, Malaysia, China, Hong Kong, Indonesia
Use of policies such as:
- State ownership/control over financial institutions
- Targeting industries for exports with industrial policies
- Protection of domestic industries
- Requirements of multinationals
o Maximise benefits of FDI eg
...

- Public investment in key areas
- Incentives for private sector to undertake R&D in highly technological areas
Factors for success over import substitution:
- Expansion in foreign markets
- Benefits of diversification
- Major investments in human capital
- Appropriate technologies
- Increased employment
- Export earnings avoids BoP deficit
3
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The Washington Consensus:

The trade liberalisation agreement made between the World Bank, the International
Monetary Fund, the United States Congress, and a number of US agencies (all of which are
based in Washington, DC)
...

Most of these measures involved freeing up markets and cutting back on the role of
government
...

à Links to the principle of neo-classical economics (no govt
...

- When new export markets are opened up, those who find employment in the
production of export goods will be better off;
o people who find jobs in a growing formal sector (if it is growing) will also gain;
o people with some education and skills may also gain as they are better able
to exploit new opportunities in the more competitive environment made
possible by liberalisation
...
They include:
o Less educated or illiterate people
§ unable to compete in the new environment
o Poor people
§ lack collateral
§ cannot get credit to open or expand a business to take advantage of
new opportunities
o People who live in remote geographical areas
§ no transport links to markets
o People who have nothing to export

-

§ no possibilities of producing for export
o People in agriculture who switch to producing commodities for export
§ making themselves more vulnerable to wide fluctuations (volatility) in
cashcrop prices
o People who lose their jobs as public employees due to cutbacks in the size of
the public sector
§ In Zimbabwe, people in this category are referred to as the ‘new
poor’)
o People who may become unemployed due to privatisation of public
enterprises
§ they fire workers to lower costs
o People affected by cuts in government spending on merit goods
People affected by lower levels of social protection
o caused by supply-side policies (such as lower minimum wages, lower
protection against being fired, etc
...
The role of the WTO 

The World Trade Organization
Potential Benefits:
1
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’
a
...

b
...

2
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Agreements are ratified by governments,
b
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WTO lowers trade barriers which results in lower prices and costs of living
4
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Broader range of qualities to choose from
b
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Higher incomes
6
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This may mean more employment (though some jobs are lost)
...
More efficient
a
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Countries to specialise and use resources more efficiently
...
Governments can view trade policy in a more balanced way
a
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Better represent the broader interest
...
Whereas trade protection may provide opportunities for corruption and bad
governance
d
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Issues: (Uruguay Rounds 1994)
- Developed countries receive greater tariff reductions than developing ones
o Developed: average of 45% cuts
o Developing: average 20-25%
o Developing countries receive tariffs 10% higher than world average
o Least developed countries receive tariffs 30% higher
- Tariffs on textiles are greater in developing countries
o Uraguay rounds agre

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