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EC207 Midterm: Midterm Review Notes

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Shadab Qaiser
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Midterm Review Notes
Chapter 1: Introducing Economic Development
What is Development?
A process of gradual advancement
A process of Growth through a series of progressive changes
A plan or method
A gradual unfolding process by which any thing is developed
An act of improving by expanding or enlarging or refining
A process in which something passes by degrees to a advanced stage
What is Economics?
It is the study of how an economy allocates its scarce resources: Economics is
the science of Choice.
When you use economic principles to study this process of gradual
advancement in a developing country, you are studying Economic
The most difficult discipline in Economics to teach and practice
What is Development Economics?
It is a field of study devoted to understanding economic experience of
developing countries
A developing country contains:
o Low standard of living, low per capita income, low level of health and
nutrition, low level of education, poverty, income inequality, loss of
freedom and social injustice.
Economic Development: bringing change to the lives of the people from low
levels to high levels of development.
Development Economics analyzes the Economic structures and formation of
developing countries.
Development occurs with the reduction and elimination of poverty,
inequality and unemployment within a growing economy
Developing Countries
Developing Countries: Relatively low income countries with low levels of
standard of living on Average: Most of the Countries in Sub-Saharan Africa
Central and South Asia and Latin America
Common Characteristics: Low income, Low standard of living, High income
inequality, High Poverty rates, poor health conditions, Inadequate education,
low productivity, high population and dependency rates, high dependence on
agriculture and, imperfect financial markets, low level of trade
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Issues of Poverty
Poverty: Lack of income, lack of shelter, lack of representation, lack of
freedom, hunger
Income poverty: when you do not have enough to feed yourself
Asset Poverty: When you do not have access to education, health,
History of Development Economics
Development economics arose as a response to the Traditional Neoclassical
Traditional Neoclassical failed to address challenges faced by development:
Static issues of market efficiency
Greater scope than traditional Neoclassical economics and political economy:
it must also deal with the economic, social, political and institutional
Dynamic Imperfect markets: varying economic and social conditions
Difference between Economic Growth and Economic Development
Economic growth is the increase in the value of goods and services produced
in the country or it is the growth (increase) of gross domestic product (GDP)
per capita. It is a short run and narrower concept than economic
Economic Development is a long run and broader concept with increase in
per capita being only one dimension. Education, health care and employment
and other aspects of human welfare are also focus of concern
o If you increase your income but do not raise life expectancy, reduce
infant mortality, improving literacy rates you are missing economic
Economic Development is a multidimensional task and economic growth is
its one dimension
Development can be a change in technology, a change in institutions, or a
change in cultural /social framework
Economic Development is more concerned with ensuring that every one has
the same chance
Development is a long, purposeful and permanent process
Mission of Development Economics
The Mission of Development Economics is to create an environment for
people of the developing nations to enjoy long, healthy and creative life
More specifically the mission of development economics is to:
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Diagnose: What causes poverty/ inequality in developing countries?
Defining a treatment strategy: how to create  pro-poor growth in
developing countries
Development Economics deals with efficient allocation of resources,
sustained economic growth, it combines social, political, institutional
mechanism to bring large scale changes
Development economist can be viewed as doctors to fight against a
widespread disease: underdevelopment
Traditional Measure of Economic Development
The traditional measure of development is per capita income as a measure of
economic development
Traditionally, using Gross Domestic Product (GDP) per capita or Gross
National Income (GNI) per capita as a measure
GDP (Gross Domestic Product): the sum of all income earned by the factors of
production located in a given country
o Its is based on the market value of goods and services
o It is used a rule of thumb and regarded as the most immediate
indicator of economic development
Problems with Tradition measures of economic development:
o It is difficult to determine the Market Value of goods and services in
developing countries
o Health and life expectancy, & depreciation are not included
o In developing countries markets are not well developed
o Problems of underreporting and low quality data
o Black Markets and illegal transactions
o It does not take into account leisure, freedom or social justice
o Leads to short term policies
New View of Development Economics 97’s
Traditional view of increasing per capita income led to wide spread poverty,
and income inequality and unemployment especially in Africa
Introducing Multidimensional approach to development: not only income but
also health, education
Development Economists focused on defining development as the reduction
and elimination of poverty and inequality
Emphasis on equal opportunities and avoidance of absolute deprivation
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