Development economics ppt slides

economic development models ppt and development economics lecture notes ppt
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Published Date:26-07-2017
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Introduction to development economics By Finn TarpReadings • Obligatory: M.P. Todaro and S.C. Smith, 2011. “Economic Development”, Addison- Wesley, 11th edition, Chapter 1 • Optional: M.P. Todaro and S.C. Smith, 2011. “Economic Development”, Addison- Wesley, 11th edition, Chapter 2 BackgroundWhat is development economics? 1. The use of economic analysis to a. Understand economic and social phenomena in poor countries b. Provide some guidance about what to do from the point of view of policy 2. A mix of theory and empirical work a. It can be difficult to separate out positive and normative aspects b. Association versus causality and descriptive work 3. Different kinds of ”economics” a. Mainstream economics – efficient allocation of resources (static and dynamic) – institutional context given b. Political economy – social and insitutional processes which affect allocative processes (power) c. Development economics – includes economic, social, political and institutional mechanisms which lead to or inhibit economic transformation and developmentWhy study development economics? 1. Moral and ethical reasons – Poverty and inequality is unfair – Development is a human right 2. Our own welfare – Global interactions (war, environment, migration) – Trade and investment 3. Private interests – Job prospects – You want to get the Nobel prize? 4. Intellectual curiosity – What causes poverty and inequality – Why do some countries grow and others don’t? – What can be done about it?Who? • One must denounce the existence of economic, financial, and social mechanisms which, although they are manipulated by people, often function almost automatically, thus accentuating the situation of wealth for some and poverty for the rest. These mechanisms, which are maneuvered directly or indirectly by the more developed countries, by their very functioning, favor the interests of the people manipulating them. But in the end they suffocate or condition the economies of the less developed countries.Shares of Global Income, 2005World Bank Classification The World Bank classifies countries in 3 groups according to their income level or GDP per capita (2011) • Low income: 1,025 or less • Lower middle income: 1,026 - 4,035 • Upper middle income: 4,036 - 12,475 • High income: 12,476 or moreSome Basic IndicatorsRegional Poverty Incidence, 2004Life expectancy and income level (Source: rate and income level (Source: and happiness: comparing countriesWhat development is not – and what it is? More trade and investment  Growth Development Industrialisation   Economic independence Then what is development? A multidimensional process of growth and structural change where per capita incomes increase over a longer period, and where normative goals are achieved - conditions of life are changing…. (ex. Sen’s capabilities, plus changes in institutional, social and administrative systems)Theoretical heritage and drivers of developmentThe theoretical heritage A. Smith T. Malthus (1776) (1798) K. Marx D. Ricardo (1848) (ca. 1820) J.S. Mill (1848) J. Schumpeter J.M. Keynes (1911/ 1934) A. Marshall (1936) (1890) Radical political economy Neoclassical economics Macroeconomics, development economics 16 etc.The classical version of the stationary state Subsist. wage TP’ TP E p  2 Classics p  1 Basic assumptions (falling MP of w labour, tendency of population) 2 w 1  Investment, wage increases, population growth L L L 1 2 E Labour Stationary state Technology pessimism Total productionWhat drives development? • Physiocrats: only agriculture • Mercantilists: gold • Ricardo/Mathus:the stationary state … • Adam Smith: savings, market expansion, specialization … statonary state awaits • Marx: capitalist accumulation drives technological progress and the falling rate of profits provokes revolution • Schumpeter: the entrepreneur creates technological progress • Keynes: macro demand, role of governmentWhy are some countries poor? (1) • Proximate cause: They produce less • Consider a production function: Y = F(A, K, H, L) where: – A=technology – K=physical capital – H=human capital – L=labour • Developing countries have relatively less A, K, and H; they have relatively more L, but it is unproductiveWhy are some countries poor? (2) • Long run cause: Failure to accumulate: – Technology, – Physical capital, and – Human capital • Note the commonalities: – Long run, cumulative processes – Public and private roles – Forward looking (sacrifice today to make gains tomorrow) – High costs to disruption

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